30-05-04

Rising oil prices are increasing the cost of asphalt and tires. The price of a barrel of oil has increased from $ 33.71 on Jan. 5 to $ 41.25, according to the Energy Information Administration. This price is a near record.

Oil is a raw material for such products as plastic, food preservatives, aspirin, shampoo and soft contact lenses.

Oil is used to make synthetic rubber, including tires, such as those made at the Kelly-Springfield Tire Co. plant in Fayetteville. Keith Price, a spokesman for the plant that employs 2,850 people, said oil makes up about 20 % of the cost of a tire made at the plant. Kelly-Springfield is owned by Goodyear Tire & Rubber. When the price of a barrel of oil rises by $ 1, Goodyear's earnings drop by $ 20 mm, he said. Since 2002, the price of a barrel of oil has risen by $ 15, representing a $ 300 mm hit to Goodyear's earnings.

Goodyear has increased the price of its Kelly-Springfield tires by 2 % to 4 % to absorb some of the increase in the costs of oil and otherraw materials used in tires, he said. Goodyear is also improving productivity and reducing waste to offset price increases.

Highland Paving of Fayetteville paves roads and parking lots with asphalt, which is made from oil. Highland is paying more to ship asphalt to its customers because of rising fuel prices, said John McCauley, CEO of Highland Paving. Since January, the company's costs have risen by about 40 %.

"It's something everybody is struggling with," McCauley said. Highland is trying to hold down costs, but oil prices are at record highs. McCauley said Highland can't continue to avoid price increases for long. "Everybody loses," he said.

The N.C. Department of Transportation will resurface fewer roads this year if asphalt prices continue to stay high, said Len Sanderson, state highway administrator. The department's resurfacing budget is about $ 130 mm for this year. Local governments, which buy a lot of asphalt, are restructuring their contracts to help asphalt companies spread out rising oil prices, McCauley said.

Fayetteville spread out its resurfacing contract between two paving periods for a contract it closed earlier, said Robert Barefoot, chief officer for engineering and maintenance. The strategy worked, and the city kept down its costs, he said.

The Department of Transportation is changing the size of its contracts to attract more competition, Sanderson said. Some companies burn petroleum-based fuels as a part of doing business. Some of the tractor-trailers at Southeastern Freight Lines in Fayetteville have tanks that hold 250 gallons of diesel fuel. Since 2000, the price of diesel has risen by 19 %, according to the Energy Information Administration.

"It hurts," said David Beam, a dispatcher at Southeastern. A fuel surcharge is covering the increase in prices. "I'm not making any money out of it," Beam said. "I'm just raising prices to cover the price of fuel."

Rising fuel costs are driving up costs for supplies that aren't even made of oil, said Wilson Teachey, president of Hubbard Pipe and Supply in Fayetteville. Many types of plastic pipe are made from a natural gas by-product, not oil. Yet prices for plastic pipe have increased.
"In the last 90 days, nearly 50 % of the items that we buy from vendors have had price increases," he said.

Because prices are rising so rapidly, Hubbard is giving customers two-day price quotes instead of the typical 60-day quotes, he said. For contractors, rising asphalt prices have been the most expensive consequence of high oil prices, said Kenneth Simonson, chief economist for the Associated General Contractors of America. Following asphalt are high diesel prices. Contractors are paying more to ship bulky supplies because of rising gasoline prices.

Oil is rising at the same time as steel and cement, he said. Rising demand from China, India and Japan are causing the increase in prices. But so far, the rising raw material prices have not led to inflation, Simonson said.

"The buck either stops with the contractor or the supplier," Simonson said.

Source: Fayetteville