How Closely Related are Gas Prices and Roofing Prices
Asphalt is the main waterproofing ingredient for many roofing materials including modified bitumen, felt, and the majority of shingle products. Asphalt is a black sticky semi-solid form of petroleum. Crude oil is sent to the refinery for processing, with gasoline being the main product and asphalt being one of many by-products. In addition to the widely used direct ingredient of asphalt, gas is a huge indirect cost of roofing materials. Both raw materials and finished roofing products have significant transportation cost because of size and weight. So the short answer is yes, gas and roofing prices are definitely linked.
Now slow down a little. While these prices are directly linked they move slowly. At the time of the creation of this post, February 2015, gas prices are significantly lower than they were in the fall, yet there has been no corresponding change. In fact, we have received some notice of modest price increases for the spring.
So what is going on?
Here is what one of our wholesalers sent to the Bert Roofing office:
“Why Shingles prices have not dropped like Gasoline!
A variety of reasons relate to the reasons the shingle prices are not dropping like gasoline.
Several years ago the refineries improved their processing of oil. They now yield higher amounts of fuel products than before which reduces the amount of asphalt being produced. Over the past two years, the price of asphalt has increased as the availability has been reduced due to the improved refining process.
Another factor is the types of oil being used at the refineries have less asphalt in them further reducing availability. Much of the oil coming up for use today is lighter in asphalt than we once had access to.
Something that we often forget but remains an important factor is that road systems use 75-80% of the asphalt being produced. As manufacturers compete in a market that they represent a smaller usage, the pressure on pricing is further exaggerated.
If the government places emphasis on updating the road systems this year the value of asphalt could increase further.
We expect to see nominal increases this year. The asphalt issues continue to be the primary driver and could impact prices this summer. If oil increases this year the fuel factor could also impact the cost of roofing. This will be driven by the raw materials shipped in as well as finished goods delivered from the plants. Today this is less of a factor but can turn around very quickly.”
I agree with most of the above, but only to a limited extent. The refineries were tweaked to produce more gas and fewer by-products a few years back when gas approached $4.00 per gallon a few years back around summer of 2008. That tweaking is something that is already priced into today’s asphalt. There is a good deal of business sense that the manufacturers don’t want their products to be priced on monthly or quarterly up and downs. With their really large client, they enter into large contracts for the entire year. No manufacturer wants to renegotiate their largest contract downward when the small contractor is getting a better price than a Lowe’s or Home Depot. That will just never happen.
So we have seen a good drop in petroleum products with little change in roofing products. That said I remember well 2008 when gas hit it’s all time average high around $4.10 per gallon. In 2008 shingles shot up like a rocket increasing to three times the January price by fall the same year. By 2009, gas price had fallen below the January 2008 price. If you guessed there was no real fall in roofing prices you would be correct.
Based on this history, I would not expect a drop. The best we can hope for is keeping the increases in check.