ANALYSIS: The effect of oil prices on the asphalt versus cement debate

- Tuesday, June 24, 2008

ANALYSIS: The effect of oil prices on the asphalt versus cement debate

The unstoppable rise in oil prices has reawakened the battle between cement and asphalt, one not seen since the last oil price crisis in the early 1980s.

Last year many said that asphalt continued to be an economic solution to road maintenance and development. This year, the scenario has changed.

With a current record high US$139 per barrel price tag, experts believe crude oil could jump to nearly US$180 in less than a year. The high price has a looming negative impact on the market trade of its derivatives, such as asphalt, which can be replaced by cement.

Start your 15 day free trial now!

cta-arrow

Already a subscriber? Please, login

"For years, using cement has been found to be somewhat expensive in the short term," an official from Chile's public works ministry (MOP) told BNamericas. "However, cement is stronger and therefore lasts longer than asphalt. In a way, it was seen as a kind of luxurious solution when compared to asphalt."

However, asphalt's current price versus quality relation is no longer convenient for the Latin American market, already suffering from the rising cost of construction materials in general due to a weakened US dollar and higher crude prices, the MOP official said.

According to the official, MOP authorities are already reevaluating a number of road maintenance initiatives and considering using cement instead. The option is being contemplated mainly for works on highly transited roads, where heat and the weight of trucks and buses reduce asphalt's duration.

In Colombia, authorities claim they prefer concrete pavement to asphalt due to its longer duration, an official from the national planning department (DNP) said.

Colombian cement producer Argos already announced earlier this year that it would sell some of its other interests to concentrate on the strategic segments of cement, concrete and aggregates, due to the positive business projections for these materials.

In Paraguay, the government of President-elect Fernando Lugo is already beginning to question the choice of asphalt over cement.

The new government is looking into alternatives to increase the productive efficiency of state-owned cement producer INC.

According to an official from Lugo's office, the country is already facing cement shortages caused by the firm's inefficiency, influenced by the interest of a few powerful construction firms. The new government is preparing to change things for the benefit of the country. Increased cement production would not only reduce the price of construction in Paraguay, but could also boost the country's competitiveness through cement exports.

In Uruguay, government and private sector officials have joined forces to attract investment to improve the country's cement production, which is in the hands of state fuel, alcohol and Portland cement company Ancap, an executive from construction firm Saceem told BNamericas.

Both Iran and Venezuela have offered to partly finance the expansion and construction of cement plants in the country in exchange for some of the production. Authorities are currently analyzing these and other options, the official said.

But not all parties agree. According to a top executive from Uruguayan highway construction company CVC, cement still faces a major obstacle, its fragility when handling heavy weight versus the flexibility of asphalt.

"The battle between asphalt and concrete began in the late 1970s, and asphalt won that war. However, crude prices then never reached the value they have reached today, and that might change things," the executive admitted.

In response to his, and the market's, concerns, Chilean company TCPavements created a new technology, called thin concrete pavements (TCP), that is cheaper to build and maintain, the company's development manager Juan Pablo Covarrubias previously told BNamericas.

The solution makes use of concrete slabs that are smaller than the size currently used, set as a world standard about a century ago. The standard size allows all four wheels of a truck to fit onto each of a slab's four corners, which applies intense pressure and results in pavement cracking. The new size prevents cracking, allowing builders to remove 7-10cm of the slabs' thickness.

By thinning the concrete pavement slabs, firms can save 20% of the initial construction investment compared to asphalt pavement solutions, and 30% compared to traditional concrete pavement.

"Because of the way this system is built, you hardly need any maintenance over time. You must repave asphalt every eight years or so. This is a 20-year solution that is 20% cheaper than an eight-year asphalt solution," Covarrubias added.

When asked, the Uruguayan CVC executive said he would be open to considering implementing the newly designed concrete slabs.

Whether or not the new technology is applied in the region, authorities have reservations about asphalt and starting to favor concrete pavement, even if it means higher investment. "While higher, it would still be more financially sustainable than asphalt, especially if crude prices continue to rise," the MOP official said.

VENEZUELA

In spite of the regional discussion, many see a bit of uncertainty over the cement versus asphalt battle due to Venezuela's role in the market.

The country, which suffers from internal cement shortages, has announced a nationalization program to control 60% of the local assets of Mexican Cemex, Swiss Holcim and French Lafarge.

The country is the region's main producer of crude oil, and would therefore logically favor the use of asphalt, but its decision has shown the importance of concrete, said Chile's MOP official. He added that no one can predict what will happen in the country yet in terms of the choice of concrete over asphalt. Venezuelan President Hugo Chávez's decisions are never conservative ones.

Aside from offering Uruguay support in the construction and expansion of cement plants, Chávez has also offered to support Bolivia, which has also expressed its need to increase cement production in order to boost competitiveness and its own infrastructure development. The country's development is currently crippled due to soaring materials prices.

As the official from Saceem said, while asphalt has proven to be a good solution to road maintenance and improvement, cement has become a major player in the region's infrastructure and competitiveness development projections. Both government and private sector representatives have shown they are aware of that fact, and are beginning to take action.

ASK US