7 minute read
Predict Your Asphalt Cost
BY SANDY LENDER
Bidding July 2022 a project your crew will perform September 2023 requires additional antacid when liquid asphalt cement (AC) prices are rising dramatically. We all understand the concept of bidding low enough to win the job but high enough to not only recover costs, but also to make a profit. Brian Lawrence, the president of Asphalt Unlimited LLC, Kennesaw, Georgia, has developed an app designed to forecast future liquid asphalt prices to assist contractors in bidding without guessing the future price. It’s designed to help asphalt producers and highway contractors bid future work, particularly in states or in instances where price escalators don’t exist.
Yes, we asked the questions.
Lawrence recently retired as a senior vice president from C.W. Matthews Contracting, where he worked for 21 years, and was chief operating officer for Bright Star Energy (liquid asphalt purchasing), for 13 years. He created Bright Star’s liquid asphalt business, which included design and operation of a green field asphalt terminal in Rockmart, Georgia. He also negotiated the successful purchase of an asphalt terminal in Chattanooga, Tennessee. During his career, he has purchased more than 2 million tons of liquid asphalt on a wholesale and retail basis via truck, rail, and brown-water barges. He has also produced more than 260,000 tons of polymer-modified asphalt and has bid more than 7,000 asphalt projects.
In July 2008, he began his data collection that let him do more than track trends. It let him study reams of data, and that will come into play in a moment.
This graph shows the high degree of correlation between existing, real data and the algorithm Brian Lawrence developed. Graph courtesy of Asphalt Unlimited LLC
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Let me state up front that Lawrence is not claiming to predict the future. What he’s offering is a tool for the estimating team to recognize upcoming trends and see forward pricing data, based on their location and time of interest.
“Plant owners, producers, paving companies that must give a fixed price bid without an index use their own local-market knowledge. This app gives the estimating team sitting around the table a tool and guidance based in market realities instead of guessing.”
The app is based on Asphalt Unlimited’s proprietary algorithm, which pulls the daily closing prices of a variety of energy products from the NYMEX and provides an asphalt projection that mirrors the coker values of asphalt. It has been back-tested against 13 years of published coker values and it produced a correlation (r-value) of 0.988041. That’s almost perfect.
“The algorithm never predicted a value below the published value,” stated Lawrence, creator of the algorithm. “To me, that fact, along with the high degree of correlation, provides a lot of confidence when either producing a financial outcome or predicting a future price, whether up or down. Anything that correlates that well to past data is de facto predictive of the future. The certainty of it is in the r-value.”
“The genie in the bottle is the algorithm,” Lawrence continued. “When the market closes each day, it pulls closing futures prices from the NYMEX and uses that data as the basis of the projections. It’s based on the reality of the current market, and it forecasts the current quarter plus five more in the future. I also use this data and algorithm to create financial hedges for asphalt.”
For Lawrence’s audience, and ours, 18 months of forecasting should be more than sufficient. “Most resurfacing projects are happening within that timeframe anyway,” he said.
The values produced by the app are a retail (rack) projection and are also tailored to specific geographic areas in the 48 contiguous United States. The prices are given in ranges and are suggestive of what is a reasonable value to possibly include in a bid. The app is subscription based and all annual subscribers receive private asphalt pricing consultation with Lawrence, if desired.
“I’m not offering to sell anybody asphalt at a certain price,” he said. “I’m not predicting the future.” What he’s offering is future guidance with a high correlation to market reality. For more information, contact Brian Lawrence at brianl@asphaltunlimitedllc.com or (770) 361-1668.
Brian Lawrence is the owner and president of Asphalt Unlimited LLC and creator of the algorithm on which The Asphalt App is based.
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