A consortium of asphalt and concrete industry groups are urging Congress to pass a new transportation bill soon because states won't commit to highway construction without a long-term federal spending plan.

In a letter sent to federal lawmakers Wednesday, the consortium asked Congress to enact a new, six-year highway-spending bill instead of extending for a second time the previous one that initially expired at the end of September. Congress extended the previous bill to the end of the year.

"The current lack of funding certainty in the federal highway market is having a devastating effect on the transportation construction industry," wrote the consortium, which include the National Asphalt Pavement Association, or NAPA, the American Concrete Pavement Association, the National Ready Mixed Concrete Association, the National Stone, Sand & Gravel Association and the Portland Cement Association.

The vast majority of U.S. roads are made out of asphalt, and production of the road material is expected to be down 15% this year. Producing liquid asphalt is a small business for even the small independent refiners, but it has been a profitable niche at a time when most refiners are posting quarterly earnings losses.

NuStar Energy (NS) Chief Executive Curt Anastasio said he is "more bullish on demand going into 2010" for the company's two East Coast asphalt refineries based on the stimulus money and tighter supply of asphalt. But Anastasio and other asphalt producers say a sustained recovery will depend on a multi-year highway bill.

Congress has no solid transportation plan to replace the previous bill; both houses of Congress only have proposals to extend the old one.

The House of Representatives has proposed a three-month extension while a bipartisan group of seven senators on the Senate Environment & Public Works Committee sent a letter Tuesday to the committee's leadership to extend it by six months.

The Senate committee held a briefing on Wednesday with Department of Transportation officials that revealed states are receiving 30% less highway funding than last year, said Jay Hansen, vice president of NAPA's government affairs.

Senator Barbara Boxer (D., Calif.), who supports the six-month extension, also called on the Obama Administration to submit a highway plan with a way to pay for it.

Hansen said NAPA would support a six-month plan if the time is used to write and pass a comprehensive bill: "States are paralyzed; [they] can't take projects to the next level without knowing where the money would come from."

The floodgates for federal stimulus spending on highway projects are expected to open in 2010, but that represents just a fraction of the billions more states need for new roads and repairs, Hansen said.

Out of the $787 billion stimulus package Congress passed early this year, $27.5 billion was earmarked for highway and bridge construction. Roughly 10%-15% of that money will be awarded by the end of 2009.

The stimulus program "is fairly short lived, it's a finite amount of money," said Neal Hickerson, spokesman for Holly Corp. (HOC), which earns about a fifth of its revenue from liquid asphalt. In recent weeks, construction firms Vulcan Materials Inc. (VMC) and Granite Construction Inc. (GV), among others, were pessimistic about their near-term prospects during their earnings conference calls.

Road construction accounts for 85% of the asphalt demand in the U.S., with the rest coming from roofing. Almost two-thirds of the funding is driven by federal, state and local governments, with the rest coming from the private sector.

In the long run, there is a great deal of pent-up demand for building roads, but the near-term emphasis is going to be on performing maintenance rather than big projects because of budget constraints, said William L. Thorpe, senior vice president of Alon USA Energy Inc.'s (ALJ) asphalt division.

For instance, California, which has been struggling with budget shortfalls, estimated that more than a third of its roads are in poor condition and need $6 billion for repairs, Thorpe said. California was allocated less than half that amount under the stimulus package. Thorpe doesn't expect trends to improve until late next year.

-By Naureen S. Malik, Dow Jones Newswires; 212-416-4210; naureen.malik@dowjones.com
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