State of the Salt Address – January 2014

January 15, 2014

Saltpocolypse 2013/2014 – What happened?

For the past four decades of my professional life, I’ve been involved in the production and distribution of winter deicing chemicals.   In the 70s, we brought in rail cars upon rail cars of packaged products over the summer months because we knew that the seasonality of demand meant that what we could get easily in the summer, could not be obtained so easily in winter due to high demand “in-season”.   That was the old standard; load up in the off season and hope you make it in-season.

In more recent years, and in particular the last half-decade, a combination of weather, increased product choices, increased channels of distribution, and, market complacency driven by recent warmer light snowfall years have all combined in a perfect storm of conditions to make the market believe it can be serviced effectively from storm to storm with on-demand purchases after it snows.   That works only as long as it doesn’t snow frequently and the weather is relatively tame.

Beginning in the December of 2013, a series of nationwide snow and ice storms that ranged from Dallas TX north to the Canadian border and east to the Atlantic ocean created a tsunami of demand for deicers of all shapes, sizes, and types across the entire country.   Quickly the existing meager inventories which were maintained as a result of the statements in the paragraph above were depleted and  reloads were ordered.  That strained the system in early December and many suppliers that rely on overseas sources for product where 8-15 week lead times are common were quickly drawn down to zero.  Adding to this was a reduced appetite for risk (taking inventory) at both the distribution channels and producer facilities matching the market’s reduced appetite for risk.

As December 2013 continued, so did the weather with four nationwide snow events before Christmas creating on-going deicer demand at record levels.   As I write this, it is 6PM on January 14 and the last pieces of the remaining inventories of all ice melters on a Nationwide scale are either gone, or nearly gone for the balance of the 2013/2014 winter season.    Bagged goods were the first to go and while deicer packing plants have been running wide open, they cannot package quickly enough to recover and fill the pile of backorders waiting.   This was further aggravated by two mid-week holidays back to back in Christmas and New Years followed by a Nor’easter blizzard that blanketed New England and the mid Atlantic with heavy snow following the New Year’s shutdown.   That snow was then followed by a Polar Vortex that crippled truck fleets and delivered record low temperatures to all 50 states.     Now the perfect storm for complete collapse of the system is set, and as the orders come in to the channels of distribution, and customers are told that lead times will be weeks, in a panic they order elsewhere in a vain attempt to get covered more quickly.  But this has the opposite of the desired effect and only sends false signals to the supply side further deepening the shortages.  Thousands of many double orders for the same customer from multiple sources make one truckload of need appear to be four or more.

This past week, the largest salt mine in the world was unable to ship product for days from a combination of truck traffic problems and ice in the harbors and lake that blocked salt ships from getting loaded until the Coast Guard ice breaker ships cleared these critical navigation channels.   This is the final straw that breaks the camel’s back.

What happened you ask?  It’s really quite simple from my viewpoint; Al Gore wasn’t entirely correct and the market bought into the concept of warmer winters and therefore reduced inventories to only one or less storm’s worth as adequate.    When those markets experienced on-going back to back events over a period of weeks, they strained the system to the breaking point and now we all await the arrival of the cavalry in the form of reloaded inventory from a system that is totally tapped out.

This is not unique to any one product.  It is across the board in all products but in particular, premium melters were the first fall because they were the only products which actually performed in the intense cold temperatures of the polar vortex.  While premium products are a fraction of the market demand, they are 100% of the demand when temperatures are 15F or colder.   We experienced a sub 10 degree heavy snowfall at our Boston headquarters last Friday which was the first sub 25F degree storm that we have seen in this region in over a decade.   While cold temperature snow happens every day in high altitudes, it is unusual for our ocean front region but the conditions allowed it and delivered it.

Make no mistake about this: a full recovery this year is not possible.  Even if it stopped snowing now, January 15th, across the entire country, the back-log of demand and orders is too great and buyers will need to make-do with whatever they have on hand now and hope for the best.

Going forward, all reading this article should take a page out of the municipal markets playbook:  Most municipalities keep a minimum of five storms of inventory on hand to start the season.  As demand pulls that down, they reload and constantly replenish knowing that it might take two or three more storms before the reloads from the first storm arrive.   If the demand gets too strong, then the supply community will abandon the private contractor “spot” market to focus on fulfilling only municipal contracts where failure to perform carries stiff contract breach penalties.

If you rely on your salt supplier to cover you when things get tight, and you do not have a contract and a significant inventory position in your own faciity, you can expect to be a victim of this scenario.    Nobody wants to talk about this but I will; the next major potential problem and issue for the deicing chemical industry is having the government taking over private contractor supplies and allocating it out as government sees fit.    This has happened in the past, though not for the past fifteen or so years that I can remember, and if it starts snowing hard across the nation again soon, it is all but guaranteed that private industry will be the first excused from the party.  So prepare now accordingly.  Sand may well be your only option before this winter is over.

Want to talk about how to avoid all of this?  Call us after the season is over and let us help you strategically position your business so as to minimize this potential.    As my father said to me when I was in the trouble one time as a teenager; “Cheer up….things will get worse” and they will.

Robert S. English, President