State of the Salt Address – Pre-Season 2011-2012

August 24, 2011

I’m a follower of the book Super Freakonomics (the sequel to Freakonomics) which is a book about economic trends based on common sense observations.   This installment of my State of the Salt Newsletter contains my view of common sense observations as they relate to the deicing market and deicer supply lines.   As always, I try to include many hyperlinks to the sources of information I’m reading so you can read the same data and draw your own conclusions.

VOLATILE MARKETS:
When we think of volatile markets, we likely think of the stock market.  But in reality, any commodity market may be adversely impacted by volatility and we’ve seen this over the years in both salt and in premium deicers as fluctuations in supplies can be impacted by lots of different things that may not be so obvious; legal actions; embargos; weather; and demand.  Deicers are often overlooked for volatility, but make no mistake about the possibility of prices taking wild swings based on supply and demand.   As weather this month has already impacted salt production, and now Hurricane Irene is threatening to make a landfall on the Northeast US coast, understanding how these types of events might impact your supplies and suppliers of winter deicers is important.

WEATHER:
Weather is difficult to predict as evidenced by the weatherman who failed to see it snowing outside his studio window as he reported that the day would be clear.  I have been an outspoken opponent to the manmade greenhouse gas global warming theorists, so when NASA  starts agreeing with me, I feel like I’m not alone.

As much of North America is sweltering under record summer heat, and as the days since summer solstice grow ever shorter, don’t let those heat records skew your view and expectations of what the coming winter might bring.  It is my firm expectation that the pattern of weather we saw this past winter will continue.

It’s long been my belief that sunspots, solar activities, and the earth’s elliptical orbit and wobble have more to do with our climatic swings than anything we are doing from a fossil fuel burn standpoint.   Sure, we’re polluting the daylights out of our environment on a global scale, but the earth has been battling new things in its atmosphere for billions of years, and our tiny few hundred year window of pollution and moreover less than a century of significant changes in what is characterized as manmade greenhouses gases, are insignificant when compared to the historical world events of super-volcanoes, the Pacific “Ring of Fire” lighting up, or, a large asteroid impact that would turn the earth into a molten mass of gases.  Sound far-fetched?    Don’t be too fast to dismiss this.   Quoting from NASA’s recent press release: “The Sun is the primary force of Earth’s climate system. Sunlight warms our world. Sunlight drives atmospheric and oceanic circulation patterns. Sunlight powers the process of photosynthesis that plants need to grow. Sunlight causes convection which carries warmth and water vapor up into the sky where clouds form and bring rain. In short, the Sun drives almost every aspect of our world’s climate system and makes possible life as we know it.”

So it is hard to deny that the sun is the driving force and main mechanism responsible for Earth weather.   On this basis, it seems only logical that our attention towards future weather expectations should be driven first by historical data we know about the sun, our current location within the elliptical orbit, and the sun’s activity as far as sunspots.   Now before you jump on the internet to blast me with hate mail, please take the time to simply study the data points that I am looking at and see them and interpret them with an open mind.  We humans are but a small grain of salt on a six lane highway in a blizzard in the context of the earth’s climate history.   Disbelieve it as you like, but the snow bound streets of Boston and London this past winter speak volumes that this might not be so far-fetched.

I think there are a lot of self proclaimed climate experts that seize and celebrate data that suits their own agenda and when these human equivalents of radio static continue to interfere with the signal, we the people are further confused and mislead about what is really going on.   It’s part emotional, part political, and part economic but make no mistake about it that each of the proponents of manmade greenhouse global warming have an agenda that is not entirely the weather.   Carbon credits for the City of London alone are in the range of $30 billion Euros per year!  One city.    So the Kyoto Protocol has derailed from a good faith effort to reduce pollution and acid rain into a massive trading industry driven by the almighty dollar.   As they say in those investigative news shows all the time; follow the money and you will find the crooks.

Now that I’ve gotten that off my chest, let’s take a stab at what to expect for the winter.   I am no better at predicting the winter to come than my dog, the Old Farmer’s Almanac, and NASA.   You can take what I think with a grain of …  never mind.   I watch sunspots and the sunspots are continuing to be very minimal and sun’s activity is nearly identical to that in the period of time that lead up to the last “mini ice age” of medieval times.  I believe that climatologically speaking, everything is cyclical and we are entering another cold cycle.  So from my view, I see more of the same as we saw last year: snow north, ice in the middle, and cold in the south; and in one case, the freeze ups in Texas last winter are now the same areas with 30 days over 100F.   This is no accident and I think it is a strong indicator that we are not going to get off lightly as far as winter weather goes.

SALT:
So with regards to the reason behind this newsletter, salt, we turn our focus to a developing scenario where weather and salt mines are entangled:  The F3 tornado that impacted Compass Mineral’s Sifto Salt Goderich ONT facility on August 21 is a big question mark.  As of this writing, it is too early to determine the extent of damage, but Compass is reporting significant damages to their above ground structures, evaporation plant, and below ground operations will not restart until repairs are made to above ground facilities.  Compass’ Goderich facility is the largest salt mine in the world with 9MM tons capacity and accounts for 66% of Compass’s total salt production.  The sole fatality in this event was the ship boom operator who was trapped under rubble that took more than 24 hours to remove.   This suggests that the damage is extensive and they might be down for an extended period of repair, rebuilding, and recovery.

This tornado could not come a worse time as pre-season demand is just beginning on the heels of a robust winter that depleted supplies of salt across the Northeast US.   It’s very hard to predict the results of this, but it safe to assume that the longer they are down the more impact that will have on salt supplies in the Upper Midwest US and Ontario.

We will continue to monitor this unfortunate event but we want to reassure our customers that we get no salt from Sifto; we are served by the sea in all stockpiles so the damage from this tornado will have zero effect on our current and future supplies for the coming winter.  Where we think this will create some pain is in the Upper Midwest and Ontario as other producers are tapped to pick up the shortfall while Compass is down for repairs.  If the damage is such that it is prolonged like the hurricane damage to Morton’s Inagua Bahamas facilities was a few years ago, then it could take Compass offline for much of the pre-season and that would have a very significant potential adverse impact on a broader scale as everyone scrambles to cover their shortfalls.  Speaking of hurricanes, it would appear as of this writing that the potential for hurricane Irene to impact the Eastern Seaboard is very real.  We still have a month or two of hurricane season left and this factor too can affect salt stockpiles that are arrive by sea and are stored at the ports.

The energy prices that killed us at the pump all year are still having a significant effect on salt prices because in North America, the majority of the cost of a ton of salt on the road is transportation in one form or another.   Thinking a bit more on the Goderich mine tornado damage, if plans to supply from Goderich have to be backfilled by supplies from farther away moving along the highway with $4/gallon diesel fuel, the potential for a quick run up on salt prices like we saw three years ago is definitely there.  On the basis of internet video shot by locals, it appears that the loading and storage areas have taken significant damage.  That being the case, those markets will see some sudden changes in both price and availability of product.  Stay tuned and start reading all that you can on this if you are serviced by the Sifto Goderich mine.

Bulk Salt: – Salt prices currently in our primary service zones (Eastern Seaboard) are flat on the heels of a record winter in the Northeast US.  It was an average winter in the Midwest, still an off winter in Canada, and a cold but manageable snow winter in the South.  A commodity trader would look at those factors and expect prices to rise, but they are not.  In fact they came down some and stand to come down a lot more if energy prices will back off their run-up.  Only time will tell but I continue to advocate the early bird getting the biggest and cheapest worms as far as bulk salt goes.  This is particularly true with each day that the Goderich mine is down.

Bagged Salt – Bagged salt is absolutely changing and as the push from the primary producers to limit sales of medium dried salt for bagging continues to choke off the supply side for local baggers and blenders, these companies will be using lesser quality salt (road salt in many cases) to bag and that will definitely been seen in the quality of what you get from non-producer product.  Again if the evaporation plant at Goderich was involved in premium medium dried salt for bagging, then an ugly supply situation could get very ugly quickly.

The salt producer community continues to limit the supply of the premium medium salt in bulk for bagging in what is likely a continued effort to drive those high net-back dollars to their own bottom line as opposed to selling it to baggers and letting them take $60/ton salt and put it in a bag to get four times the value for it.   This is pretty easy to understand.   In bagged salt this season, the key to supply will be driven by quality first, price second.  If you put price first, you’re going to be paying for a something that may likely deliver more headaches than performance.  What is the cost of your sidewalk spreader jamming up with big chunks?  What’s the cost of a broken window from the stray rock coming off your spinner?  What is the cost of slip and falls when these oversized particles fail to perform?  Before you commit to and buy bagged salt, ask for a sample of what you’re buying and retain it as the standard so you can go back on your supplier if they deliver something that doesn’t work or is different from what you agreed to buy.

PREMIUM DEICERS:
Premium deicers, which for the most part are either calcium chloride or magnesium chloride, are in fairly good shape on a broad scale.   Spot challenges with imported materials in some cases are going to show some Overall, just like we have advocated in salt and blended deicers, demand that your supplier gives you a full chemical breakdown of what you are buying.   There’s a lot of liver pill salesmen out there offering things that lack the chemistry to be “equal” to other products, so don’t let anyone fool you into assurances that have no backup guarantee.

Calcium chloride – Calcium chloride still reigns supreme in the premium deicer market as the overall winner for performance across a broad range of temperatures.   However, just like salt, there are lots of different qualities of calcium chloride and a 74% pellet from China will not outperform a 92% pellet from Michigan – that is just simple chemistry of 74% active calcium chloride horsepower versus 92% active calcium chloride horsepower.   Always demand a certified statement of ingredients, the name of the manufacturer, and know that you are getting what you think you are supposed to be getting.

Magnesium Chloride – Magnesium chloride for snow and ice comes basically only in one flavor: 100% MgCl2 hexahydrate.   The anhydrous magnesium chloride is too reactive for use in any applications other than industrial so for the most part, all forms such as flakes, crystals, pellets, granular, and pastilles of magnesium chloride are hexahydrate.  There are definitely quality differences between products so know how that affects your needs.   We have many tens of thousands of tons of magnesium chloride in our warehouses and en route to the US from overseas, and this growing segment of our market continues to be very robust as more people discover the advantages of this very safe deicer.

SUMMARY:
In summary, supplies of salt and premium deicers are fair as of this writing, however as pointed out in my newsletter a combination of the wrong factors at the right time could tip the scales unfavorably very quickly.  As always at this time of year, we strongly encourage early buying for the lowest prices and best supplies.   The closer we get to winter, the more supplies will diminish and prices will climb.

Keep your eyes on the weather and think in “Freakonomics” terms about the implications of any severe weather on salt supplies, and particularly harbors where these supplies are delivered and stored.  Take any one critical supply point out of play on the East Coast coupled with Goderich being down for any extended period, and things will get ugly and costly quickly in bulk and packaged deicers.