STATE OF THE SALT ADDRESS – Pre-Season 2014

August 18, 2014

 

THE PERFECT STORM – An industry still recovering

As Yogi Berra famously said; “it ain’t over until it’s over”.

With regards to the painful salt and premium deicer supply shortages that began last December, they are not over.   On-going challenging resupply scenarios continue to impact the market and those who have been complacent will be stunned when they find there is little or no road salt available right now.  It is, for the most part at least, a predominately regional problem; some areas will have barely ample supplies and some will have painfully short supplies.

The deicer industry overall is not on solid ground at all and significant problems continue with the supply chain logistics across all product groups and road salt in particular.   While Europe saw their warmest winter, in 2013/2014 North America saw a very cold, long, and hard winter not experienced in decades which drained all supplies.  NOAA, the government weather service recorded the coldest winter ever on record for much of the US.   The details of the then impending road salt supply collapse were published in my December 2013 State of the Salt newsletter, and recapped again in the spring newsletter.  Many of our customers and partners took heed and acted quickly to protect themselves as our stockpiles were nearly out.  Early commitments on the heels of last winter had us delivering next winter’s supplies before the ‘13/’14 winter was even over and we have not had any break on re-supply with strong unrelenting demand from the market.   As we enter August, people will be shocked to find that they may not be able to get anything.

 

ROAD SALT

The signs of continuing trouble are now confirmed with statewide contracts finding no bidders interested in committing to supply beyond spot market and what we have today.  Two prominent states went out to bid for over one million tons of salt and did not get one offer or taker where they’d typically have half dozen or more.  They were not prepared for that and are now scrambling to determine how to manage supplying their states with salt.   Jefferson County IL also found no bidders for their annual supply contract offered in July, and took the only offer they had at twice the price for just 600 tons.   Their costs jumped from $60/ton to $117/ton and this scenario is now repeating itself in regions all over the country.   Throughout the Midwest, road salt prices are ranging as high $140/ton if you can even get anyone to commit to supply.  When statewide bids go off with no offers, that is a good indication things are so oversold that the producers are keeping their options open while they run wide open to fill their existing commitments.  Pricing will be impossible to predict because there is little or no product available on the open market right now.

In the central US, road salt supplies are in dire straits and will not improve.   The Western US, while not huge users of road salt relative to other regions, will feel the supply pinch as the producers west of the Rockies struggle to service their customers east of the divide and take advantage of a high priced market.  In the South and Eastern US we do not yet know if that string of ships arriving from places as far away as the Chile and Morocco will have enough product to refill a totally drained pipeline and supply chain. The entire road salt supply system was broom clean nationwide at the end of the winter.  Now, we are still struggling to recover in the midst of record demand, high fuel costs, gummed up and slow rail movements, and, high water disrupted river traffic, all have combed into the perfect storm to hamper restocking efforts.

Adding to the re-supply pain for the salt industry overall was the fact that nearly all the tons produced through the spring that would normally be intended for stockpile rebuilding ended up going into still open municipal contracts and filling up their salt sheds on last year’s price.    Speaking of price understand that salt and premium deicers are commodities and accordingly they will fluctuate in pricing based on supply and demand.   Right now, supplies are short – very short – and the demand is high – very high – so do the math yourself.   They key is not how much does it cost, the key is can you get it now, and more importantly in winter if you need to reload?

Road salt mining operations and premium deicer production have been running at full capacity.  Europe’s warm winter made supplies held for Europe available to the North American market, but these are generally a different specification (much finer gradation) and not suitable for the application methods of the North American market.  The road salt shortage is more a logistical problem and less a resource problem.   There’s plenty of salt in the ground and in the world, but refilling a system with substantially more than the entire system has taken ever before is proving to be stiff challenge.   Many southern US cities whose snow normally melted on contact, were paralyzed by a series of polar vortex deep freeze snowfalls and they now are attempting to build stockpiles they never had before; further pinching the system. Adding to the challenge is the fact some of the US salt mines near population centers that have been in operation for more than 50 years are  manmade caverns in the earth and some of these are in a state of convergence.  That is serious business and has caused mines to suddenly close permanently.   One of the more sensational salt mine collapses happened November 20th 1980 in LA where a mine operating since 1918 collapsed at Lake Peigneur and the video documentary story of that is worth viewing if you are interested.  The point is that while worldwide we have plenty of salt, regionally, we may see additional problems  as mines relied upon for decades might suddenly go off line; it does happen.

 

PREMIUM DEICERS

Calcium chloride and magnesium chloride products are no better off than road salt at this point.  All producers worldwide are essentially completely sold out resulting from the high costs of fuel and energy where those products play critical roles in the energy development and harvesting.  OXY, the sole US manufacturer of calcium chloride pellets, continues order management and allocation with their Peladow calcium chloride pellet product at least through year end.  Flake calcium chloride, at least as of the time I’m writing this, is still available without limit, but that will surely change as panic buying spikes demand.   Magnesium chloride producers worldwide are also sold out completely.   The Dead Sea magnesium chloride production has been reduced for unknown reasons, and logistics are disrupted.  DSW’s MAG Pellets are also on very snug order control indefinitely.  Premium deicer pellets are preferred in packaged products and they are going to be in very short supply for the foreseeable future.   You will have to be understanding and willing to work with alternatives until these challenges and problems are able to sort themselves through.   We have options but you need to talk to your sales representative about what is available in premium products.

Don’t be misled by any claims of ample supplies of these materials; they are in extremely tight supply and any weather related sudden pull will extinguish the hand to mouth inventories we’re trying desperately to build up but cannot due to unrelenting demand.   The best products are always the first ones to go so know that if you’ve not made commitments on premium products by now, you’re in more trouble than you might think.

 

WEATHER

I’ve often pondered that if I could predict the weather accurately I could rule the world.  I don’t put a lot of stock in long range forecasts, and based on my own experience with short range forecasting, they are not a whole lot better for anything other than general trends.  With that said, most if not all of the weather prognosticators are lining up and singing the same tune albeit not necessarily in harmony; it’s going to be another challenging winter with anything but warm weather in the snowbelts.  Matthew Holliday’s First Hand Weather suggests a repeat of last year.  Joe Bastardi, who has been frighteningly accurate in most of his predictions, also is calling it above average snowfall for the snow belts, and goes so far as to predict VA, NC, TN, WV, and MD as winter battle zones.   For my hometown of Boston and the northeast US, and for the Great Lakes region, he’s calling it above average snow and below average temps.   Again, from my perspective, long range forecasting like this is a guessing game with complex computer modeling and I personally have found a dart board to be equally accurate.  There is a lot of chatter about a strong el Niño and that has in the past resulted in above average snowfall for most of the US snowbelt.  For what it’s worth, my dart board concurs with the weather prognosticators.

 

SUMMARY

I think there’s just no question that a lot of people will be left short and without ample supplies so the weather will be the key.  Use professional and other weather forecasting at your own peril.   A warmer ocean should mean the snow belt population centers of the East Coast will be slow to start, but that concept is in sharp contrast to what the “expert” forecasters are saying.   Road salt will not recover this year if there is any snow; there is just no question about that from our viewpoint.   Again, remember that the challenges in road salt are largely regional, with heartland America far and away in the worst shape, however the snowbelts and population centers of the East Coast and Northeast are also not entirely safe.  We are loading our warehouses with packaged melters and building our bulk salt and treated salt stockpiles now with products, however product is going out about as fast as its coming in so please be patient and allow us time to cover everyone’s needs.

Since I opened with a quote I’ll close this edition of the State of the Salt Newsletter with a quote:  “Cheer up, things will get worse”

 

Robert S. English

President