State of the Salt: Jan 2009

January 15, 2009

To our customers and distributor partners:

First things first: Happy New Year!

In last month’s State of the Salt Address, we talked about recent events that along with on-going problems which had combined in such a way as to create “the perfect storm” of deicing demand which our distributors and customers needed to know about.

In this month’s newsletter, we will update some of that information. Like previous newsletters, we provide dozens of links to the data and we openly share with you how we interpret this information. You can look at the same tea leaves as we do and decide if you see it the same way or not.

Normally, I wait until the last paragraph to summarize the statements and analysis but in this newsletter, we’re going to straight to the bottom line: “Houston, we have a problem.” Things have not improved at all and we are teetering on full collapse as an industry.

Deicer inventories are not sufficient to meet current demand on a National scale. The US market is still severely short on highway salt and now liquid and packaged deicers are in the same boat.

Road Salt
Looking at bulk road salt supplies, the industry is lugging hard to cover record demand which is now in overdrive with back to back ice storms and snow storms in New England just before Christmas, followed by a wide area New Year’s Eve storm.

In fact, this is the first time in my life that I can remember seeing snow cover from Portland OR to Portland ME. That all pulls hard on road salt stockpiles that were insufficient to start with, and now are dwindling quickly. My view is that the Northeast US is poised on a precipice of trouble and if we get clobbered with snow in January as it now appears to be very likely, we will collapse. If that happens, then the Northeast will be no better off than the mid-west and the entire country will be on an instant salt-free diet. This is serious business and I would expect to see dramatic maneuvers from government agencies “annexing” salt stockpiles and allocating private industry reserves. This has not happened in the last 15 or more years that I can remember, but I have seen it before and you can expect it again. The State Police will take over and manage ALL salt stockpiles at the manufacturers and they make sure that only municipalities get salt as it will be done in the interest of public safety. This is serious business and as we have said consistently since last summer: if you need deicers you need to have them within your control now or you will likely not get them. Even worse will be next winter if this winter doesn’t ease up immediately weather wise.

According to the recently released State of Ohio report, these shortages are to a large extent a self-inflicted wound. That report is a very interesting read because for the first time in my deicing chemicals career, municipal government is finally recognizing that they must assume the bulk of the risk of whether it snows if they want to have salt when it snows. Private business has always known this and works accordingly, but municipal government’s dictatorial bid policies on set aside and tonnage requirements went a long way to catalyze much of the current shortages. The industry is pleased that Ohio stepped up and admitted that these policies are a major part of the problem. Here’s a revealing statement going towards the source of the salt shortages which is contained in the report linked above:

“…Finally, an inherent challenge in the min-max contract is determining which end of the spectrum is most important: frugality suggests the state would want to buy the least it is required to purchase, but caution suggests the state must guarantee it can access enough material in a “worst case” scenario. If the minimum is set too high, the state may be forced to build more storage capacity. If the maximum is set too low, the state may be unable to refill stockpiles after the winter months are over…”

They call this the bull-whip effect and anyone who is interested in this should read this report because as these state agencies come to grips with the reality of their actions, changes will likely initially err on the side of caution, meaning they are going to guarantee to take more on the front side and expect less on the back side from suppliers. Think this will ease availability? I sure don’t – at lease not initially. It will take years for this balance.

Packaged Deicers
Packaged deicers are now in full meltdown with only spot locations of sporadic available inventory. Dow’s “order control” (allocation) on their flake calcium chloride products that was put in place in early October continues and flake calcium chloride is essentially gone in 50 lb. bags for intents and purposes. It’s available, but lead times are weeks and what is going out the door is going only to existing DOW flake calcium customers so don’t knock on that door unless you have been their friend for a while and have a baseline allocation on DowFlake. Tetra has been totally sold out now for weeks in most warehouses and reinforcements are not expected before February. Typically in our end of the business, we declare the season over somewhere around Valentine’s day, and accordingly, any February arriving material will be too little too late in our opinion. So flake calcium chloride is pretty much cooked and you can forget about it in any package but super sacks – which by the way we have a very good inventory of at this time. If you are unfamiliar with super sacks, they are a 2,205 lb. bag on a pallet and are used for “bulk” applications where you will be using at least that amount with each application. Contact us about super sacks because we offer them for every dry deicer we sell with the exception of road salt. Looking towards China for relief on calcium chloride has been unproductive as we’ve not seen them come back from the Olympic shut-down in July. I don’t know what’s up with the Chinese manufacturers, but it is clear their economy is in big trouble and exports of deicers have slowed a trickle at best.

Our packaged MAG Flake and Pellet inventories are nearly all gone. We are out of product in all but our Boston warehouse on all flavors of MAG. The best products are the first to go and MAG has been a little too successful and it was sucked up like it was in a tornado selling out an entire winter’s inventory completely before November 1st. To make matters worse, Dead Sea Works has had some undisclosed issues which have slowed the normally robust in-season ocean deliveries of MAG to a trickle so we are spoon feeding our MAG customers on a good day, and being beaten like a mule on bad days for lack of inventory. There is nothing we can do but continue to allocate based on previous purchases and hope for better days.

The only bright spot we have in packaged deicers is our Pure & Natural Deicer. Inventories of that product are still strong as is our packaged Halite.

Liquid Deicers
We continue to get a lot of calls about using liquids to replace rock salt. You will find many schools of thought on this topic but in our experience liquid deicers cannot replace salt! Think about it. Liquid deicers are at least 70% water so when you add water to snow and ice, do you think you’re going to get less snow and ice?

Liquids have a great position in snow and ice management when used for pre-wetting salt, or used in anti-icing where a small brine layer is applied to surfaces before the onset of snow to prevent the snow and ice from freezing to the surface. Typical benefit of anti-icing is that you get a black and wet surface under the cutting edge of the plow on the first pass. Beyond that, there is nothing more in our experience. Statements that pre-application can melt the first “x” inches of snow is a statement we’d expect to hear from PT Barnum. How does any material defy gravity and melt up?

There are three basic types of liquids which we find in these two areas of snow and ice management: natural brines, manufactured brines such as liquid calcium chloride and liquid magnesium chloride, and boutique products which are any of the previous two with an additive. Some of the additives have benefit and value, but most don’t really measure up when considered on a cost/benefit analysis. The boutique products are very expensive often comprising less than 20% of the liquid ingredients but more than doubling the price.

I received a call from a reporter with SNOW Magazine earlier this week. They are working on an article for their February issue on liquids. Watch for this as I hope they will “get it right” and communicate the facts and debunk the myths about liquids.

Back to the three basic types, we offer all three. Lots of the callers are looking for calcium chloride and readers of this newsletter need to recognize the facts on liquid calcium chloride. We have essentially only two manufacturers of liquid calcium chloride in North America: Dow and Tetra. Both are sold out and have been for quite some time, but now we have a new evil in that Tetra have issued a letter warning of their supply problems on liquid calcium, and advising that product is extremely tight and prices are skyrocketing. If you think that Dow can “back-fill” the salt short US market with liquid calcium chloride, then there is a nice bridge in Brooklyn you can buy at a great price. The liquid calcium chloride market is in equally serious trouble to the salt market right now and there is no relief in sight. It will be years before this can begin to stabilize.

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We do not advocate the use of only liquids for snow and ice management. While some people are doing it and getting away with it, our experience with the friction loss testing which we did with the Massachusetts Turnpike Authority over 10 years ago working with State Police professional drivers proved that applying only a little bit too much liquid for conditions creates a virtual death trap on the pavement; it is black and wet and looks right, but in fact is so slippery that its like driving on a skating rink.

The Northeast and Mid-Atlantic US have too much humidity in the air to use the same techniques that work in arid mountain states like Colorado and Washington when you’re using magnesium and calcium chloride liquids. In arid climates, 100% of the moisture these hygroscopic chemicals pull is from the snow and ice. In the East, these materials see competition between the snow and ice and much higher atmospheric moisture levels than in arid high altitudes.

Salt brines are definitely a good option and AOT, the Vermont Agency of Transportation has just opened up their new $120k brine making facility in Colchester, VT. They are looking to cut their salt use by 10% with salt brine and if effective will save AOT $700k/yr meaning the facility could pay itself off in a matter of weeks. This is pretty interesting because this is not coastal North Carolina with a few nights of freezing temps, this is Vermont where night temperatures reach -30 routinely, so the naysayers on salt brine will want to watch this one closely. Vermont may have the last laugh at calcium and magnesium chloride liquids.

Liquids work great in conjunction with dry material and even allow a 30% reduction in dry deicer application rates when used properly in pre-wetting, and, liquids work great in anti-icing where you spray in advance of the arrival of snowfall to prevent it from sticking to the pavement. But outside of those two proven applications in our region, we don’t support or recommend the use of liquids to be used solely in place of salt. Disaster is imminent in our experience and you need to have ground speed controls and very specific application rates to get effective direct application of liquids for anti-icing. Know what you are doing when applying liquids or be prepared to get to know your legal representatives and insurance providers a lot better! Liquids work great, but they are not a replacement for dry deicers. We do offer pre-treated salt (pre-wetted) and it is readily available from most of our ocean terminals. Check with your representative for price and availability in both bulk and packaged pre-treated salt.

Weather is the Key
In my October 2008 State of the Salt address, I talked about sunspots and the fact that back in October they had the first arctic blast and heavy snowfall in the Pacific Northwest that they’ve seen in over 100 years. Since that time, they have shattered records for snowfall and now the Pacific Northwest states are consuming deicers like never before. Think that’s going to help our market recover? Guess again Batman. I’m not going to go over the same ground again discussed in my October newsletter, but many of you might want to go back and read that because all the things I said could wreak havoc on our already upside down market have now occurred. The really bad news here is that we are not going to recover and the stage is now set for phenomenal deicer shortages and problems in the 2009/2010 winter. Don’t kid yourself about this. If you think this year is bad for supply problems, you haven’t seen anything yet.

In my November newsletter I spoke about nature signs that an ice storm was coming in New England. In December, six weeks after I wrote that, we were hit with the worst ice storm we’ve seen in decades. It paralyzed the region and we still have people without power five weeks later. Hard to believe but all these factors go back to support that there just might be something to lack of sunspot activity and severe weather in the Northern hemisphere.

Caveat emptor
We have seen a lot of unproven sources of salt arriving at the banquet table. A lot of salt buyers are getting taken to the cleaners as they buy what they think is the same quality and type of salt they’ve had in the past from these new sources. When a new source of supply shows up in the midst of unprecedented shortages, it’s a good time to practice due diligence as a buyer and make sure you know what you are committing to. They are here to make a quick killing with product they’ve never brought into the US and many of these first buyers will be their crash test dummies.

We’ve seen some salt from the Middle East, North Africa, and other countries that has issues in our view. Be on the watch for it. Salt with high moisture content is easy to buy on the cheap because it will freeze solid when the temperatures drop. See how much your customers like chiseling their frozen up stockpiles and bags to understand how just 1-2% additional moisture can wreak havoc on something as simple as trying to load a truck at 20 degrees at 3AM.

After moisture content, look at the particle size distribution. We were offered a ship of salt that had a specification of 24% ½” size. Think about that. How many windshields or storefront plate glass do you want to buy this winter with half inch rocks flying off the spinner and treated surfaces you just hit? How effective is that ½” hunk of salt when it is jammed in the bottom of your sidewalk spreader with 100 lbs more on top of it? How much will your customers love you then? What about impurities and what are they? These mined materials are contaminated naturally with other elements and some of them are very problematic. Demand that your deicer supplier give you an analysis of what they are selling to you right down to the trace elements. If they tell you it’s a “proprietary formula”, then tell them that the Federal and State Right to Know Laws require they disclose what’s in their product and what the percentages are. Don’t let them blow smoke in your eyes in an attempt to blind your view and throw you off the scent. If they start dancing when you ask them for certifications of the contents of what they are selling you, then think about what else they are deliberately trying to hide. We are not sending rockets into orbit here; we’re melting snow and there are no secret formulas – only secrets they don’t want you to know – like how much regular old rock salt is really in that stuff they say is environmentally friendly! It is basic high school chemistry and don’t let anyone tell you differently. If they are hiding what they are selling to you, then you should wonder why.

These are all things that most of our customers don’t have to think about because we are carefully evaluating new and existing sources constantly and making certain that the quality of the deicing materials you get from us will work for you. We don’t want that 3AM wakeup call with your customer throwing a nutty on the other end of the phone because we just stopped traffic on two interstates and burned up the motors on your application equipment trying to spread junky deicers that didn’t work. We are proud of the quality of our products and we will put our certified chemical analysis up to prove it! Will your supplier provide a certified statement of what they just sold to you?

Bottom Line
The geese are almost all cooked.

Ok, maybe it’s not quite that bad, but I can’t stress enough just how serious these problems are and the fact that they are not going to go away. This heavy early winter across the whole country is going to cause most state agencies to “up the ante” on salt demand again next year and if you have been reading these newsletters from me, then you know we can’t handle the existing increases – let alone more!

My message is clear: we still have product and our policy continues as first come/first served.

Here are a few Google News searches that you might find interesting to read:

Tell your customers that these supply problems are here to stay for at least few more years and when it snows, delays in deliveries and cancelled orders will be pretty commonplace. My biggest fear is we get whacked with heavy snow that causes the governments to start taking over control of what we sell and force us to sell where they say, not where we want to. Once that happens, it’s out of our hands.

Rob English
President
www.meltsnow.com