State of the Salt: November 2008

November 16, 2008

To our customers and distributor partners:

In our previous State of the Salt addresses, we talked about recent events that along with on-going problems 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 continue to update much of that information. Like previous newsletters, we provide dozens of links to the data and openly share with you how we interpret this information.

Things have not changed in a positive way and deicer inventories are not sufficient to meet demand on a National scale. The US market is still well over 2MM tons short on highway salt. Packaged deicers seem to be in deeper trouble and shortages in premium deicers are now reality as we predicted.

EARLY TROUBLE IN PREMIUM DEICERS
In late September and early October, Dow placed their flake calcium chloride on order control and allocation.   Demand was unrelenting and Dow was first to get in front of the problem by enacting order control.  Following their move, calcium chloride flake sales from others including us went into a frenzy.  Tetra’s inventories along with many importer inventories quickly fell under record demand and now many regional warehouses are sold out of calcium chloride flakes.   Reinforcements are not immediately on the horizon and when some of the imported inventories will be reloaded is unclear.  So flake calcium chloride is gone for at least the time being.   That drives demand to competing products like MAG.

MAG products were the next to find the bottom of the inventory pile in our main warehouse located in Port Newark, NJ. MAG flakes in 50 lb. bags are currently sold out and new inventory is not expected before the middle of December. MAG Pellets in 50 lb. bags is also in extremely tight supply and we are now working down back-orders and carefully allocating product to existing customers and distributors only.  Inventory of bulk MAG in super sacks is gone as well.

BAGGED HALITE AND ROCK SALT
We’ve heard conflicting reports on what is happening with bagged halite from Cargill and Morton so we are not able to give any definitive information as far as their availability.  At this time, we continue to accept and ship orders for our own bagged halite products without limitation but we are definitely seeing the inventory dwindle quickly.

Compass Minerals reported record demand: “Our consumer and industrial business also posted a very strong quarter, with 24% sales volume improvement and average selling prices up 7%. Now half of our year-over-year sales volume growth came from retailers and professional service providers who began early the replenishment of their depleted consumer and professional de-icing product inventory.”  Please notice that in the case of Compass Minerals, VOLUME is up 24%, but selling prices are only up 7%.   So while everyone might think that prices are going haywire, at the producer level they are up, but not up by the amount that is being reported.    Price doesn’t matter anyway – it’s all about availability and therein is where trouble lies.

HOW IS THIS POSSIBLE AND HOW DID THIS HAPPEN?
I get this question twenty times a day from all sides of the market.   The answer is simple; in round numbers in the years preceding last winter, the US demand for road salt hovered between 14 and 18 million tons per year, with the winter of ’06/’07 just about at the 14 million ton mark.   Last season in ’07/’08, demand was upwards of 20 million tons nationwide and supplies still fell substantially short of what the market really wanted.

That record demand last winter cleaned out salt supplies all the way back to the floor of the mines.  Production was put into overdrive but demand continued its unrelenting pace even well into March of ’08 which is abnormal by all previous experience and accounts.

As those late-season predominately mid-west buyers continued to pull salt late into the winter they got a little panicky as they found supplies gone and the reality of taking deliveries from places as far away as 1,000 miles or more.   It was expensive, delayed, and painful to find and procure.   To avoid the pain of ’07/’08 again, municipal government substantially increased their bid proposal packages for the 2008/2009 winter by over 2 million tons.  So now demand goes from 14 million to 22 million tons in one season!

Summarizing all of this in practical terms, what it means is that by our calculations the North American road salt market increased by over 350,000 truckloads in less than 24 months.   It increased by that amount growing from 14 million tons of demand to 22 million tons of demand.   Therein lies the problem – plenty of salt in the ground in mines but not anywhere nearly enough salt on the ground in stockpiles.   The industry has been running wide open since last winter trying to catch up and pull ahead and it’s not too dissimilar from trying to fill up a swimming pool from the creek by carrying one thimble of water at a time!   It’s a very significant task that will take years of production to normalize and balance, or a year or two of no snow.  It has to come from either increased production or reduced demand but only one or both of those events will alleviate the problem and until then, these worlds will continue to collide.

PACKAGED DEICERS
Packaged deicers are quickly falling into serious problems. Dow announced implementation of “order control” (allocation) on their flake calcium chloride products in early October, and we are seeing some serious supply problems on calcium flake with the lack of US production beyond Dow and a lack of imported material. Bagged salt inventories are falling very quickly as we predicted and expected, and most salt producers are expected to shut down bagging operations for the winter on or about December 1st and focus on supplying the insanely robust municipal markets with bulk. Our packaged MAG inventories are now depleted at a time when we normally are building inventory in preparation of winter. Demand has steadily picked up all fall instead of letting off in November as has been the case historically when customers have now received initial shipments for winter and wait for snows to deplete them before reloading.   This is putting the squeeze on all forms of packaged deicers. The packaged deicer market is very close now to going into full thermonuclear meltdown with zero availability if we get snow before year end in the Midwest and/or the Northeast.   Not to sound like a broken record, but we have warned of this since early in the summer and our message is unchanged.

We are seeing a lot of demand for our Pure & Natural Deicer blend. This new product is tinted green for easy identification of treated areas and we have nearly five million pounds of it in our new Mansfield warehouse. Packed in 50 lb. heat sealed poly bags, 50 bags per pallet, Pure & Natural Deicer answers the call for a deicer with color. Look for us to add color to some of our regular deicers next season as we have finally identified a safe, biodegradable dye that breaks down quickly and is environmentally safe like our products.

ROAD SALT
Looking at bulk road salt supplies: overall we feel that we are ok with our multiple positions in the Northeast US, but clearly the industry is lugging hard to cover record demand. In the Midwest prices continue to rise and availability continues to dwindle creating panic and driving hungry buyers to the plentiful coasts for their needs. This will eventually put us in supply trouble if it doesn’t stop soon.

LIQUID DEICERS
Let’s talk briefly about alternative products: We seem to be getting a lot of calls for liquids to replace salt. You will find many schools of thought on this topic but we are going to stick our neck right out on the chopping block here and now: in our experience liquid deicers cannot replace salt! Think about it. Liquid deicers are at least 70% water, so when adding water to snow and ice, do you think you’re going to get less snow and ice?

Chemical management of snow and ice is for the most part basic high school science. You add a freeze point lowering material to frozen water (snow and ice) to push the freeze point below the prevailing temperature. Simple right? Add salt to water and it won’t freeze at 32. Some chemicals are far more effective and have much lower freeze points, but the basic premise of lowering the freeze point to turn that snow and ice back into a liquid is what is done in 95% of all chemical deicing operations. How that ties to liquids is that when you eliminate dry materials and replace them with 70% water, you have not changed the chemistry of your objective, but you have increased the amount of brine you need to make to cover the additional water you’re adding.

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 it’s like driving on a skating rink.

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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.

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.

THE SILVER BULLET
It seems that everyone is looking for the silver bullet deicer.  The one that is plentiful, cheap, and environmentally acceptable.   It doesn’t exist in our experience and if it did, we would certainly be all over it.   There is no one size fits all deicer that satisfies the needs of the many; low corrosion, low temperature performance, low toxicity, safe to sprinkle on your cereal for breakfast, etc.   The snow and ice management business is a balancing act of balancing performance, which is wet pavement, against adverse consequences such as environmental contamination, concrete damage, re-freeze, slick roads, slip and fall claims, etc.   To understand more on this, you might want to read our “How to Pick the Right Ice Melter for Your Needs” article.

WEATHER IS THE KEY
Who do you want to believe and who can you believe? Accuweather meteorologist Joe Bastardi says we are going to get creamed with snow this winter and is predicting at least two Nor’easters for the I95 corridor from Richmond to Boston. The Farmer’s Almanac says the same thing as do many of the “talking heads” in the weather business.

Tina Carter, the operations manager for one of our truckers, told me on the phone today that over the weekend they lost all of the oak leaves in their yard.  I commented that the rains in Boston last weekend did the same thing in my own yard and normally those oak leaves hold on for dear life until January or February but they are all down now and it’s unusual.   She said that she has seen this in past years where we had ice storms.  Somehow, nature knows and it unloads any leaves and windfall in a final effort to make the tree’s profile as minimal as possible so that the ice will not cling to the leaves and bring the tree down killing it.   She also said that as fast as the acorns fell, they too were gathered and put away by busy squirrels.  She continued her thought train saying that squirrels can dig for acorns in snow, but ice locks them out of needed food supplies and that’s why they are gathering so heavily.

Who knows?  I know this for certain:  From the viewpoint of the salt salesman, one ice storm is equivalent to about five to seven snow storms worth of deicer demand.   Should we start the season with one or two ice storms, then we will never recover as an industry and things will be extremely bad from a supply standpoint.  We better all hope that Tina’s analysis is wrong if we hope to make it this winter with enough deicers!

CAVEAT EMPTOR
Last month, we talked about what we will disrespectfully call “Johnnie-come-latelys” to the market.  These are companies who hear about the salt shortages and think they have the ability to make a deal and come sweeping in and collect windfall profits on record demand and prices.

We are not changing our message here at all: A lot of salt buyers are going to get taken to the cleaners this season 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 some 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 wreck 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. More to the point, watch this news report from Cedar Rapids, Iowa KCRG Channel 9 to see what I’m talking about.

How many windshields or storefront plate glass windows 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 ?” 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
We have been consistent in our message all year; if you need deicers this winter and want to be assured of having them, you need to get them in your hands long before flakes arrive. In some cases it’s already too late; our calcium chloride flakes winter inventory is now weeks from being sold out. Dow is already sold out. There are limited reinforcements on the horizon at this point as a worldwide shortage of calcium chloride created by record snow and oil field demand continues to suck it up like a shop vac.

Stay in touch with us and talk to your sales representative so you can understand what the current lead times are for the products which you buy and need.   Most of our products are still available, but we are not a bottomless pit and we will find that our warehouse has walls and a floor sooner rather than later.

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

Tell your customers to be ready for continued supply problems when it snows and delays in deliveries the closer we get to snow season because these kinds of problems are not corrected quickly, or within one season.

Rob English
President
www.meltsnow.com