It has been a few years since we’ve communicated information of this type to our marketplace; however recent events coupled with on-going problems have combined in such a way as to create “the perfect storm” of deicing demand and problems which our distributors and customers need to know about.
Last winter, the Midwest saw Old Man Winter return to them in earnest. Multiple snow storms that came every few days in January, February, and March quickly depleted all available deicer inventories driving buyers into panic buying in ever increasing outlying areas. Soon, Chicago, Milwaukee, and Indianapolis deicer buyers were buying anything they could get their hands on from as far away as New England.
As we began the 2008/2009 deicer season, early signs of trouble began to emerge: state bids and contracts were getting across-the-board “no bid” on deicer requirements; the private and contractor markets were told there was no deicer available for them for the coming season and that they needed to make alternate arrangements – even in places where long term relationships were in place; and the largest and most significant factor being that bid prices on salt bids were doubling, then tripling, and then even going higher.
Fuel price problems early in the summer didn’t abate which added additional pressures to already expensive deliveries. Remember that 80% of salt costs are transportation, so $4 diesel and $100/bbl oil hit salt directly.
Hard as it is to believe, even the few Atlantic Hurricanes which have spawned thus far this season have had a serious impact on the deicer business. Morton Salt’s solar salt plant in Inagua, Bahamas was on strike during the early part of the season and planned shipments did not get off the docks. Incredibly, the strike settled at nearly the same time that first Hannah, then Gustav, and finally Ike delivered successive and devastating blows to this important production facility. Various sources report the annual production of this plant at 1MM tons but the one thing that is clear is that Inagua suffered a level of destruction comparable to the damage we saw from Hurricane Andrew in Homestead, FL years ago. It is unclear how long it will take to rebuild the plant and dock facilities and get this plant back online, but it is our view that it is very unlikely that solar salt from Inagua will be hitting the New England market before next year.
We have had an opportunity to confer with most of the salt companies supplying the MidAtlantic and Northeast Market in recent weeks and depending on who you talk to, prior to Morton’s catastrophic loss, the salt market was well over 1MM tons short for the US for this season. That explains why we’ve seen so many “no-bids” and prices that have more than doubled. Now, it’s anybody’s guess but it is a very safe bet that with the North American deicing market demand over 20MM tons annually, we are well in excess of 10% short meaning that our estimate of 2 MM tons is conservative. Replacing these tons will be very problematic and this is where we now feel obligated to tell you how we read the tea leaves for 2008/2009.
Our estimates of packaged dry premium deicer production in North America, coupled with imported products are a total of 500,000 tons or less. What we mean by that is that if you add up all the imported and domestically produced calcium chloride and magnesium chloride and throw in a few boutique products, we are 25% of the shortfall in salt. We are seeing record demand for packaged deicers, and we characterize this like Amazonian army ants on the march consuming everything in their path to stubble and then marching on for additional sources of food. This is happening right now to us across the board. It is impossible for anyone to backfill this market for the season. We are down to 1 US producer of dry calcium chloride from 5 just 10 years ago, so don’t expect Dow to be able to stand up under the load too long. Tetra’s plant is under construction in AR but won’t be online with dry product for years at best. So there’s no hope there for this season. The only commercial magnesium chloride flake production in the US is on the other side of the Rockies 2,000 miles away leaving the northeast and East Coast to rely on imported material.
Forget about calcium chloride from China being much help as China shut down production of nearly everything in the manufacturing region months before the Olympics in an attempt to clean up the air for the coming tourists and Olympians. The first shipment of calcium chloride to the US is expected to leave this month from China, but no other shipments are anticipated for this year so China will not be bailing us out. Magnesium Chloride from Europe and Israel is in great shape; but like Dow with calcium, we can’t fill a hollow leg if the leg needs filling. Two million tons short will not be covered by 500,000 tons no matter how you do the math.
Some basics in premium deicers to consider:
While the worst thing we can do is to institute panic, we are obligated to give you a “heads up” that we are seeing a run on the deicer bank and we don’t want any disappointments in our customer partners.
As of today, 9/17/2008, we continue to accept orders on all products including packaged salt and premium deicers without limitation; we are in business to sell our products. We are in great shape with MAG Pellets and Flakes in 50 lb. bags and 2200 lb. super sacks. We have good inventories of calcium chloride pellets in 50 lb. bags, and calcium chloride flakes in 50 lb. and 2200 lb. super sacks with reinforcements en route in both. We have just finished unloading a bulk vessel of our new PURE AND NATURAL deicer and packaging is underway as we speak. Inventories on our packaged Halite product as well bulk rock salt and treated salt, also called Magic Salt, are strong and at peak levels. Our German based partner in bulk salt, K+S, has very good inventories in Chile and we are confident that we will hold up well in bulk highway salt for the foreseeable future. However, packaged goods are not so certain. Here’s a brief movie which explains why we have partnered with K+S North America in salt products for the past 14 years and why we are confident of the quality and availability of our bulk highway salt.
The purpose of this newsletter is to advise our customers and partners that we are seeing the start of a “run on the bank” in deicers precipitated by the events in the Midwest detailed above; and while we feel that we are in pretty good shape, there are no guarantees.
We’ve been saying all summer long that to be assured of product availability, you should place your orders early so that we can manage them and help you avoid being without product when and if the snows come in. In our view, the bottom line is this: if it does not snow, the market will be ok; but if it does snow and snows before Christmas, all bets are off and these supply problems will be record breaking. Remember that this is already a big problem in the Midwest and while good news travels fast, bad news travels faster.
Here are a few Google News searches that you might find interesting to read:
Tell your customers to be ready for supply problems if it snows and delays in deliveries the closer we get to snow season because these kinds of problems are not corrected quickly.