The State of Salt

Features - Cover Story

A lackluster winter creates a scenario where it’s a buyer’s market for salt and deicing products heading into Winter 2016-17. Our expert breaks down the state of the market.

May 27, 2016

The predicted great brutal winter of 2015-16 – that wasn’t – has now concluded with a series of late season storms that, while dropping some snow around the country, have not caused much demand for the abundance of chemical deicers that are piled up in the marketplace.

So inevitably, all who prepared for the predicted “repeat of 2014-15 winter” took robust positions purchasing higher than normal volumes of deicing products last fall. In the winter of 2014-15, you will recall that weather came in late but when it did, it arrived with vigor and was sustained to set records across some sections of the U.S., most notably Boston where we had snow every day or two for six weeks running. That type of long duration and on-going winter weather will stress supplies as there can never be sufficient inventory to manage an entire winter’s normal snowfall in under 30 days.

It’s important to understand the economics of being a supplier of deicing materials. From the supply side viewpoint, it’s not complicated; we try to put as much product in the market pre-season as possible, then we backfill the available storage space with more inventory. In the case of road salt, there is plenty of salt in the ground and available. However, the amount of screened and prepared road salt that is on the surface and readily available for shipping against winter demand is limited to the amount of storage space to build the stockpiles.

The largest salt mine in North America is located in Goderich, Ont. It’s on a lake and while that means no problem shipping as much as anyone needs when the lake is open, once winter sets in and the lake freezes, supplies can no longer move by economical water delivery and must transition to truck and rail supply. Rail supply of commodities in winter is abysmal on its best day. There I said it. Let the hate mail from the railroad community start raining on my parade but after 40 years of doing this for a living, I have learned that machinery and in particular rail service, does not improve with winter weather. In fact, it can be the difference between having something to fight a storm and not having anything. Some shipping lanes remain open in winter, such as ocean harbors and some rivers and lakes that use ice-breakers to keep open. But like driving to work in a snow storm, the going is slow and can be substantially impeded further stressing an over-taxed system. That was precisely the scenario in 2014-15 winter where the snow came fast and furious in a tight window depleting stockpiles and reinforcements were delayed and too far away to get to markets in time. So people ran out, were shut off, and rationing was applied in an effort to keep as much product flowing as possible as piles diminished to zero.

Bagged products are not much different albeit much different in scale. There is only so much room around to store packaged deicers and once those locations are filled, the manufacturers generally idle their workforce until demand picks up and there is more pull. To see 5 million tons or more of road salt stored in a marketplace is not unusual, however, packaged goods do not approach even 10 percent of that so packaged product can deplete more quickly than bulk products. Liquids are the one exception (at least so far) to this “run-on-the-bank” scenario because they are used in much lesser amounts overall, so a few million gallons of liquid storage could be a few months’ demand or possibly a year or more in a down market.

We need to add the fact that there has been a virtual rush of new companies to the market driven by the sudden opportunities of 2014-15, then quickly snapped into reality of being in a weather dependent business in 2015-16. Those get-rich-quick delusions suddenly were dashed when they saw the same inventory level in March that they saw in November.

What does all this mean? It’s a buyer’s market.

All of the chemical products used in winter maintenance are categorized as commodity chemicals. In general terms, commodity chemicals means that these items are available broadly at very similar pricing. Commodity chemical markets will flood and ebb on demand, and, rise and fall on pricing depending on demand. We all saw the price spin up in the heavy winters and you can be pretty confident that what went up will be coming down. So there is a bit of a race on right now as the new companies who entered the market expecting that pricing of 2014-15 winter was the norm and based their business plan on that expectation, will try to move whatever they can by first pushing and then by price concessions. However, they will be limited by their raw costs which will be high from storage of unsold product over the ‘winter that wasn’t’, and, the higher acquisition costs when they brought product in to these markets at the price apex. Sitting on inventory right now is not where any supplier wants to be; it is quickly becoming a stranded asset. The market will be below the cost paid.

So expect to see all kinds of offers to take product, store product, and get it out of the supplier terminals and into the end user and buyer locations. Adding to that might be dated terms and price concessions, however, they are capped by their costs unless they sell at a loss. I believe that you will see a few things happen including selling at a loss and aggressive market recapture activities from domestic suppliers and sources. When the domestic manufacturers of deicing products couldn’t service the market completely, domestic production of deicers put what they could out in the market and accepted the loss of the un-serviced market portions. Now, they are in a position to drive out competition by playing on their market with lower selling prices.

I expect to see producers get very aggressive in bidding this spring and summer as they make continued participation in their backyard markets as unattractive as they possibly can for these new sources.

Adding to this over supplied market are a few global related items that will further depress pricing. To the winter maintenance people reading this article, salt is just a deicer. However, to the farmer it is a feed additive; to the chlor-alkali producer it is a raw material; to the oil drilling company, it is a component in their completion fluids; and to the homeowner, it is a blue cardboard cylinder in the cupboard. What do these things have to do with the winter? Good question.

It’s important to understand the economics of being a supplier of deicing materials. From the supply side viewpoint, it’s not complicated; we try to put as much product in the market pre-season as possible, then we backfill the available storage space with more inventory.”

Asia enjoyed a record solar salt harvest, so they didn’t need to source salt from foreign suppliers. Those suppliers turned their attention to other markets such as the North American snow market. With $30/bbl oil, there’s not a lot of drilling going on. So the reduced demand in these traditional markets have thrown excess product into the marketplace and now they are going to fight for business with the only weapon they have; price. So the reduction in chemical manufacturing markets, oil, and winter all combine in a perfect storm to create a glut. It is a safe bet the domestic manufacturers will not want to surrender any tons to competition that backfilled some peak periods and now they will be on the warpath to recapture lost business and that will be done by price since this is a commodity chemical.

And as we expect to see similar lowered pricing from producers of premium deicing products as the soft winter on a global basis combined with oil drilling reductions have also left huge inventories of these products waiting to sell. The pricing run up of the past few years has apexed as a result of demand… or lack thereof.

Rob English is president of Chemical Solutions, and is a frequent Snow Magazine contributor.