The economics of road salt

Between gift shopping and holiday getaways, wintertime means big business. But there’s one major winter-driven industry that goes surprisingly overlooked — road salt.

Road salt is vital to keep winter roadways open by preventing the buildup of snow and ice. In the US, local governments use about 130 pounds of road salt per citizen to keep roadways clear.

It may be a “boring” industry, but road salt is absolutely vital to cold climate cities.

In major cities, shutting down roads for even a single day can have a negative economic impact in the hundreds of millions.

So today, I’ll explore the economics of road salt, looking at how this under-appreciated industry helps keep the economy running — even at a high cost.

Along the way, you’ll find out:

  • Why private equity is getting so interested in the road salt industry
  • The hidden costs of using road salt
  • The global road salt market
  • Some road salt alternatives
  • And how a new mining project could change the face of the North American road salt industry as we know it.

I’ve also got an investment idea at the end for ​All-Access Pass holders​ 🎟️ 

Let’s go 👇

Brian Flaherty purchased his first mutual fund at 15. After graduating from UVA with a degree in Economics, he began advising institutions and high-net-worth investors as a strategist at a wealth management firm. Today, Brian helps investors uncover the best opportunities and make intelligent use of their capital. He recently wrote about investing in Silver, Uranium, and Lombard Loans. You can follow him on LinkedIn.

A brief intro to road salt

While we use the term road salt to denote the deicing material used to keep winter roadways clear, there isn’t really anything special about this salt.

The most popular form of road salt is sodium chloride (or, as you might remember it from chemistry class, NaCl). This is chemically identical to the table salt you have in your kitchen.

The only difference is that table salt is refined to remove other mineral impurities that you wouldn’t want to eat. These impurities are why road salt is brownish-grey.

Road salt has impurities. Don’t put any on your food.

The idea of salting the roads as public policy began in the US ​just after World War II​, with cars becoming more commonplace and the federal highway system expanding. (Before then, people simply accepted that winter roads wouldn’t always be drivable.)

But today, road salt is ubiquitous. American roads are on an even higher-sodium diet than citizens — the country consumes ​10x more​ road salt than table salt.

How does road salt work?

Plenty of people seem to think that salt melts ice directly, just like heat does. But that’s not how it works.

What road salt does is lower the freezing point of water through a process called ​freezing point depression​ (which by the way is also key to making ice cream).

I’ll leave the chemical explanation of how this works to the professors – but essentially, introducing a solute like salt into water makes it harder for molecules to form the rigid structures necessary to produce solids like ice & snow.

In fact, this is why road salt is most effective when deployed as part of a watery mix known as brine.

Sure, you could just toss solid salt on the roads. But salt needs snow to melt into slush before it can mix. So doing this less effective. You’d need to use 5x the amount of salt, and it would ​cost twice as much as brine​.

The downside of using brine is that it needs to be applied to the road before a snowstorm hits, requiring accurate forecasting. Image: ​Virginia DOT​

Is salting roads worth it?

Using road salt to prevent snow and ice costs cities/taxpayers a tremendous amount of money.

On its own, salt isn’t that expensive. In recent years, road salt has averaged about $60 per ton — about ​7x cheaper​ than a ton of sugar.

But the volume of salt required to effectively deice roads is substantial.

In the US, deicing is by far the largest end market for salt, accounting for ​41% of all sales​ (the salt that ends up on your table is just 5%).

Each year, about 20 million tons of salt are spread on American roadways — about 130 pounds per citizen!

This is also a labor and equipment-intensive job. All told, the US spends nearly $4 billion each year on roadway snow & ice removal. It eats up about 20% of state government transportation budgets.

But while these are big figures, they pale in comparison to the costs of allowing winter weather to shut down roadways.

According to a ​study​ that calculated the impact of lost wages and taxes, a one-day winter-related roadway shutdown in Massachusetts would have an economic impact of $353 million.

In comparison, Mass spends about $167 million on snow & ice removal for the entire year. So yes, judging by the direct costs, that seems like money well spent!

And that’s not to mention the human costs associated with preventing unsafe roadways. Driving on icy roads is a nightmare. Road salt can prevent the volume of winter traffic accidents by ​up to 90%​ and reduce the cost of the accidents that do occur by nearly 30%.

It’s pretty clear that salting our roads is necessary in the modern world.

Some of the externalities, however, aren’t obvious at first glance and make this tradeoff more complicated than it appears.

Road salt is bad for the environment and infrastructure

Salt works so well to prevent ice due to its role in the chemical process of freezing point depression.

But salt also facilitates a chemical process that’s far more destructive – corrosion.

Over time corrosion breaks down metals like iron and steel. Saltwater on metal doesn’t cause corrosion, but it dramatically speeds up the process, leading to accelerated rusting and degradation (this happens because electrons move more easily in saltwater).

The result is that road salt causes significant (and expensive) property damage to vehicles and bridges. In fact, officials ​recently announced​ that the Alexandra Bridge in Ottawa is so thoroughly rusted by six decades of road salt that it needs to be replaced entirely.

What 60 years of heavy road salt usage looks like up close. The Alexandra Bridge carries 18,000 vehicles a day and will cost upwards of $800 million to replace. Image: ​​Government of Canada​​

Estimates of the corrosion damage associated with road salt in the US amount to a staggering ​$16-19 billion per year​four times greater than the direct costs of deicing!

And it’s not just property that suffers, ​but the planet too​. Salt runoff from roads can pollute the environment, disrupt ecosystems, and even contaminate drinking sources.

Naturally, these types of externalities are much harder to quantify. One academic estimate based on road salt use in Adirondack Park, NY pegged the environmental cost at about ​2.5x​ the direct costs.

Even with these costs, the economic benefits of keeping winter roads open are so large that we certainly shouldn’t abandon deicing efforts. But they do show that using road salt is no free lunch.

For investors, it’s vital to understand the competitive threats that road salt alternatives might pose, and whether climate change is set to make deicing solutions obsolete as a whole…


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Are there road salt alternatives?

As it turns out, sodium chloride-based road salt isn’t the only material capable of keeping winter roadways ice & snow-free.

There are a variety of alternatives that tend to win out in terms of sustainability (and even effectiveness):

  • Acetate deicers. Calcium-magnesium acetate and potassium acetate generally have significantly less corrosion than chloride deicers. For this reason, ​airports use acetate-based deicers​ almost exclusively.
  • Other chloride deicers. Instead of sodium chloride, it’s also possible to use magnesium or calcium chlorides as deicing agents. These options are ​generally more effective​ at melting ice (especially at lower temperatures) and also better for the environment.

Unfortunately, both of these chemical alternatives are also much more expensive than sodium chloride. Magnesium chloride, for instance, costs over 9x as much per ton.

But the indirect costs associated with sodium chloride mean that some municipalities have decided that this tradeoff is worth it. ​Anchorage, Alaska​, for instance, the northernmost (major) US city, uses both magnesium chloride and potassium acetate as deicing agents.

Rather than replace sodium chloride entirely, many places are simply trying to use it more effectively or efficiently.

Missouri, for instance, mixes ​beet juice​ with sodium chloride to treat winter roads, a solution that lessens corrosion while increasing deicing effectiveness at low temperatures.

Toronto has experimented with spraying down roadways with beet juice to minimize the amount of sodium chloride needed to keep roads ice-free.

On a lifecycle basis, when considering infrastructure and environmental impacts, it’s entirely possible that sodium chloride is actually the most expensive form of rock salt!

But many of these costs are so diffuse and so hard to measure that they don’t really factor into governments’ calculations.

Combine that fact with lack of awareness and institutional inertia, and it’s hard to see traditional road salt disappearing any time soon.

A quick note on climate change..

One view on the future of the road salt market is that globally rising temperatures will result in milder winters, and thus structurally falling demand for deicing.

There’s certainly some validity to this argument, with average winter temperatures generally warming around the world. But remember it’s not the whole story.

While climate change might be making winters milder on average, it also appears to be making the storms that do occur more intense. In the US, about twice as many extreme snowstorms occurred in the second half of the 20th century than in the first.

In fact, despite generally rising temperatures, ​Compass Minerals​ (a major salt producer) has registered steadily rising salt sale prices over the past two decades (even above the rate of inflation).

Image: Compass Minerals

But risks remain. In fact, earlier this year, S&P ​cut one salt producer’s credit rating​ in part due to climate change concerns.

The road salt market

It’s not an exaggeration to say that salt is fundamental to the human experience, and the salt market is a massive, globe-spanning industry.

China leads the way here, producing ​19% of the world’s salt​, followed by the US (15%) and India (11%).

Due to both data availability and where the most interesting opportunities are located, we’ll be focusing mostly on the North American market today.

How is road salt produced?

Road salt is typically mined from massive concentrated deposits, usually left behind by long-evaporated collections of seawater.

These are mostly underground, but some areas of the world also have significant above-ground deposits (like the famous ​Chilean salt flats​).

A rock salt mine near Mount Morris, New York. The salt is mined underground before being brought to the surface by a conveyor system. Image: ​Pollinator​

This type of salt production is known as rock salt (other forms of salt production include ​solar evaporation and vacuum pan​). In the US, 95% of road salt comes from rock salt.

The rock salt market is highly concentrated

As of 2021, just 4 companies were responsible for 90% of all rock salt production in the US:

  1. Cargill
  2. Morton
  3. American Rock Salt
  4. Compass Minerals

Special thanks to Wally Bowen at the ​USGS​ for helping me with some data questions!

Three of these companies are privately held:

Compass, however, is public, trading on the NYSE with a $540m market cap (​NYSE:CMP​). In fact, Compass’ market dominance is significantly understated by the US-specific data above.

The company also operates the ​Goderich mine in Canada​, which is North America’s largest rock salt mine. Between its US and Canadian operations, Compass claims to be ​North America’s leading salt producer​.

(Interestingly, few years ago, ​the SEC fined Compass​ for misleading investors about its mine production capabilities.)

Compass has been struggling financially and shares have declined sharply over the past year. Surprisingly, though, these struggles might translate into a compelling current investment opportunity.

How to invest in the salt market

I’ve shown you how salt supply is concentrated among four big players.

But there’s a junior salt company coming up that you should know about. They’re on a mission to develop an enormous deposit that was just discovered.

If successful, this project could change the face of the North American road salt industry as we know it.

Unlock the rest of the issue to learn more about this company.

Unlock Full Issue Here →

Note: Price increase Jan 1st

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That’s it for today!

Come chat with me in the ​Alts community​!

See you there, Brian

Disclosures

  • This issue was written and researched by ​Brian Flaherty​ and edited by Stefan von Imhof.
  • This issue was sponsored by ​House of Rare​
  • This issue contains no affiliate links. It does contain non-affiliate links to Seeking Alpha, an Alts partner.
  • This is a paid issue. To read the full thing you need the ​​All-Access Pass​
  • Neither Alts nor Altea has any current holdings in any companies mentioned in this issue
  • After editing this issue, Stefan invested in the salt company mentioned at the very end

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Brian Flaherty

Brian's interest in finance started from an early age, when he used money saved from working summer jobs to purchase his first mutual fund at 15. He went on to pursue the field in school, eventually graduating from the University of Virginia with a Bachelor's degree in Economics. After graduation, Brian put his expertise to work advising institutions and high-net-worth investors as a strategist at a wealth management firm. Recently, Brian transitioned to pursue a career as a financial writer, where he leverages his writing skills and his financial knowledge to help investors uncover the best opportunities and make intelligent use of their capital.

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