It’s important to remind you here that minimum purchase and maximum delivery obligations are primarily a function of contracts in the United States. Most Canadian and British contracts don’t have these features. Turning back to our customers who do have minimum purchase requirements, some customers haven’t fully met their purchase obligations under last years contracts because they just had nowhere to put more salt. A few customers do have large storage facilities, but most can only store enough salt for a couple of snow events.
We’ve worked with these customers to try to find creative ways to solve their dilemma. The common strategy has been to grant an extension of the deadline for taking salt under last season’s contracts and blend this carry over volume into a new commitment covering the upcoming winter season. Predictably these customers are requesting lower volumes this bid season, but they still plan to begin the winter season with a normal amount of salt.
They plan to meet their typical winter season deicing salt volume requirements through the combination of their new bid request, the tonnage they still have to purchase under the old contracts, and the higher than typical amount they currently have in storage. In the end, our customers’ priority is to secure a normal salt supply for the upcoming winter. This is a public safety imperative. When it snows this winter, our customers will replenish their supply of deicing salts.
Well, let’s be clear. We’re still managing through the over hang from the unusual weather events of the past 12 months or so. You saw the effects of low restocking in our second quarter salt segment results. Salt volumes decline 10% driven by a steep decline in highway deicing sales. However, both our highway and salt segment average selling prices increased 5%. And on a pro forma basis, our salt product costs were lower leading to moderate salt margin expansion again on a pro forma basis.
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