Tuesday, September 22, 2015

Signposts: The Bull Market In Sand Is Over

Ineffable, inconsolable sadness.

SLCA U.S. Silica Holdings, Inc. weekly Stock Chart
U.S. Silica Holdings, the first publicly traded vehicle
From Bloomberg:

The Surprisingly Big Market for Sand Just Collapsed
  • The sand market has collapsed, bringing painful end to boom
  • `It’s kind of like almost getting your dreams crushed'
In New Auburn, Wisconsin, a desolate, little outpost carved from the rolling pine-tree forests that run into Lake Superior, the collapse in oil is wreaking havoc on every aspect of the economy.

It’s not that there’s any oil here. None in fact for hundreds of miles around. What they’ve got is sand. Real good sand, piled high in giant mounds. And in what is a little-known offshoot of the shale oil revolution that swept across America over the past decade, the market for sand -- the grit that props open the rocks and makes fracking possible -- exploded too, transforming almost overnight what had been a sleepy industry that sold primarily to the likes of glass makers and golf courses. So when the shale boom went bust, it took down the sand industry with it. Prices have sunk almost a third to under $40 per ton.

For the people of northwestern Wisconsin, the epicenter of the sand rush, the economic toll has been harsh. It all happened so fast that many -- like the Bischel brothers: Tom, age 42, and Jeff, 51 -- were blindsided. Back in the winter, the two had pooled their money together to open a fast-food joint. They named their ice-cream dessert the Sandstorm, a play on Dairy Queen’s Blizzard, and designed an extra-tall drive-through window to accommodate all the sand-hauling truckers rumbling through town.

By the time they opened T&J’s Sandwich Station this May, the sand market was in freefall and the area’s mines were scaling back. It’s only gotten worse since. T&J’s business is down 45 percent. "It’s kind of like almost getting your dreams crushed," Tom said.

The speed with which crude’s plunge is rippling through sand mining communities across the Midwest underscores the economic reach of the shale boom. Back when prices were over $100 a barrel, oil was such an incredible wealth generator that industries, old and new, scrambled to cash in on the bonanza and cater to drillers: From rig makers to the man-camps that housed roughnecks to frack-water recycling companies. Now all of these industries, without exception, are struggling.

The sand bust is as acute as any....MORE
HT: Abnormal Returns

We were on the story from the publicly traded get-go (almost), going back to April 2012's "What the Frack? U.S. Silica Up 24% since Feb. 1 IPO (SLCA)". Followed by "Commodities: "Midwest Sees a Sand Rush"". In 2013 growth was so good that a little Ouroboros turnabout was fair play, "More Natural Gas Needed For Frack Sand Suppliers"

By 2014 they were fine, strapping businesses:
"Sand: The Hot New Investment Opportunity" (SLCA)
State of Sand, 2014 
What the Frac: "The Past Year’s Hottest IPO Is… " (EMES; SLCA)
From MoneyBeat:
The hottest initial public offering from 2013 isn’t a cloud technology stock, or a biotech company with a promising cancer drug.

The company behind the top-performing IPO in the past 18 months digs sand.

Through Friday, sand-mining company Emerge Energy Services LP has rallied 462% since its debut on May 8, 2013, for the biggest share-price gain since its IPO among companies that went public last year, according to Dealogic.

Emerge Energy has been enjoyed brisk profit growth, selling sand to the oil and gas drillers behind America’s shale energy boom. In techniques such as hydraulic fracturing, drillers keep cracks in shale formations propped open with coarse-grained sand, allowing the oil or gas to through.

“We would credit it to strong industry fundamentals as well as the fact that our businesses themselves have performed well and generated significant cash flow and returns for investors and continue to look pretty strong,” Emerge Energy Chief Financial Officer Robert Lane said of the share performance.

The company is among a small handful of frac-sand producers that have gotten a warm reception from investors lately. Peers Hi-Crush Partners LP and U.S. Silica Holdings Inc. have both seen their shares climb more than 120% the past year....MORE
Having concluded that oil and gas were just a passing fad, this is what we were posting the month Emerge came public:
The Internet of Things: Huggies App Sends You a Tweet Whenever Your Kid Pees...
The Ethics of Torturing Robots
British Psychologists Bashing British Psychiatrists
Shaman               Witch Doctor
Psychologist            Psychiatrist

I so wish I were kidding.
By January of this year we knew it was ending:
What the Frack: "Good Times Run Out for Sand Producers"
with, maybe a bit of forced jollity in March:
Basic Materials: What's New In the Sand Business? (SLCA; EMES)
But there was nothing new, it's sand.

EMES Emerge Energy Services LP weekly Stock Chart