Railcar &PetroChemical Update:US Chemical Shipments -0.8%.Ethane up 1.25/gal to 26.5/gal
Railcar loadings 4-week moving avg. down 0.8%. Weekly loadings down 0.5%
The 4-week moving avg. of chemical railcar loadings declined 0.8% in Week#19(ended 05/06/2017) vs. a 0.5% decrease the prior week. Loadings YTD aredown 0.7%. Chemical railcar loadings represent 30% of total US chemicalshipment tonnage (followed by trucks, barges, and pipelines), offering a trendof broader chemical industry activity and demand. The more volatile measureof weekly loadings declined 0.5% YoY (versus a 1.9% decline in the prior week)and declined 2.9% sequentially (vs. a 0.2% decrease in the prior week).
Ethane prices up 1.25c/gal to 26.5c/gal. Propane down 1.8c/gal to 59.9c/gal
Ethane prices rose 1.25c/gal last week to 26.50c/gal (vs its fuel value of 23c/gal). While US ethane supply/demand (s/d) fundamentals remain loose,ethane rejection, which peaked at 500-600k bpd in 1H16, has declinedfollowing the September start-up of Enterprise Products’ 200k bpd ethaneexport facility in Houston. Coupled with higher natural gas prices, ethaneprices have doubled since early ‘16. Starting in 2H17, we expect US ethane s/dfundamentals to tighten further driven by 600k bpd of new demand from thestart-up of 8greenfield ethylene crackers in ’17-’19. As the market tightens,we expect ethane to trade toward its historical premium of ~10c/gal vs its fuelvalue, with the premium reflecting fractionation, transportation and storagecosts. Based on DB’s ’17US Natural Gas price forecast of $2.93/MMBtu, weestimate ethane prices will move toward 30c/gal by year-end ‘17.
Propane prices fell 1.8c/gal last week to 59.9c/gal. Similar to ethane, propaneprices are up sharply from their early ’16lows (of 30-35c/gal). Propaneinventories were up 5% last week to 41.6MM bbls but are 32% and 21% belowtheir 3and 5-yr avgs, respectively. Longer term, we expect propane inventoriesto decline due to higher exports (+20% in ’16vs up 12% in ‘15, up in ’17E).
Spot ethylene up 0.5c/lb to 30.3c/lb. Margins compress 0.3c/lb to 16.6c/lb
Spot ethylene prices rose 0.5c/lb last week to 30.3c/lb (vs the April contractprice of 32.0c/lb). Spot deals for May delivery ranged between 30-30.50c/lbwith deals for June delivery ranged between 30.25-30.50c/lb. Average spotethylene margins were down 0.3c/lb last week to 16.6c/lb as higherproduction costs more than offset higher prices.
Polymer grade (PG) propylene spot prices were lower last week with deals forMay delivery ranged between 35.75-36c/lb and deals for June delivery rangedbetween 35-36c/lb, down 0.38c/lb from the prior week. May propylenecontract prices settled down 7.5c/lb last week to 38.5c/lb for PG and 37.0c/lbfor chemicals grade. Propylene prices, which had risen 20.5c/lb fromDecember to March, have now fallen 13.5c/lb in April and May due toimproving refinergy-based supply and weak domestic demand. With Flint HillsPDH unit coming back online by the end of May, propylene prices are likely tosee further downward pressure in June.
1.7% of North American ethylene capacity expected to be offline in May.
IHS expects 1.7% of North American (NA) ethylene capacity to be offline inMay vs 2.5% in April. Per IHS, Dupont’s Orange,TX cracker (1.7% of NAethylene capacity) is offline for a short turnaround which started in late April.For ’17, IHS forecasts NA ethylene production losses of 3.8B lbs, or 4.4%, ofcapacity. This compares to 4.7B lbs, or 5.8%, of capacity in ’16and 3.1B lbs, or4.1%, of ethylene capacity in ’15.