Railcar &PetroChemical Update:US Chemical Shipments +1.0%.Ethane up 1.0c/gal to 24.8c/gal

Railcar loadings 4-week moving average +1.0%. Weekly loadings up 5.4%The 4-week moving avg of chemical railcar loadings increased 1.0% in Week#23 (ended 06/03/2017) vs. a 0.3% decline the prior week. Loadings YTD aredown 0.5%. Chemical railcar loadings represent 30% of total US chemical.

    shipment tonnage (followed by trucks, barges, and pipelines), offering a trendof broader chemical industry activity and demand. The more volatile measureof weekly loadings increased 5.4% YoY (versus a 2.2% decline in the priorweek) and declined 4.7% sequentially (vs. a 2.5% increase in the prior week).

    Ethane prices up 1 c/gal to 24.8 c/gal.Propane down 3 c/gal to 58.3 c/gal.

    Ethane prices rose 1 c/gal this week to 24.8 c/gal (vs its fuel value of 20 c/gal).

    While US ethane supply/demand (s/d) fundamentals remain loose, ethanerejection, which peaked at 500-600k bpd in 1H16, has declined following theSeptember ’16 start-up of Enterprise Products’ 200k bpd ethane export facilityin Houston. Coupled with higher natural gas prices, ethane prices havedoubled 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 8 greenfield 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 ’17 US Natural Gas price forecast of $2.93/MMBtu, weestimate ethane prices will move toward 30 c/gal by year-end ‘17.

    Propane prices declined 3 c/gal this week to 58.3 c/gal. Similar to ethane,propane prices are up sharply from their early ’16 lows (of 30-35 c/gal).

    Propane inventories were up 7% last week to 50.4MM bbls but are 27% and17% below their 3 and 5-yr avgs, respectively. Longer term, we expectpropane inventories to decline due to higher exports (+20% in ’16 vs up 12% in‘15, up in ’17E).

    Spot ethylene flat at 26.4 c/lb. Margins expand 0.9 c/lb to 13.9 c/lb.

    Spot ethylene prices were roughly flat this week at 26.4 c/lb (vs the Maycontract price of 33.25 c/lb). Spot deals for June delivery ranged between 25-27.875 c/lb with deals for July delivery ranged between 25-27 c/lb. Averagespot ethylene margins were up 0.9 c/lb this week to 13.9 c/lb as lowerproduction costs (propane, butane, naphtha and gas oil) more than offsetlower prices.

    Polymer grade (PG) propylene spot prices were flat this week with deals forJune delivery at 37 c/lb and deals for July delivery at 36.5 c/lb. May propylenecontract prices settled down 7.5 c/lb three weeks ago to 38.5 c/lb for PG and37.0 c/lb for chemical grade. Propylene prices, which had risen 20.5 c/lb fromDecember to March, fell 13.5 c/lb, or 26%, in April and May due to improvingrefinery-based supply and weak domestic demand. With Flint Hills PDH unitback online likely this weekend, propylene prices are likely to see furtherdownward pressure in June.

    No planned ethylene outages in June.

    IHS expects no North American (NA) ethylene capacity to be offline in June vs1.7% in May. For ’17, IHS forecasts NA ethylene production losses of 3.5B lbs,or 4.1%, of capacity. This compares to 4.5B lbs, or 5.5%, of capacity in ’16 and3.1B lbs, or 4.1%, of ethylene capacity in ’15.