Railcar &PetroChemical Update:US Chemical Shipments +2.1%.Ethane up 1c/gal to 27c/gal

Railcar loadings 4-week moving average +2.1%. Weekly loadings down 0.2%

    The 4-week moving avg of chemical railcar loadings increased 2.1% in Week#32(ended 08/05/2017) vs. a 1.5% increase the prior week. Loadings YTD areup 0.55%. Chemical railcar loadings represent 20% 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 increased 6.5% YoY (versus a 1.7% increase in the priorweek) and increased 3.4% sequentially (vs. a 4.2% increase in the prior week).

    Ethane prices up 1c/gal to 27c/gal. Propane up 2c/gal to 77c/gal

    Ethane prices were up 1c/gal last week to 27c/gal (vs its fuel value of 20c/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 ’16start-up of Enterprise Products 200k bpd ethaneexport facility in Houston. 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 rose 2c/gal last week to 77c/gal. While propane inventorieswere flat last week at 68MM bbls, they are 20% and 12% below their 3and 5-yr avgs, respectively. Longer term, we expect propane inventories to declinedue to higher exports (+20% in ’16vs up 12% in ‘15, up in ’17E).

    Spot ethylene up 1.7c/lb to 23.8c/lb. Margins expand 1.7c/lb to 8.1c/lb

    Spot ethylene prices rose 1.7c/lb last week to 23.8c/lb (vs the July contractprice of 29.25c/lb). Spot deals for August ranged between 23-24.5c/lb withdeals for September delivery at 25.625c/lb. Average spot ethylene marginsexpanded 1.7c/lb last week to 8.1c/lb on higher selling prices and flatproductions costs (lower gas oil and butane offset higher ethane and propane).Polymer grade (PG) propylene spot prices were higher last week with deals forAugust delivery ranging between 38.25-38.5c/lb. July propylene contractprices settled up 0.5c/lb at 39.0c/lb for PG and 37.5c/lb for chemical grade.Propylene prices, which had risen 21c/lb, or 68% (for PG), from December toMarch, fell 14c/lb, or 27%, in April/May due to improving refinery-basedsupply. After rolling over flat in June, July contracts settled higher driven byproduction outages at Flint Hills PDH (restarted following completion ofplanned maintenance which began in April) coupled with the delayed start-upof the new Enterprise PDH unit (reported to begin operation in September).

    2% of North American ethylene capacity expected to be offline in August

    Per IHS, all US ethylene capacity was operational last week. Nova Chemical’sSarnia, Ont cracker (2% of North American {NA} ethylene capacity) will beoffline starting mid-August as it undergoes planned turnaround work. 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 ’16and 3.1B lbs, or 4.1%, ofethylene capacity in ’15.