Railcar &PetroChemical Update:US Chemical Shipments +3.7%.Ethane down 1.5c/lb to 23.5c/gal

Railcar loadings 4-week moving average +3.7%. Weekly loadings up 5.7%.

    The 4-week moving avg of chemical railcar loadings increased 3.7% in Week#25 (ended 06/17/2017) vs. a 2.0% increase the prior week. Loadings YTD areup 0.05%. 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 increased 5.7% YoY (versus a 6.4% increase in the priorweek) and decreased 0.1% sequentially (vs. a 5.3% increase in the prior week).

    Ethane prices decline 1.5 c/gal to 23.5 c/gal.Propane falls 1.2 c/gal to 57.8 c/gal.

    Ethane prices declined 1.5 c/gal last week to 23.5 c/gal (vs its fuel value of 19c/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 ’16 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 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 fell 1.2 c/gal last week to 57.8 c/gal. Similar to ethane, propaneprices are up sharply from their early ’16 lows (of 30-35 c/gal). Propaneinventories were up 3% last week to 54.5MM bbls but are 24% and 16% belowtheir 3 and 5-yr avgs, respectively. Longer term, we expect propane inventoriesto decline due to higher exports (+20% in ’16 vs up 12% in ‘15, up in ’17E).

    Spot ethylene down 0.7 c/lb to 23.4 c/lb. Margins down 0.1 c/lb to 11.2 c/lb.

    Spot ethylene prices fell 0.7 c/lb last week to 23.4 c/lb (vs the May contractprice of 33.25 c/lb). Spot deals for June delivery ranged between 22.5-24.25c/lb with deals for July delivery ranged between 22-24.5 c/lb. Average spotethylene margins fell 0.1 c/lb last week to 11.2 c/lb as lower selling prices morethan offset lower production costs.

    Polymer grade (PG) propylene spot prices were higher last week with deals forJune delivery ranging between 37-39 c/lb and deals for July delivery at 39.25c/lb. June propylene contract prices settled at a rollover from May with 38.5c/lb for PG and 37.0 c/lb for chemical grade. Propylene prices, which had risen20.5 c/lb from December to March, fell 13.5 c/lb, or 26%, in April and May dueto improving refinery-based supply and weak domestic demand. With FlintHills PDH unit expected to be back online this week, propylene prices couldsee further downward pressure in July.

    No planned ethylene outages in June.

    IHS expects no North American (NA) ethylene capacity to be offline in June vs1.7% of capacity which was offline in May. For ’17, IHS forecasts NA ethyleneproduction losses of 3.5B lbs, or 4.1%, of capacity. This compares to 4.5B lbs,or 5.5%, of capacity in ’16 and 3.1B lbs, or 4.1%, of ethylene capacity in ’15.