Railcar &PetroChemical Update:US Chemical Shipments Down 4.6%.Ethane up 0.4c/gal to 27.4c/gal

Railcar loadings 4-week moving average -4.6%. Weekly loadings up 1.6%.

    The 4-week moving avg of chemical railcar loadings decreased 4.6% in Week#39 (ended 09/23/2017) vs. a 4.2% decrease the prior week. Loadings YTD areup 0.3%. 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 1.6% YoY (versus a 0.8% decrease in the priorweek) and increased 0.7% sequentially (vs. a 5.0% increase in the prior week).

    Ethane prices up 0.4 c/gal to 27.4 c/gal. Propane up 1.5 c/gal to 94.0 c/gal.

    Ethane prices were up 0.4 c/gal last week to 27.4 c/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 ’16 start-up of Enterprise Products 200k bpd ethaneexport facility in Houston. Starting in Q4’17, 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 rose 1.5 c/gal last week to 94.0 c/gal. While propaneinventories were down 3% last week to 78MM bbls, they are 16% and 8%below their 3 and 5-yr avgs, respectively. Longer term, we expect propaneinventories to decline due to higher exports (+20% in ’16 vs up 12% in ‘15, upin ’17E).

    Spot ethylene down 1.3 c/lb to 30.7 c/lb. Margins compress 2.2 c/lb to 12.6c/lb.

    Spot ethylene prices fell 1.3 c/lb last week to 30.7 c/lb (vs the July contractprice of 29.25 c/lb, August/September contract prices remains unsetteled as a2 month settlement is being negotiated. Spot deals for September ranged from29.75 to 31.625 c/lb with deals for October delivery ranged between 29.75-31.75 c/lb. Average spot ethylene margins compressed 2.2 c/lb last week to12.6 c/lb on lower selling prices and higher production costs.

    Polymer grade (PG) propylene spot prices were higher last week with deals forSeptember delivery ranged between 46.5-48.25 c/lb. September propylenecontract prices settled up 7 c/lb at 46.5 c/lb for PG and 45.0 c/lb for chemicalgrade on the back of Hurricane Harvery supply disruptions. Propylene prices,which had risen 21 c/lb, or 68% (for PG), from December to March, fell 14 c/lb,or 27%, in April/May due to improving refinery-based supply. Prices rose 0.5c/lb in July and August.

    10% of US ethylene capacity remain offline due to Hurricane Harvey.

    Per IHS, approximately 10% of US ethylene capacity remains offline as a resultof Hurricane Harvey. IHS Nova Chemical’s Sarnia, Ont cracker (2% of NorthAmerican {NA} ethylene capacity), Dow’s Taft, LA (#1) cracker (1.6% of NAethylene capacity), Dow’s Taft, LA (#2) cracker (1% of NA ethylene capacity)and Shell’s Deer Park, TX cracker (3% of NA ethlylene capacity) will be offlinein September for planned turnaround work. For ’17, IHS forecasts NA ethyleneproduction losses of 5.2B lbs, or 6.3%, 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.