Railcar &PetroChemical Update:US Chemical Shipments up 2.9%.US Chemical Shipments up 2.9%.

Railcar loadings 4-week moving average +2.9%. Weekly loadings up 10.4%.

    The 4-week moving avg of chemical railcar loadings increased 2.9% in Week#41 (ended 10/07/2017) vs. a 1.3% increase the prior week. Loadings YTD areup 0.5%. 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 10.4% YoY (versus a 1.3% increase in the priorweek) and decreased 1.5% sequentially (vs. a 3.2% increase in the prior week).

    Ethane prices down 0.5 c/gal to 26.5 c/gal. Propane flat at 94 c/gal.

    Ethane prices declined 0.5 c/gal last week to 26.5 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 were flat last week at 94 c/gal. While propane inventories wereup 1% last week to 79MM bbls, they are 17% and 9% below their 3 and 5-yravgs, respectively. Longer term, we expect propane inventories to decline dueto higher exports (+20% in ’16 vs up 12% in ‘15, up in ’17E).

    Spot ethylene down 0.5 c/lb to 28.5 c/lb. Margins down 0.5 c/lb to 11.9 c/lb.

    Spot ethylene prices fell 0.5 c/lb last week to 28.5 c/lb (vs the Septembercontract price of 35.25 c/lb, and August contract prices of 31.25 c/lb). Spotdeals for October ranged from 26.5 to 30.625 c/lb with deals for Novemberdelivery at 30.25 c/lb. Average spot ethylene margins compressed 0.5 c/lb lastweek to 11.5 c/lb on lower selling prices.

    Polymer grade (PG) propylene spot prices were lower last week with deals forOctober delivery ranged between 45-47 c/lb. September propylene contractprices settled up 7 c/lb at 46.5 c/lb for PG and 45.0 c/lb for chemical grade onthe back of Hurricane Harvery supply disruptions. Propylene prices, which hadrisen 21 c/lb, or 68% (for PG), from December to March, fell 14 c/lb, or 27%, inApril/May due to improving refinery-based supply. Prices rose 0.5 c/lb in Julyand August.

    ~13% of North American ethylene capacity expected to be offline in October.

    Per IHS, CP Chem’s Cedar Bayou, TX cracker (2.1% of North American {NA}ethylene capacity) and Equistar’s La Porte, TX cracker (3.1% of NA ethylenecapacity) remain offline as a result of Hurricane Harvey. Nova Chemical’sSarnia, Ont cracker (2% of NA ethylene capacity), Dow’s Taft, LA (#1) cracker(1.6% of NA ethylene capacity), Dow’s Taft, LA (#2) cracker (1% of NA ethylenecapacity) and Shell’s Deer Park, TX cracker (3% of NA ethlylene capacity) willbe offline in October for planned turnaround work. For ’17, IHS forecasts NAethylene production losses of 5.2B lbs, or 6.3%, of capacity. This compares to4.5B lbs, or 5.5%, of capacity in ’16 and 3.1B lbs, or 4.1%, of ethylene capacityin ’15.