Railcar &PetroChemical Update:US Chemical Shipments up 3.6%.Ethane down 1c/gal to 25c/gal
Railcar loadings 4-week moving average +3.6%. Weekly loadings down 0.5%
The 4-week moving avg of chemical railcar loadings increased 3.6% in Week#48(ended 11/25/2017) vs. a 4.1% increase the prior week. Loadings YTD areup 1.0%. 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 decreased 0.5% YoY (versus a 4.4% increase in the priorweek) and decreased 15.5% sequentially (vs. a 4.2% increase in the priorweek).
Ethane prices down 1c/gal to 25c/gal. Propane down 2c/gal to 98c/gal
Ethane prices fell 1.3c/gal this week to 24.6c/gal (vs its fuel value of 20c/gal).While US ethane supply/demand (s/d) fundamentals remain loose, ethanerejection, which peaked at 500-600k bpd in 1H16, has declined following theSeptember ’16start-up of Enterprise Products 200k bpd ethane export facilityin Houston. Starting in 1H’18, we expect US ethane s/d fundamentals totighten further, driven by 600k bpd of new demand from the start-up of 8greenfield ethylene crackers in ’17-’19. As the market tightens, we expectethane to trade toward its historical premium of ~10c/gal vs its fuel value, withthe premium reflecting fractionation, transportation and storage costs. Basedon DB’s ’17US Natural Gas price forecast of $3.02/MMBtu, we estimateethane prices will likely move toward 30c/gal by year-end ‘17.Propane prices fell 2.3c/gal this week to 97.8c/gal. While propane inventorieswere down 1% last week to 73MM bbls, they are 21% and 12% below their 3and 5-yr avgs, respectively. Longer term, we expect propane inventories todecline due to higher exports (+20% in ’16vs up 12% in ‘15, up in ’17E).
Spot ethylene down 0.5c/lb to 27c/lb. Margins flat at 11c/lb
Spot ethylene prices fell 0.5c/lb yhis week to 27.1c/lb (vs the Novembercontract price of 33.25c/lb). Spot deals for November ranged from 26.5to27.75c/lb with deals for December ranged between 26.75-27.625c/lb.Average spot ethylene margins compressed 0.2c/lb last week to 10.8c/lb aslower selling prices more than offset lower production costs.
Polymer grade (PG) propylene spot prices were higher last week with deals forNovember delivery at 47.5-48.0c/lb. November propylene contract pricessettled up 1c/lb at 49.0c/lb for PG and 47.5c/lb for chemical grade. Thisfollows a 7c/lb increase in September, and 1.5c/lb increase in October. The9.5c/lb, or 24%, increase in propylene prices since September has been drivenby supply tightness due to Hurrricane Harvey which caused outages atmultiple US Gulf Coast olefins and refinieres as well as delaying a new propanedehydrogenation (PDH) unit which had been scheduled to start up inSeptember.
2.1% of North American ethylene capacity expected to be offline in December
Per IHS, CPChem’s Cedar Bayou, TX cracker (2.1% of North American {NA}ethylene capacity) is offline this week due to an operational upset. For ’17, IHSforecasts NA ethylene production losses of 5.1B lbs, or 6.1%, of capacity. Thiscompares to 4.5B lbs, or 5.5%, of capacity in ’16and 3.1B lbs, or 4.1%, ofethylene capacity in ’15.
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