Railcar &PetroChemical Update:US Chemical Shipments -1.0%.Ethane down 1c gal to 23c gal

Railcar loadings 4-week moving avg down 1.0%. Weekly loadings down 2.2%

    The 4-week moving avg of chemical railcar loadings declined 1.0% in Week#11 (ended 03/11/2017) vs. a 1.2% decrease the prior week. Loadings YTD aredown 0.9%. 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 declined 2.2% YoY (versus a 2.6% decline in the prior week)and declined 3.8% sequentially (vs. a 1.4% increase in the prior week).

    Ethane prices down 1 c/gal to 23 c/gal. Propane down 5 c/gal to 61 c/gal

    Ethane prices declined 1 c/gal last week to 23 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 start-up of Enterprise Products’ 200k bpd ethaneexport facility in Houston. Coupled with higher natural gas prices, ethaneprices have nearly doubled since the beginning of ‘16 (13.50 c/gal). Starting inlate 17, we expect US ethane s/d fundamentals to tighten further driven by600k bpd of new demand from the start-up of 8 greenfield ethylene crackers in’17-’19. As the market tightens, we expect ethane to trade toward its historicalpremium of ~10c/gal vs its fuel value, with the premium reflectingfractionation, transportation and storage costs. Based on DB’s ’17 US NaturalGas price forecast of $3.13/MMBtu, we estimate ethane prices will movetoward 30 c/gal by y/e ‘17.

    Propane prices declined 5 c/gal last week to 61 c/gal. Similar to ethane,

    propane prices are up sharply from their early ’16 lows (30-35 c/gal). Propaneinventories fell 2% this week to 44MM bbls and are 17% and 4% below their 3and 5-yr avgs, respectively. Longer term, we expect propane inventories todecline due to higher exports (+20% in ’16 vs up 12% in ‘15, up in ’17E).

    Spot ethylene prices up 0.35 c/lb to 27.1 c/lb. Margins flat at 20 c/lb

    Spot ethylene prices rose 0.35 c/lb last week to 27.1 c/lb (vs the Februarycontract price of 35.75 c/lb). Spot deals for March delivery ranged between25.75-28.5 c/lb with deals for April at 27.25 c/lb. Average spot ethylenemargins were flat this week at 20.0 c/lb as higher selling prices offset higherproduction costs. Polymer grade (PG) propylene spot prices were lower lastweek with deals for March delivery ranged between 50.5-53.0 c/lb and dealsfor April delivery of 51.5 c/lb, down 0.75 c/lb from the prior week. The FebruaryPG propylene contract price settled at 48.0 c/lb.

    2.6% of North American ethylene capacity expected to be offline in March

    IHS expects 2.6% of North American (NA) ethylene capacity to be offline inMarch vs 4.9% in February. Per IHS, Formosa completed planned turnaroundwork at its Point Comfort, Texas #2 unit three weeks ago. Chevron Phillips’Sweeny, TX #33 cracker (2.6% of NA ethylene capacity) is offline undergoingplanned turnaround work. For ’17, IHS forecasts NA ethylene productionlosses of 3.8B lbs, or 4.4%, of capacity. This compares to 4.7B lbs, or 5.8%, ofcapacity in ’16 and 3.1B lbs, or 4.1%, of ethylene capacity in ’15.