Railcar &PetroChemical Update:US Chemical Shipments up 5.3%.Ethane up 0.1c/gal to 26.9c/gal

Railcar loadings 4-week moving average +5.3%. Weekly loadings up 6.1%.

    The 4-week moving avg of chemical railcar loadings increased 5.3% in Week#45 (ended 11/04/2017) vs. a 6.4% increase the prior week. Loadings YTD areup 0.9%. 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 6.1% YoY (versus a 2.1% increase in the priorweek) and increased 5.1% sequentially (vs. a 2.6% decrease in the prior week).

    Ethane prices roughly flat at 27 c/gal. Propane up 2 c/lb to 97 c/gal.

    Ethane prices rose a modest 0.1 c/gal last week to 26.9 c/gal (vs its fuel valueof 21 c/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 likely move toward 30 c/gal by year-end ‘17.

    Propane prices rose 2 c/lb last week to 97 c/gal. While propane inventorieswere down 1% last week to 77MM bbls, they are 18% and 9% 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 down 1.4 c/lb to 26.1 c/lb. Margins down 1.0 c/lb to 9.4 c/lb.

    Spot ethylene prices fell 1.4 c/lb last week to 26.1 c/lb (vs the October contractprice of 34.75 c/lb). Spot deals for November ranged from 25.75 to 26.5 c/lbwith deals for December at 26 c/lb. Average spot ethylene marginscompressed 1.0 c/lb last week to 9.4 c/lb as lower selling prices more thanoffset lower production costs.

    Polymer grade (PG) propylene spot prices were higher last week with deals forNovember delivery at 45.75-47.25 c/lb. October propylene contract pricessettled up 1.5 c/lb at 48.0 c/lb for PG and 46.5 c/lb for chemical grade. Thisfollows a 7 c/lb increase in September. The 8.5 c/lb, or 21%, increase inpropylene prices in September and October has been driven by supplytightness due to Hurrricane Harvey which caused outages at multiple US GulfCoast olefins and refinieres as well as delaying a new propanedehydrogenation (PDH) unit which had been scheduled to start up inSeptember.

    5.3% of North American ethylene capacity expected to be offline in November..

    Per IHS, CPChem’s Cedar Bayou, TX cracker (2.1% of North American {NA}ethylene capacity) and Sweeny, TX cracker (0.6% of NA ethylene capacity)remain offline as a result of Hurricane Harvey. Dow’s Taft, LA (#1) cracker(1.6% of NA ethylene capacity) and Dow’s Taft, LA (#2) cracker (1.0% of NAethylene capacity) will be offline in November for planned turnaround work. For’17, IHS forecasts NA ethylene production losses of 5.2B lbs, or 6.3%, ofcapacity. This compares to 4.5B lbs, or 5.5%, of capacity in ’16 and 3.1B lbs, or4.1%, of ethylene capacity in ’15.