Railcar &PetroChemical Update:US Chemical Shipments up 1.5%.Ethane -1c/gal to 19c/gal

　　Railcar loadings 4-week moving average up 1.5%. Weekly loadings up 1.4%

　　The 4-week moving average of chemical railcar loadings increased 1.5% inWeek #18 (ended 04/30/2016) vs. a 4.2% increase the prior week. LoadingsYTD are up 2.8%. 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 increased 1.4% YoY (versus a 1.5% increase in the priorweek) and increased 5.2% sequentially (vs. a 4.6% decrease in the prior week).

　　Ethane prices down 1 c/gal to 19 c/gal. Propane prices flat at 49 c/gal

　　Ethane prices fell 1 c/gal last week to 19 c/gal (vs its fuel value of 14 c/gal). In2H16-’17, we expect ethane to trade at or near its fuel value plus 7 c/gal (itshistorical premium to account for fractionation and storeage costs). Based onDB’s US Natural Gas price forecasts of $2.25/MMBtu in ’16 and $2.75/MMBtuin ’17, this works out to 20-25 c/gal. While US ethane supply/demandfundamentals are currently loose (ethane rejection remains at near-recordlevels of 500-600k bpd), we expect fundamentals to get tighter in ‘17 owing toEnterprise Products’ new 200k bpd ethane export facility (on-line Q3’16) andthe start-up of 6 greenfield ethylene crackers in ’17-’18 (up to 500k bpd ofdemand).

　　Propane prices were flat last week at 49 c/gal. Propane prices are down 8%YoY on above-average inventories and lower oil prices, partially offset byhigher seasonal demand and exports. Propane inventories rose 3% last weekto 72MM bbls and are 52% and 64% above their 3- and 5-year averages,respectively. Longer term, we expect propane supplies to fall on increasedexports (up 12% in ’15 vs 30% in ’14, expected to be up in ’16 vs ‘15).

　　Spot ethylene flat at 25 c/lb. Margins flat at 13 c/lb

　　Spot ethylene prices were flat this week at 25 c/lb (vs the contract price of 30.5c/b). The spring turnaround season in the US is in full swing with five crackerscurrently down for maintenance and additional outages expected. Spot dealsfor May delivery were completed between 24.875-25.25 c/lb. Spot ethylenemargins were flat last week at 13 c/lb as spot prices and cash costs wereunchanged. Polymer grade (PG) propylene spot prices were higher last weekwith deals for May delivery ranging from 30 to 31 c/lb. This compares to March2015 PG and CG contract prices of 49.0 c/lb and 47.5 c/lb, respectively.

　　Despite seasonally high steam cracker and refinery turnarounds, US propyleneinventories rose for their 7th consecutive week.

　　8.7% of North American ethylene capacity expected to be offline in May

　　IHS expects 8.7% of North American (NA) ethylene capacity to be offline inMay. This compares to 10.7% in April. Per IHS, Chevron Phillips’ Sweeny, TX24 cracker (1.9% NA ethylene capacity) restarted last week after completion ofplanned maintenance work that began in mid-March. INEOS’ Chocolate Bayou,TX 1 cracker (2.8% NA ethylene capacity), Lyondell’s Corpus Christi, TXcracker (2.2% NA ethylene capacity), Eastman’s Longview, TX 3A cracker(0.4% NA ethylene capacity), and Westlake’s Lake Charles, LA Petro-1 cracker(1.7% of NA ethylene capacity) remain offline for planned maintenance. DowChemical’s Freeport, TX PDH unit restarted last weekend and is now fullyoperational. For ’16, IHS is forecasting NA ethylene production losses of 4.4Blbs, or 5.5%, of NA ethylene capacity. This compares to NA ethyleneproduction loses of 3.3B lbs, or 4.3%, of NA ethylene capacity in 2015.