Railcar &PetroChemical Update:US Chemical Shipments up 2.1%.Ethane up 1c/gal to 20c/gal

　　Railcar loadings 4-week moving average up 2.1%. Weekly loadings up 3.9%

　　The 4-week moving average of chemical railcar loadings increased 2.1% inWeek #20 (ended 05/14/2016) vs. a 2.0% 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 3.9% YoY (versus a 1.6% increase in the priorweek) and declined 1.6% sequentially (vs. a 4.3% decrease in the prior week).

　　Ethane prices up 1 c/gal to 20 c/gal. Propane prices up 1 c/gal to 55 c/gal

　　Ethane prices rose 1 c/gal last week to 20 c/gal (vs its fuel value of 15 c/gal). In2H’16-’17, we expect ethane to trade at or near its fuel value plus 7 c/gal (itshistorical premium to account for fractionation and storage costs). Based onDB’s US Natural Gas price forecasts of $2.25/MMBtu in ’16 and $2.75/MMBtuin ’17, this results in an ethane price 20-25 c/gal. While US ethanesupply/demand fundamentals are currently loose (ethane rejection remains atnear-record levels of 500-600k bpd), we expect fundamentals to get tighter in2H‘17 owing to Enterprise Products’ new 200k bpd ethane export facility (onlineQ3’16) and the start-up of 6 greenfield ethylene crackers in ’17-’18 (up to500k bpd of demand).

　　Propane prices rose 1 c/gal last week to 55 c/gal. Propane prices are down22% YoY on above-average inventories and lower oil prices, partially offset byhighe exports. Propane inventories rose 1% last week to 74MM bbls and are46% and 57% above their 3- and 5-year averages, respectively. Longer term,we expect propane inventories to decline due to increased exports (up 12% in’15 vs 30% in ’14, expected to be up in ’16 vs ‘15).

　　Spot ethylene flat at 25 c/lb. Margins compress 1 c/lb to 13 c/lb

　　Spot ethylene prices were flat last week at 25 c/lb (vs the April contract priceof 30.5 c/b). The spring turnaround season in the US is in full swing with fivecrackers currently down for maintenance. Spot deals for May delivery werecompleted between 25.38-25.50 c/lb. Spot ethylene margins compressed 1 c/lblast week to 13 c/lb on higher feedstock costs. Polymer grade (PG) propylenespot prices were flat last week with deals for May delivery completed between30.0 to 30.5 c/lb. This compares to March 2015 PG and CG contract prices of49.0 c/lb and 47.5 c/lb, respectively. Despite seasonally high steam cracker andrefinery turnarounds, US propylene inventories were up for the 2ndconsecutive 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 vs 10.7% in April. Per IHS, INEOS’ Chocolate Bayou, TX 1 cracker (2.8%NA ethylene capacity), Lyondell’s Corpus Christi, TX cracker (2.2% NA ethylenecapacity) and Eastman’s Longview, TX 3A cracker (0.4% NA ethylene capacity)remain offline for planned maintenance. Dow’s PDH unit was taken offline lastweek after a compression trip and is expected to remain down for severalweeks. For ’16, IHS is forecasting NA ethylene production losses of 4.4B lbs,or 5.5%, of NA ethylene capacity. This compares to NA ethylene productionloses of 3.3B lbs, or 4.3%, of NA ethylene capacity in 2015.