Railcar &PetroChemical Update:US Chemical Shipments up 2.0%.Ethane flat at 20c/gal

　　Railcar loadings 4-week moving average up 2.0%. Weekly loadings up 1.1%

　　The 4-week moving average of chemical railcar loadings increased 2.0% inWeek #21 (ended 05/21/2016) vs. a 2.1% increase the prior week. LoadingsYTD are up 2.7%. 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 1.1% YoY (versus a 3.9% increase in the priorweek) and increased 0.7% sequentially (vs. a 1.6% decrease in the prior week).

　　Ethane prices flat at 20 c/gal. Propane prices down 1 c/gal to 54 c/gal

　　Ethane prices were flat this week at 20 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 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 of 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(expected on-line Q3’16) and the start-up of 6 greenfield ethylene crackers in’17-’18 (up to 500k bpd of demand).

　　Propane prices fell 1 c/gal this week to 54 c/gal. Propane inventories were flatthis week at 74MM bbls and are 40% and 51% above their 3- and 5-yearaverages, respectively. Longer term, we expect propane inventories to declinedue to increased exports (up 12% in ’15 vs 30% in ’14, expected to be up in ’16vs ‘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 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 25-25.25 c/lb and deals for June were ranging from 25.25-25.5 c/lb. Spot ethylene margins were flat this week at 13 c/lb as feedstockprices were unchanged. Polymer grade (PG) propylene spot prices were flatlast week with deals for May delivery completed at 30.375 c/lb. This comparesto March 2015 PG and CG contract prices of 49.0 c/lb and 47.5 c/lb,respectively.

　　6.3% of North American ethylene capacity expected to be offline in June

　　IHS expects 6.3% of North American (NA) ethylene capacity to be offline inJune vs 8.5% in May. Per IHS, Lyondell’s Corpus Christi, TX cracker (2.2% NAethylene capacity) and Eastman’s Longview, TX 3A cracker (0.4% NA ethylenecapacity) and INEOS’ Chocolate Bayou, TX 1 cracker (2.8% NA ethylenecapacity) remain offline for planned maintenance. INEOS’ Chocolate Bayoucracker is expected to restart late next week. Dow’s PDH unit remains offlinefollowing a compression trip that occurred last week and is expected to remaindown for several weeks. For ’16, IHS is forecasting NA ethylene productionlosses of 4.4B lbs, or 5.5%, of NA ethylene capacity. This compares to NAethylene production loses of 3.3B lbs, or 4.3%, of NA ethylene capacity in2015.