Railcar &PetroChemical Update:US Chemical Shipments up 2.2%.Ethane up 4c/gal to 24c/gal

　　Railcar loadings 4-week moving avg up 2.2%. Weekly loadings down 4.3%.

　　The 4-week moving average of chemical railcar loadings increased 2.2% inWeek #23 (ended 06/04/2016) vs. a 3.7% 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 declined 4.3% YoY (versus a 8.4% increase in the priorweek) and declined 11.6% sequentially (vs. a 3.7% increase in the prior week).

　　Ethane prices up 4 c/gal to 24 c/gal. Propane flat at 51 c/gal.

　　Ethane prices traded up 4 c/gal this week to Friday’s closing price of 24 c/gal(vs its fuel value of 16 c/gal). In 2H16-’17, we expect ethane to trade at or nearits fuel value plus 10 c/gal (its historical premium to account for fractionation,transportation and storage costs). Based on DB’s US Natural Gas priceforecasts of $2.25/MMBtu in ’16 and $2.75/MMBtu in ’17, this results in anethane price range of roughly 25-30 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 2H‘17 owingto Enterprise Products’ new 200k bpd ethane export facility (expected on-lineQ3’16) and the start-up of 7 greenfield ethylene crackers in ’17-’18 (up to 540kbpd of demand).

　　Propane prices were flat this week at 51 c/gal. Propane inventories rose 3%this week to 75MM bbls and are 35% and 47% 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 contract 1 c/gal to 12 c/lb.

　　Spot ethylene prices were flat this week at 25 c/lb (vs the May contract price of30.0 c/b). The spring turnaround season in the US crackers remains ongoingwith three crackers currently down for maintenance. Spot deals for Junedelivery were completed between 24-26.25 c/lb with deals for July rangingfrom 24.375-26.25 c/lb. Spot ethylene margins compressed 1 c/lb this week to12 c/lb as cash costs increased on higher feedstock prices. Polymer grade (PG)propylene spot prices were flat last week with deals for May deliverycompleted at 30.375 c/lb. This compares to March 2015 PG and CG contractprices 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 La Porte, TX cracker (3.4% of NAethylene capacity) was down this week following a power outage at the site.

　　Lyondell’s Corpus Christi, TX cracker (2.2% of NA ethylene capacity) andEastman’s Longview, TX 3A cracker (0.4% NA ethylene capacity) remainoffline for planned maintenance. Dow’s PDH unit remains offline following acompression trip and is expected to remain down for several weeks. For ’16,IHS is forecasting NA ethylene production losses of 4.4B lbs, or 5.5%, of NAethylene capacity. This compares to NA ethylene production loses of 3.3B lbs,or 4.3%, of NA ethylene capacity in 2015.