Railcar loadings 4-week moving average up 1.9%. Weekly loadings down 0.8%

　　The 4-week moving average of US chemical railcar loadings increased 1.9% inWeek #32 (ended 08/06/2016) vs. a 0.5% decrease the prior week. LoadingsYTD are up 1.9%. Chemical railcar loadings represent 20% of US chemicalshipment tonnage (versus 54% for trucks and 22% for barges/ships), offering atrend of broader chemical industry activity and demand. The more volatilemeasure of weekly loadings declined 0.7% YoY (versus a 3.1% increase in theprior week) and declined 1.3% sequentially (vs. a 1.9% increase in the priorweek)

　　Ethane prices down 1 c/gal to 16 c/gal. Propane up 1 c/gal to 44 c/gal

　　Ethane prices fell 1 c/gal this week to 16 c/gal (vs its fuel value of 17 c/gal).With US ethane supply/demand fundamentals loose (ethane rejection remainsat near-record levels of 500-600k bpd), we expect ethane to trade at or near itsfuel value, or 17-20 c/gal, for the remainder of the year. However, startingin’17, we expect ethane supply/demand fundamentals to tighten due toincreased exports (led by Enterprise Products’ new 200k bpd ethane exportfacility which is expected to export its first cargo in August) and the start-up of8 greenfield ethylene crackers in ’17-’19 (up to 600k bpd of demand). As themarket tightens, we expect ethane to trade towards and eventually thru itshistorical value of fuel value plus ~10 c/gal - with the premium accounting forfractionation, transportation and storage costs. With new sources of ethane(Marcellus, Utica, Bakkan) further away from the US Gulf Coast, we expect theaverage shipping costs for ethane to increase, pushing the ethane pricepremium to fuel value to ~15 c/lgal. Based on DB’s ’17 US Natural Gas priceforecast of $3.13/MMBtu, we estimate ethane prices will total 30 c/gal in ‘17.Propane prices rose 1 c/gal this week to 44 c/gal. Propane inventories rose 2%this week to 92MM bbls and are 23% and 34% above their 3- and 5-yearaverages, respectively. Longer term, we expect propane inventories to declinedue to higher exports (up 12% in ’15 vs 30% in ’14, expected to be up in ’16 vs‘15).

　　Spot ethylene up 1 c/lb to 33 c/lb. Margins expand 2 c/lb to 24 c/lb

　　Spot ethylene prices rose 1 c/lb this week to 33 c/lb (vs the July contract priceof 30.25 c/b). Spot deals for August delivery were completed between 31.25 to35 c/lb and deals for September were completed between 31.50 to 32.75 c/lb.Spot ethylene margins expanded 2 c/lb this week to 24 c/lb on lower feedstockprices. Polymer grade (PG) propylene spot prices were higher this week withdeals for August delivery completed between 34.50-36.50 c/lb. July PG and CGcontract prices settled up 0.5 c/lb to 33.5 c/lb and 32.0 c/lb, respectively. Themajor propylene price drivers are steam cracker turnarounds opposite weakglobal propylene prices and return to operation of both US PDH units.

　　6.9% of North American ethylene capacity expected to be offline in August

　　IHS expects 6.9% of North American (NA) ethylene capacity to be offline inAugust vs 8.1% in July. Per IHS, ExxonMobil’s Baton Rouge, LA cracker (2.8%of NA ethylene capacity) remains offline following a compressor trip last week,with the outage expected to restart next week. For ’16, IHS is forecasting NAethylene production losses of 4.1B lbs, or 5.2%, of NA ethylene capacity. Thiscompares to NA ethylene production loses of 3.1B lbs, or 4.1%, of NA ethylenecapacity in ‘15.