Railcar&PetroChemical Update：US Chemical Shipments Down 0.1%.Ethane up 2c/gal to 24c/gal.

Deutsche Bank Markets Research North America United States Industrials Chemicals/Commodity Periodical Railcar & PetroChemical Update Date 2 April 2017 US Chemical Shipments Down 0.1%. Ethane up 2c/gal to 24c/gal. Railcar loadings 4-week moving average down 0.1%. Weekly loadings up 4.7% ________________________________________________________________________________________________________________ Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016. David Begleiter Research Analyst (+1) 212 250-5473 david.begleiter@db.com Katherine Griffin Research Associate (+1) 212 250-7265 katherine-a.griffin@db.com Top picks Dow Chemical (DOW.N),USD63.54 Buy DuPont (DD.N),USD80.33 Buy Ashland (ASH.N),USD123.81 Buy Source: Deutsche Bank Weekly Price Performance -8.00%-3.00%2.00%MONVALWLKPSHWAPDOLNPOTCEFULDOWS&PCOMPDDALBECLPPGXLBMOSGRAPXEVGNCBTCMPFOETSELYBAXTAEMNKROHUNOMNCCFMC Source: Factset, Deutsche Bank We maintain our equal-weight stance on the sector Within the chemicals sector, our top ideas are Dow Chemical (DOW, $63.54, Buy, TP $70), DuPont (DD, $80.33, Buy, TP $90) and Ashland (ASH, $123.81, Buy, TP $125) The 4-week moving avg of chemical railcar loadings declined 0.1% in Week #13 (ended 03/25/2017) vs. a 2.0% decrease the prior week. Loadings YTD are down 0.5%. Chemical railcar loadings represent 30% of total US chemical shipment tonnage (followed by trucks, barges, and pipelines), offering a trend of broader chemical industry activity and demand. The more volatile measure of weekly loadings increased 4.7% YoY (versus a 0.1% decline in the prior week) and increased 2.4% sequentially (vs. a 1.6% increase in the prior week). Ethane prices up 2 c/gal to 24 c/gal. Propane up 3 c/gal to 60 c/gal Ethane prices rose 2 c/gal last week to 24 c/gal (vs its fuel value of 21 c/gal). While US ethane supply/demand (s/d) fundamentals remain loose, ethane rejection, which peaked at 500-600k bpd in 1H16, has declined following the September start-up of Enterprise Products’ 200k bpd ethane export facility in Houston. Coupled with higher natural gas prices, ethane prices have nearly doubled since the beginning of ‘16. Starting in 2H17, we expect US ethane s/d fundamentals to tighten further driven by 600k bpd of new demand from the start-up of 8 greenfield ethylene crackers in ’17-’19. As the market tightens, we expect ethane to trade toward its historical premium of ~10c/gal vs its fuel value, with the premium reflecting fractionation, transportation and storage costs. Based on DB’s ’17 US Natural Gas price forecast of $3.13/MMBtu, we estimate ethane prices will move toward 30 c/gal by y/e ‘17. Propane prices rose 3 c/gal last week to 60 c/gal. Similar to ethane, propane prices are up sharply from their early ’16 lows (of 30-35 c/gal). Propane inventories declined 3% this week to 43MM bbls and are 21% and 7% below their 3 and 5-yr avgs, respectively. Longer term, we expect propane inventories to decline due to higher exports (+20% in ’16 vs up 12% in ‘15, up in ’17E). Spot ethylene down 0.3 c/lb to 28.3 c/lb. Margins compress 0.3 c/lb to 21.5c/lb Spot ethylene prices fell 0.3 c/lb last week to 28.3 c/lb (vs a likely March contract price of 30 c/lb, down 5-6 vs February). Spot deals for March delivery ranged between 27.5-29 c/lb with deals for April ranged between 28-29.5 c/lb. Average spot ethylene margins were down 0.3 c/lb this week to 21.5 c/lb as selling prices fell slightly and production costs remained flat. Polymer grade (PG) propylene spot prices were lower last week with deals for March delivery at 49 c/lb and deals for April delivery of 48 c/lb, down 0.75 c/lb from the prior week. March propylene contract prices settled up 4.0 c/lb on tight supplies and lower inventories (at 52.0 c/lb for PG and 50.5 for chemicals grade). 2.5% of North Amrican ethylene capacity expected to be offline in April. IHS expects 2.5% of North American (NA) ethylene capacity to be offline in April vs 2.6% in March. Per IHS, Chevron Phillips Chemical Sweeny, TX #33 cracker (2.6% of NA ethylene capacity) came back on-line two weeks ago following planned turnaround work. Meanwhile Westlake’s Calvert City, KY cracker (0.8% of NA ethylene capacity) and Dupont’s Orange,TX cracker (1.7% of NA ethylene capacity) will be offline for short turnarounds in April. For ’17, IHS forecasts NA ethylene produ