US Chemical Preview | Shipments down 7.4%; Ethane up 6.3 c/gal to 32.4 c/gal

The 4-week moving average of US chemical railcar loadings has reduced for the 43rd consecutive week, with a decline of 7.4% in Week #27. Chemical railcar loadings represent 20% of US chemical shipment tonnage, which indicates the overall demand and activity of the chemical industry. The weekly loadings measure has dropped by 12.9% YoY and sequentially by 12.4%. However, YTD, US chemical railcar loadings are down only by 1.5%.

Ethane prices have increased by 6.3 c/gal to 32.4 c/gal, mainly due to higher natural gas prices. In 2022, ethane prices rose to 48 c/gal primarily due to the same reason. A long-term prediction states that ethane prices would trade towards its historical premium, which is approximately 10 c/gal above fuel value. This premium reflects various costs, including fractionation, transportation, and storage costs. If natural gas prices remain at $3.00/MMBtu, then including the 10 c/gal premium, the predicted ethane prices would be 30 c/gal.

Propane prices experienced an increase of 4.6 c/gal to 63.6 c/gal due to higher oil prices. Future propane prices are likely to remain volatile, driven by oil price fluctuations and geopolitical risks. The propane inventories witnessed an increase of 3% over the last week, accumulating to 84MM bbls, which is 31% more than the three-year averages and 26% more than the five-year averages. However, it is expected that propane inventories will decrease in the future due to higher exports.

Spot ethylene prices rose to 15.8 c/lb last week, indicating an increase of 0.4 c/lb. It is expected that spot ethylene prices will decline in the upcoming weeks due to stabilizing or lower feedstock and energy prices and increased supply from the Gulf Coast Growth Ventures, partially offset by higher planned and unplanned outages. Average spot-ethylene margins were down 1.6 c/lb on higher cash costs. Polymer grade propylene spot prices were lower with deals for July ranging between 32-33 c/lb and August delivery in a range of 32-34 c/lb.

The USGC ethylene market remains long due to persistent sluggish demand while capacity continues to increase with the recent start-up of Shell's Monaca, PA cracker and the expansion of NOVA Chemical's Corunna, Canada cracker. Bayport's Port Arthur, TX cracker has restarted, but Formosa's Point Comfort, TX cracker restart may face delay until at least September. On July 13, there was a pipeline explosion and fire outside the Ineos Bayou, TX cracker, and the full impact on supply is still unknown. US ethylene inventories will most likely remain elevated but may fall within the 5-year average range in Q3'23 due to reduced operating rates, increased demand, and unplanned outages.