德银-美股-化工商品行业-美国化工品出货量上升3.1%-20171211-28页_701kb

Deutsche Bank Markets Research Summary

Core Content

This document provides an analysis of the US chemical industry, focusing on railcar loadings and petrochemical trends as of Week #49 (ended 12/2/2017). It includes insights into chemical shipment volumes, ethane and propane price movements, ethylene production costs, and market outlooks. The report also touches on end market data, macroeconomic indicators, and sector valuation metrics.

Main Points

Chemical Shipments

• Railcar Loadings:
  • The 4-week moving average of chemical railcar loadings increased by 3.1% in Week #49, compared to a 3.6% increase the prior week.
  • Weekly loadings rose 4.0% YoY.
  • Year-to-date (YTD) chemical railcar loadings are up 1.09%.
  • Railcar loadings represent 20% of total US chemical shipment tonnage, indicating broader industry activity.

Ethane and Propane Prices

• Ethane Prices:

  • Fell 4.3 c/gal to 20.4 c/gal, down from its fuel value of 18 c/gal.
  • The decline was due to reduced demand from the maintenance of the DowDuPont ethylene cracker and inventory management by producers.
  • US ethane supply/demand fundamentals are expected to tighten in 1H'18 due to new demand from 8 greenfield ethylene crackers.
  • By year-end 2017, ethane prices are projected to reach 30 c/gal, reflecting historical premiums of ~10 c/gal.

• Propane Prices:

  • Fell 0.5 c/gal to 97.3 c/gal.
  • Propane inventories increased 2% to 74MM bbls, but remain 19% and 9% below 3 and 5-year averages, respectively.
  • Propane export capacity has grown significantly, from 23 MM bbls/month in 2016 to higher levels in prior years.

Ethylene Production and Margins

• Spot Ethylene Prices:

  • Rose 0.6 c/lb to 27.8 c/lb, with deals for December ranging from 27.375 to 28.25 c/lb.
  • January deals range from 26.25-29.25 c/lb.
  • Margins increased 1.5 c/lb to 12.5 c/lb due to higher selling prices and lower production costs.

• Polymer Grade Propylene Prices:

  • Spot prices declined last week, with December deals at 47-47.5 c/lb.
  • November contract prices for PG propylene increased 1 c/lb to 49.0 c/lb, while chemical grade increased to 47.5 c/lb.
  • Prices rose 9.5 c/lb, or 24%, since September, driven by supply tightness from Hurricane Harvey.

Ethylene Production Capacity

• Offline Capacity:
  • 4.2% of North American ethylene capacity is expected to be offline in December.
  • Key facilities offline include:
    • CPChem's Cedar Bayou, TX cracker (2.1% of NA ethylene capacity)
    • Shell Chemical's Norco, LA cracker (2.1% of NA ethylene capacity)
    • DowDuPont's Freeport, TX LHC-9 cracker (3.8% of NA ethylene capacity)
  • IHS forecasts 5.1B lbs, or 6.1%, of capacity loss in 2017, compared to 4.5B lbs, or 5.5%, in 2016.

Key Information

Market Outlook

• The chemical industry is expected to show continued growth in railcar loadings, with the 4-week moving average outpacing industrial production.
• The ECRI Leading Index and Industrial Production show a strong correlation, as do other macroeconomic indicators such as the ISM PMI Index and Conference Board Leading Indicators.
• The yield curve is a key factor in the valuation of the chemicals sector.

Sector Valuation

• Companies are valued based on:
  • Forward P/E multiples
  • Forward EV/EBITDA multiples
  • Cash Return on Cash Invested (ROIC)
• The chemicals sector is compared to the S&P 500 and other financial metrics such as FCF Yield and P/FCF.
• Valuation Ratios are provided for various segments, including Specialty Chemicals, Coatings, and Industrial Gases.

Investment Recommendations

• Top Picks:
  • DowDuPont (DWDP.N): $70.73, Buy
  • Ashland (ASH.N): $70.14, Buy
  • Eastman Chemical (EMN.N): $92.18, Buy

Risks

• Chemical volumes are closely tied to industrial production.
• Input costs are linked to energy prices (e.g., oil, natural gas).
• Key risks include:
  • A recession in GDP (domestic or international)
  • A surge in energy prices
  • Sharp deterioration or improvement in chemicals-intensive sectors such as housing and automotive production

Conclusion

The report highlights the growth in chemical railcar loadings, the impact of supply and demand dynamics on ethane and propane prices, and the trends in ethylene production. It also outlines the valuation metrics and investment recommendations for key chemical companies, while noting the risks associated with the sector, including economic downturns and energy price fluctuations.