德银-美股-化工商品行业-美国化工出货量上升0.9%-20180121-28页_697kb

Deutsche Bank Markets Research Summary

Core Content

This report provides an update on the US chemical and petrochemical markets, focusing on railcar loadings, commodity prices, production costs, and macroeconomic indicators. It also includes sector valuation metrics and key end market data.

Main Points

Chemical Railcar Loadings

• 4-week moving average of chemical railcar loadings increased by 0.9% in Week #3 (ended 1/13/2018), compared to a 1.3% increase in the prior week.
• Weekly loadings increased by 6.7% YoY and 12.9% sequentially, compared to -1.2% and 1.1% respectively in the prior week.
• Year to date (YTD) loadings are down 0.9%.
• Chemical railcar loadings represent 20% of total US chemical shipment tonnage, with trucks, barges, and pipelines making up the remaining.

Commodity Prices

• Ethane prices were roughly flat at 28 c/gal, falling 0.4 c/gal last week to 27.8 c/gal, with a fuel value of 21.2 c/gal.
• Propane prices rose 4 c/gal to 94 c/gal due to a 9% inventory draw.
• Spot ethylene prices increased by 1.3 c/lb to 28.8 c/lb, with margins expanding by 0.8 c/lb to 13.6 c/lb.
• Polymer grade (PG) propylene spot prices were higher, with January deals ranging from 58-60 c/lb.

Ethane Supply and Demand

• Ethane rejection peaked at 600k bpd in 1H16 but declined following the start-up of a 200k bpd export facility in Houston in 2H16.
• Ethane rejection is estimated at ~500k bpd in early 2018.
• With the ramp-up of 4 world-scale ethylene crackers in 2018-19, ethane prices are expected to trade toward a historical premium of ~10 c/gal over its fuel value.
• Estimated average ethane prices for 2018 and 2019 are 30 c/gal and 31 c/gal, respectively, compared to 24 c/gal in 2017.

Ethylene Production

• 1.7% of North American ethylene capacity was offline in January due to operational issues at Formosa's Point Comfort, TX cracker.
• Production losses in 2018 are forecasted at 4.4B lbs or 4.8% of capacity, compared to 5.2B lbs or 6.2% in 2017 and 4.5B lbs or 5.5% in 2016.
• Ethylene production costs are advantageous compared to other regions, as shown in Figure 10.

End Market Data

• Agriculture remains a key end market, with corn, soybeans, and wheat stocks-to-use ratios indicating supply concerns.
• US construction has stabilized since the mid-2009 lows and is showing signs of improvement.
• US automotive and electronics demand is influenced by PCB book-to-bill ratios and flame-retardant plastic additives.

Macroeconomic Indicators

• US output indicators show a correlation between railcar loadings and industrial production, with growth in railcar loadings ahead of industrial production.
• US financial market indicators include comparisons of sector multiples with the yield curve and other economic indicators.
• Overseas macro indicators highlight the Eurozone confidence indicators and German economic sentiment, showing positive trends.

Sector Valuation & Risks

• Valuation metrics include forward P/E, EV/EBITDA, FCF yield, and P/FCF ratios.
• Key valuation companies include:
  • Albemarle (ALB): Hold, Price $117.91, P/E 26.5 (2017E), EV/EBITDA 15.2, FCF Yield 0.3%, P/FCF 2.8
  • Ashland (ASH): Buy, Price $72.97, P/E 29.7 (2017E), EV/EBITDA 11.6, FCF Yield 1.2%, P/FCF 4.8
  • Eastman Chemical (EMN): Buy, Price $98.13, P/E 19.4 (2017E), EV/EBITDA 10.2, FCF Yield 5.0%, P/FCF 3.6
  • DowDuPont (DWDP.N): Buy, Price $76.01, P/E 26.5 (2017E), EV/EBITDA 15.2, FCF Yield 0.3%, P/FCF 2.8
• Risks include a recession in GDP, surge in energy prices, and sharp changes in chemicals-intensive industries such as housing and automotive production.

Key Figures and Tables

Figure 1: Chemicals railcar loadings for week ended January 13, 2018

• 4-week moving average: 0.9% YoY, -0.3% sequential
• Week ended: 6.7% YoY, 12.9% sequential
• YTD: -0.9% YoY

Figure 2: US Ethylene Production Cash Costs

• Weekly Avg. Cents/Lb:
  • Purity Ethane: 13.5
  • Butane: 17.4
  • Co-Prod. Int. Lt. Naphtha: 18.7
  • Gas Oil: 28.4
  • Propane: 20.4
  • Light Naphtha: 25.2
  • Weighted Avg.: 15.2

Figure 3: Mt. Belvieu Ethane Purity Prices (North America)

• Source: Bloomberg Finance LP

Figure 4: Mt. Belvieu Propane Non-TET (North America)

• Source: Bloomberg Finance LP

Figure 5: US Ethylene Pipeline Gulf Coast FOB Spot Prices (c/lb)

• Source: IHS Chemical

Figure 6: US Chemical Grade Propylene Gulf Coast FOB Spot Prices (c/lb)

• Source: IHS Chemical

Figure 7: US Spot Ethylene Cash Margins

• Cash margins fell from 18 c/lb in April to 10.9 c/lb in December, showing a trend of declining margins.

Figure 8: Propane Export Capacity (MM bbls/month)

• Enterprise: 7.5 (2013), 9 (2015), 16 (2016)
• Targa: 3-3.5 (2013), 5-5.5 (2014), 6.5 (2015), 7 (2016)
• Total: 10.5-11 (2013), 12.5-13 (2014), 15.5 (2015), 23 (2016)

Figure 9: China Acetic Acid Spot Prices

• Hit a six-year high due to short Chinese supply.

Figure 10: US Ethane-Based Ethylene Production Costs

• Advantaged vs. other regions, as shown in the chart.

Figure 11: US Ethane Supply

• Steadily increasing since 2005.

Figure 12: Chemical Distribution Channels

• Rail: 30% by tonnage, 20% by cost
• Truck: 48% by tonnage, 67% by cost
• Waterborne: 18% by tonnage, 10% by cost
• Pipeline, Air & Other: 4% by tonnage, 3% by cost
• Source: American Chemistry Council, 2010 data

Figure 13: Chemical and Petroleum Railcar Loadings (4-wk m.a., % YoY)

• Source: Association of American Railroads

Figure 14: Four-Week Moving Average of Weekly Railcar Loadings

• Source: Association of American Railroads

Figure 15: Sequential Growth in Weekly Chemical Railcar Loadings

• Source: Association of American Railroads

Figure 16: Weekly Railcar Loadings (000s)

• Source: Association of American Railroads

Figure 17: Four-Week Moving Average of Weekly Railcar Loadings, % YoY (2000-Present)

• Source: Association of American Railroads

Figure 18: Four-Week Moving Average of Weekly Railcar Loadings (000's)

• Source: Association of American Railroads

Figure 19: US Chemical Companies Revenue Exposures

• Key end markets include Agriculture, Construction, Automotive & Electronics.

Figure 20: Corn, Soybeans & Wheat Stocks-to-Use Ratio

• Source: Deutsche Bank, USDA

Figure 21: US Corn and Soy Acreage

• Source: Deutsche Bank, USDA

Figure 22: US Corn Yields

• Source: Deutsche Bank, USDA

Figure 23: US Soybean Yields

• Source: Deutsche Bank, USDA

Figure 24: Global Corn Consumption

• Source: Global Insights

Figure 25: Arable Land Per Capita

• Source: Global Insights

Figure 26: US Construction Data

• Stabilized since mid-2009 and showing improvement.

Figure 27: Private Non-Residential Construction

• Surpassed public non-residential construction.

Figure 28: North American Auto Builds

• Source: Deutsche Bank, Wards, Deutsche Bank Autos Team

Figure 29: North American Rigid PCBs Board Book-to-Bill Ratio

• Source: IPC (Association Connecting Electronics Industries)

Figure 30: US Chemicals and Petroleum Shipments

• Source: Waterborne Commerce Statistics Center

Figure 31: Chemicals Railcar Loadings, Capacity Utilization, and Industrial Production

• Source: Waterborne Commerce Statistics Center

Figure 32: Growth in Railcar Loadings vs. Industrial Production

• Source: Association of American Railroads, Federal Reserve

Figure 33: ECRI Leading Index vs. Industrial Production

• Source: Federal Reserve, ECRI, Reuters

Figure 34: Industrial Production vs. ISM PMI Index

• Source: Federal Reserve, ISM

Figure 35: Industrial Production vs. ISM Mfg. New Orders

• Source: Federal Reserve, ISM

Figure 36: Industrial Production vs. Conference Board Leading Indicators

• Source: Federal Reserve, Bloomberg Finance LP

Figure 37: Conference Board Leading Indicators vs. Real GDP

• Source: Deutsche Bank, Reuters

Figure 38: Chemicals Sector Multiples vs. Yield Curve

• Source: Thomson One

Figure 39: Steeper Yield Curve and Chemicals IP

• Source: Federal Reserve, ISM

Figure 40: Eurozone Confidence Indicators

• Source: Bloomberg Finance LP, European Commission, Ifo

Figure 41: ZEW German Economic Sentiment

• Source: Bloomberg Finance LP, ZEW center for European Econ. Research

Figure 42: OECD Europe CLI vs Euro Area Industrial Production

• Source: Haver Analytics, OECD, Thomson One, Eurostat

Figure 43: Chemicals Valuation Ratios

• Albemarle (ALB): Hold, Price $117.91, P/E 26.5 (2017E), EV/EBITDA 15.2, FCF Yield 0.3%, P/FCF 2.8
• Ashland (ASH): Buy, Price $72.97, P/E 29.7 (2017E), EV/EBITDA 11.6, FCF Yield 1.2%, P/FCF 4.8
• Eastman Chemical (EMN): Buy, Price $98.13, P/E 19.4 (2017E), EV/EBITDA 10.2, FCF Yield 5.0%, P/FCF 3.6
• DowDuPont (DWDP.N): Buy, Price $76.01, P/E 26.5 (2017E), EV/EBITDA 15.2, FCF Yield 0.3%, P/FCF 2.8

Figure 44: Chemicals Valuation Ratios (cont'd)

• Industrial Gases:
  • Air Products (APD): Buy, Price $166.90, P/E 26.5 (2017E), EV/EBITDA 1.21, FCF Yield 4.1%, P/FCF 24.7
  • Praxair (PX): Hold, Price $161.50, P/E 27.8 (2017E), EV/EBITDA 1.28, FCF Yield 15.0%, P/FCF 31.2
• Differentiated Chemicals:
  • Celanese (CE): Buy, Price $111.03, P/E 15.1 (2017E), EV/EBITDA 0.69, FCF Yield 10.0%, P/FCF 3.2

Conclusion

The report outlines the current state of the US chemical and petrochemical markets, highlighting the trends in railcar loadings, commodity prices, and production costs. It also discusses key end market data, macroeconomic indicators, and sector valuations, providing a comprehensive overview of the industry's performance and outlook. The valuation analysis includes forward P/E, EV/EBITDA, and FCF yield metrics, while the risks section emphasizes the interplay between industrial production and energy prices.