Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Thematic (Sector/Industry)

KEY HIGHLIGHTS

WTR-CMI last week.&nbsp;The stock market continued to claw back from summer lows last week, with the S&amp;P 500 appreciating 3.3% W/W and the broader Russell 2000 posting a 4.9% gain. Unlike the previous week however, our WTR-CMI index of 30 chemicals and materials technology stocks outpaced both broader indexes with a 7.8% improvement, led by lithium stocks buoyed by continuing strong demand for EVs and&nbsp;sticky lithium prices that are expected to remain elevated. EAF, whose investors continue to digest the secondary offering, PKE, and AVD were the underperformers in our index last week.
AVNT’s transformation continues.&nbsp;The company announced an&nbsp;agreement to sell its domestic plastic Distribution business to H.I.G. Capital&nbsp;for $950 million in cash, or about 10x TTM EBITDA, a valuation reflective of the business’ strong market position in North America and industry-leading operating margins. Net proceeds of ~$750 million will be used to de-lever the balance sheet following the recent DSM acquisition.
ALB going all-in in North Carolina.&nbsp;The leading global lithium producer has&nbsp;plans for a mega-plant in North Carolina&nbsp;that would process 100,000 metric tons (mt) of lithium annually, using spodumene from the company’s Kings Mountain mine, other sources, as well as recycled material, once widely available. The project is in the pre-feasibility stage with a tentative date of 2029.
July Chinese new car sales show strong growth.&nbsp;It appears that&nbsp;July new passenger car sales in China increased 40% Y/Y&nbsp;as the country continues to recover from COVID lockdowns that crushed late spring demand. However, while&nbsp;new energy vehicle (NEV) sales were up a strong 129% Y/Y&nbsp;in the month, they were down M/M compared with a record June,&nbsp;while overall sales slipped 3% versus June. Also, YTD new passenger vehicle sales were still down 2% compared with the first seven months of 2021. Commercial vehicles were also down 22% Y/Y in July.
Seed treatment applications projected to grow.&nbsp;According to a&nbsp;new study by MarketsandMarkets, the seed treatment market is expected to grow at an 8.3% CAGR over the next five years, even faster for biobased ingredients, which is a positive for BIOX, which is building all-biobased seed treatment options.

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; August 12 close

Ag-Tech and Bio-Ag
A tough end to a tough season.&nbsp;In the 2021-22 ag season, farmers had to deal with skyrocketing prices for ag inputs, from seeds to fertilizers to pesticides, as well as surging diesel and gasoline costs, supply chain disruptions, and uncooperative weather. Despite all that, US farmers planted near-record acres and were expecting, with the USDA’s blessing, near-record yields for their row crops. However, late plantings, high heat, drought, and high winds appear to be taking the shine off bullish bushel expectations. In its August 12 report,&nbsp;the USDA&nbsp;reduced yield expectations for corn and raised them slightly for soybean, although the latter has drawn some skepticism and may or may not be confirmed with field tours. In fact, lack of rain appears to have affected crop conditions in&nbsp;Nebraska&nbsp;and&nbsp;Iowa, shaving off the more optimistic yield projections.
Despite still high commodity prices and, in our opinion, high likelihood that they will remain elevated into 2023, given global supply and food scarcity concerns, 2022 farmer income may be down more than 50% from a record 2021 due mainly to record price increases in crop inputs, fuel, and energy. A report from&nbsp;the University of Illinois forecasts&nbsp;that with input and farmland cost continuing to increase and revenues staying flattish, farm income in 2022-23 may decline as much as 80% compared with this year! That would not be good news for farmers or major suppliers in the ag industry, as it is difficult to imagine farmers maintaining their purchasing power and being able to afford the volume and price of inputs that they were able to handle this year. While this may provide opportunities for emerging biobased input companies, like BIOX and BHIL, to gain market share and expand their geographic and crop footprint, it may not be good news for ag input majors, such as CTVA, AVD, FMC, and CF, as they may experience demand destruction due to high prices, seed margin pressures from elevated energy and raw material costs, and may have to reduce their own prices to sustain demand.
Battery Materials &amp; Energy Transformation
China’s dominance remains conspicuous.&nbsp;While several companies are attempting to establish a presence in the EV battery industry, including some profiled in these updates,&nbsp;half of all batteries installed in 1H22 came from two Chinese companies—CATL and BYD—according to market research company SNE Research, underscoring China’s continued dominance and control over the EV industry supply chain, from lithium and graphite materials to cell and battery pack manufacturing. Although the country is the largest EV market, growing at the fastest pace, which helps explain the initial rush by global battery and materials players to establish operations in China, the COVID-induced supply chain disruptions, the war in Ukraine and its economic aftermath, and China’s increasingly aggressive posture toward Taiwan, APAC, and the West, have given industry players pause and led to increasing efforts to domesticate supply of critical materials and components, or at the very least diversify the supply away from China. Clearly, these efforts are still in the very early stages with few noticeable results as of yet. Nonetheless, we believe domestic suppliers, as well as those outside of China, will continue to receive more attention and capital from both existing and emerging battery manufacturers, as well as EV OEMs—Tesla’s recent contracts worth $5 billion&nbsp;with Indonesia’s nickel converters being but the latest example. We see these trends as being highly positive for companies looking to establish domestic lithium and graphite production, such as ALB, PLL, LAC, WWR, and NMG.
Yet another way to skin the EV battery cat.&nbsp;As the green energy industry continues to grow and evolve, new technologies, chemistries, and manufacturing methods are being explored and developed to help the world accelerate the transition to a non-fossil energy paradigm. Such efforts range from novel sources of lithium (like geothermal wells and the Great Salt Lake) to solid state battery technologies to novel battery cathode and anode chemistries. Yet another wrinkle being added is 3-D printing of batteries, as exemplified by&nbsp;Sakuu, a California-based developer&nbsp;of such technologies, which recently opened a new engineering center in Silicon Valley, having raised more than $60 million in funding earlier this year. Solid state batteries offer real advantages versus current EV battery technology, but efforts to successfully scale up pilot plant processes have so far fallen short of expectations. Nevertheless, the technology remains an attractive area of R&amp;D and perhaps the 3D printing approach can be the final piece of the puzzle to commercial production and industry acceptance.
Chemicals and Materials Technology in the News
Five- to 10-year growth prospects remain robust for many industry sectors.&nbsp;Used in everything from adhesives to coatings to composites, epoxy resins are an important part of the chemicals and materials industry. A recent report by Fact.MR, a market research and competitive intelligence provider, forecasts that the&nbsp;epoxy resin industry will experience a 6.9% CAGR over this decade, or more than twice the expected growth of global GDP, making the sector a clear GDP-plus grower, which should appeal to growth investors. Light-weighting in automotive and transportation applications, superior strength in wind and solar applications, and growing usage in construction applications are driving this strong growth. We see this as a positive for several companies in our index, including AVNT, FUL, HXL, and RPM, as well as commodity chemicals players such as DOW and HUN. The&nbsp;global plastics market, which is expected to reach nearly $800 billion in 2022 is projected to grow at slightly GDP-plus rate of 3.7% CAGR through 2032, driven by continuing product substitution and light-weighting trends and despite the increasing efforts to reduce or eliminate single use plastics. Within this massive markets, certain sub-sectors are expected to see even faster growth. Thus, the&nbsp;polyolefin elastomer and plastomer market&nbsp;is expected to grow at nearly double the rate of the plastics industry overall, or a 7.6% CAGR through 2031, reaching nearly $8 billion in sales by that time. And the much larger&nbsp;plastic market for automotive applications, which is valued at $31 billion annually, is expected to grow at a 5.3% CAGR and reach $45 billion by 2028. We see these trends as being highly beneficial to AVNT, a global leader in engineered plastics and composites. We also believe the growing trend toward recyclability and away from fossil-based raw materials will benefit companies such as Loop Industries, Inc. (NASDAQ: LOOP).
High prices and stalled economy are not a good recipe.&nbsp;Even as&nbsp;pricing dynamics for basic chemicals&nbsp;and raw materials are improving, as prices of commodities come off early summer highs, the global economic slowdown, and outright recession that may be overtaking developed countries in 2H22 are continuing to&nbsp;worry both company executives and investors. The chemicals and materials technology sector, situated between basic commodity chemicals producers and industry and consumer end-customers, may be better positioned to weather these headwinds versus other markets, as they are likely to continue to drive higher prices into the market in 2H22 and perhaps even 1H23, while seeing their RM costs begin to decline, at least sequentially. As these companies’ cost structure contain higher levels of variable versus fixed costs, the negative impact on margins of expected volume declines won’t be nearly as strong as the positive impact of shrinking RM-cost and selling-price spreads, helping margin recovery and driving higher valuations and stock prices in the process.
Circular economy.&nbsp;Speaking of packaging and single-use plastics, industry efforts continue to address the sustainability characteristics of packaging in general and plastic packaging in particular. Certainly a major force behind the evolution is the&nbsp;increasing government focus on the issue of sustainability and circular economy, with ever stricter regulations and out-year targets for carbon net-zero, and other societal initiatives. However, just as important is the voice of the consumer and business’ efforts to innovate to drive product differentiation in an increasingly competitive market segments. Coca-Cola’s drive to&nbsp;reinvent the water/pop plastic bottle with high recycled content, in some cases as high as 100%, is one such example. A new kid on the block—Loop Industries—whose technology allows for the production of virgin-quality PET resins from no- to low-value plastic waste specifically for beverage bottles and other packaging applications may stand to benefit from brand owners developing programs to meet regulatory goals on recycled content and circular economy. In fact, the company already has a success story with the 2022 launch of its branded Infinite LOOPTM&nbsp;PET resin bottle with Avian in South Korea and the more recent partnership with Danone.
Rating and Price Target Changes
ALB –&nbsp;Deutsche Bank raise its price target (PT) to $270 from $255 and reiterated its Buy recommendation.
CMP –&nbsp;Stifel raised its PT to $70 from $69 and reiterated its Buy rating.
CTVA –&nbsp;JP Morgan upgraded the stock to Buy from Neutral and raised its PT to $63 from $58; Roth raised its PT to $74 from $67 and reiterated its Buy rating; Citigroup raised its PT to $69 from $63 and reiterated its Buy rating; Deutsche Bank lowered its PT to $68 from $72 and reiterated its Buy rating; Mizuho Securities raised its PT to $69 from $68 and reiterated its Buy rating; RBC raised its PT to $72 from $67 and reiterated its Outperform rating; Berenberg Bank raised its PT to $66 from $58 and reiterated its Buy recommendation.
EAF –&nbsp;Citigroup lowered its PT to $7.50 from $10 and maintained its Neutral rating; Credit Suisse lowered its PT to $13 from $16 and reiterated its Outperform rating.
KWR –&nbsp;Deutsche Bank raised its PT to $210 from $175 and reiterated its Buy recommendation.
VVV –&nbsp;Citigroup lowered its PT to $35 from $37 and reiterated its Buy recommendation.
Recent WTR Publications and Upcoming Events
Upcoming Events
Fireside Chat with Management of Loop Industries, Inc. (NASDAQ: LOOP)
Recent Events and Publications
Management Series Report and 2Q22 Update for Westwater Resources, Inc. (NYSE: WWR)
Fireside Chat with Management of Westwater Resources (NYSE: WWR)
Initiation of Coverage – Westwater Resources, Inc.
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Mat-Chem Notes for the Week Ended August 14, 2022

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;Our WTR-CMI index of 30 chemicals and materials technology stocks couldn’t keep up with the broader market last week, slipping 0.4% versus the prior week, while the S&amp;P 500 posted a 0.4% appreciation and the Russell 2000 rallied 1.9% for the week. Strong 2Q22 results and a strong outlook drove KWR stock up 15.3% and contributed to MTRN’s 8.6% appreciation, with LAC’s 7.7% improvement rounding out the top performers for the week. ECVT’s larger&nbsp;secondary offering priced at $8.75&nbsp;resulted in a 12.9% pullback for the stock, while VVV declined 11% despite announcing the&nbsp;sale of its Global Products business to Aramco, as investors remained concerned about margin pressures and longer-term prospects for a company still largely focused on ICE vehicle maintenance. EAF’s (9.6%) weekly performance also came courtesy of the outlook it provided on its 2Q22 earnings call, which highlighted slowing steel production and elevated costs.
Economic anxiety growing.&nbsp;Concerns over the&nbsp;impact of reduced gas supply from Russia&nbsp;and its impact on industrial production in the country were recently voiced as a reason for the cautious outlook for the balance of 2022 and into 2023, according to Covestro Germany. In yet another sign of a growing economic slowdown, domestic&nbsp;organic produce volumes declined 2.8%&nbsp;Y/Y in 2Q22, as prices went up 6.7%, indicating that consumers are becoming more price conscious as inflationary pressures heat up. This would not be good news for consumer-centric companies such as SHW, PPG, RPM, and VVV, as customer trade-downs may add mix pressures to the volume and FX headwinds.
Chip crunch prompts greater OEM involvement.&nbsp;As the chip shortage for the automotive industry&nbsp;continues to take a bite out of global production, OEMs are being looked to as reliable funding partners for future semiconductor fabs, as&nbsp;chip manufacturers look to offload some of the funding burden&nbsp;onto the ultimate customer in order to ensure the situation does not repeat once the current crunch is over,&nbsp;sometime in 2023.
LTHM gets prepayment from GM.&nbsp;In the last issue, we highlighted GM’s supply agreement with LTHM and last week we learned that the&nbsp;auto OEM is prepaying LTHM $198 million&nbsp;to ensure a six-year contractual supply—another indication of growing material availability concerns in the EV industry.

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; August 5 close

Ag-Tech and Bio-Ag
Farmland acres grow globally but shrink in the US.&nbsp;According to a recent article,&nbsp;global farm acreage has increased&nbsp;in 2000’s after the flattish 1980-2000 period, with most of the growth coming from LATAM, India, and former CIS regions, with oilseed crops, particularly soybeans, accounting for most of the increase. Conversely,&nbsp;domestic farm acres shrank&nbsp;over the past two decades, as succession decisions and urban and suburban development are removing 2,000 acres per day from domestic farming and grazing lands. We mentioned this trend in our previous reports and see this as a driver of adoption of newer ag technologies, including precision farming, seed treatment, and bio-based pesticide and fertilizer alternatives, which are all designed to improve yields and minimize environmental impact in order to produce more without needing more farmland. Companies such as BHIL and BIOX, as well as FMC, CTVA, and AVD, stand to benefit as use of inputs/acre grows, with BIOX and FMC being particularly well positioned given their strong LATAM presence and FMC’s over-representation in soybean and rapeseed markets.
As concerns over food scarcity grow, government regulators turn a deaf ear.&nbsp;While the Ukraine/Russia agreement that allowed exports of Ukrainian grain to resume is encouraging, concerns are rising over the 2022-23 Ukrainian crop season.&nbsp;According to the USDA, Ukrainian production of sunflower seeds is expected to decline 37% versus this year, with Ukraine being the number one producer of sunflower seeds. The report also predicts a 35% Y/Y decline in wheat production in the 2022-23 season (Ukraine is the ninth-largest wheat producer in the world) and a whopping 54% drop in the country’s corn production (Ukraine is the sixth-largest corn producer in the world). And that’s if the war’s impact on Ukraine’s farming heartland doesn’t get worse! As a major exporter of grain and ag products, Ukraine’s limited ability to export foodstuff this year and uncertainty over supply next season is raising concerns among major importing regions such as India, Africa, and Asia as to their ability to provide sufficient food for their populace.
It would seem that in this environment, governments would be doing all they could to ensure the adequate supply of ag products to the global market, or at least their own. However, that may not be the case. As we highlighted in the last issue, Netherlands regulators are putting environmental regulations in place that would raise the cost (if not make it outright impossible) for smaller Dutch farmers to continue to produce, which has led to widespread farmer demonstrations across the country. Holland may not be alone in this drive to reduce farming’s impact on the environment at any cost. Its example&nbsp;may be followed by Canada and Ireland&nbsp;and there is concern that similar environmental rules, which seem to be specifically aimed at farming, may come to the US, given the green agenda of the current administration. Tone deaf does not begin to describe these initiatives and efforts, in our opinion.
Automotive &amp; Transportation
July picks up where June left off.&nbsp;The top three economies in Europe are reporting another Y/Y decline in July new car registrations.&nbsp;Germany saw a 13% drop, while&nbsp;the UK posted a slightly less onerous 9% Y/Y&nbsp;decline in new car registrations last month.&nbsp;French registrations&nbsp;also declined, but at a slightly slower 7% pace. And while the impact of chip shortages is waning on a Y/Y basis as we mentioned previously and the Y/Y declines in registrations may also show better comps in 2H22, a recovery in demand still lies beyond the line of sight, as new obstacles replace the old concerns. Gas rationing in Europe due to Russia’s influence over gas supply to the region, higher model prices as OEMs work to preserve margins in&nbsp;a rising cost environment, and slowing the economy’s impact on consumer confidence&nbsp;are likely to continue to weigh on auto production and sales well into 2023. BMW for example, while looking for a recovery in 2H22, had to reduce its full-year 2022 outlook&nbsp;given the slower 1H22 and uncertainty and volatility of economic and geopolitical factors that make more optimistic predictions difficult at this time.
We continue to see risk for companies in our index with high exposure to the automotive and transportation sectors, including PPG, AXTA, and to a lesser extent, AVNT, FUL, and HXL.
Battery Materials &amp; EV Transformation
Technology, methods, and supply chain continue to evolve.&nbsp;Global&nbsp;automotive manufacturers and their suppliers are looking to invest half a trillion dollars&nbsp;over the next several years in order to prepare the industry to transition to an EV architecture more fully. The investments range from new EV factories, battery cell and battery plants, new and expanded mining and conversion plant infrastructure for critical materials, and the growing realization of the need to reduce the industry’s dependence on China as the primary source EV-related supply. The recent&nbsp;decision by CATL to delay&nbsp;finalizing its plans for a North American battery plant underscores those concerns. It can therefore be seen as a sign of desperate times that&nbsp;Tesla felt it necessary to sign supply agreements with two Chinese cobalt processors&nbsp;in an effort to ensure it has adequate access to that important battery metal. Can one blame it given&nbsp;the outlook for cobalt?
Looking high and low for critical materials.&nbsp;Almost every long-term projection of EV growth and corresponding growth in critical metals needed for EV batteries includes a widening disparity between expected demand and available, highly probable, and even somewhat probable supply for most of these materials—lithium first and foremost. It is not surprising then that both auto OEMs and battery companies are looking to sign supply deals with existing and even speculative suppliers. Case in point is the recent announcement of a&nbsp;supply agreement between Prime Planet Energy &amp; Solutions, the battery joint venture of Toyota and Panasonic, and Ioneer Ltd.&nbsp;(OTC: GSCCF), a development-stage company whose lithium production plant isn’t expected to commence construction until 4Q22, with an uncertain timeline to commercial production. Another source of critical materials for batteries is end-of-life EV batteries themselves. In the spirit of environmental responsibility and a circular economy,&nbsp;Ascend Elements has announced plans to invest up to $1 billion&nbsp;in a factory in Kentucky for the production of battery cathode materials for EVs. The plant will use black mass from recycled batteries to directly produce cathode materials for the EV market. Production is scheduled to start at the end of 2023, with capacity to produce enough cathode materials for 250,000 EVs annually. Similarly, British battery developer&nbsp;Nexeon secured more than $200 million in funding&nbsp;to develop its battery materials manufacturing operations for the production of silicone-based anode materials for EV batteries, showing that it’s not just the cathode-side metals, such as lithium and cobalt, that are subject to supply concerns and therefore provide opportunities for funding and growth. We also note that one of the companies in our WTR-CMI index, namely&nbsp;NGVT, took part in this round of funding&nbsp;for Nexeon.
Graphite market update.&nbsp;Speaking of anode materials, an often overlooked part of an EV battery is the graphite that goes into the battery anode. As with other critical battery materials, a severe shortage of supply versus projected demand is envisioned for the graphite market. However, until now, this pending imbalance appears to be getting little attention from investors. As the realization that the EV industry is 100% dependent on China for&nbsp;battery-grade graphite spreads, we believe this lack of attention will be addressed. One company that is looking to launch domestic production of battery-grade graphite materials is Westwater Resources (NYSE: WWR). We recently hosted a fireside chat with WWR management to discuss this apparent lack of investor understanding of the supply-demand imbalance and overreliance on China (see link below). The company will update investors on its progress Thursday, August 11 at 11:00 am EDT when management will host its 2Q22 call.
Chemicals and Materials Technology in the News
NGVT.&nbsp;In addition to making an aforementioned investment in Nexeon, the company also announced the&nbsp;acquisition of privately owned Ozark Materials, LLC and Ozark Logistics, LLC (“Ozark Materials”)&nbsp;for $325 million. The acquisition is expected to close by early 4Q22. The acquired business is on pace for annual revenues of approximately $150 million, with a ~20% EBITDA margin in FY23.
MTRN.&nbsp;The company announced that it has established a new facility in Milwaukee, Wisconsin to accelerate the growth of advanced chemical solutions for the semiconductor and EV battery markets. The new 150,000-square-foot facility expands the company’s capacity to produce Atomic Layer Deposition (ALD) materials for the most sophisticated semiconductor chips and provide advanced chemicals for the development of next-generation battery technology for EVs.
Circular Economy.&nbsp;Green Dot Bioplastics, a developer and supplier of bioplastic materials for innovative, sustainable end-uses,&nbsp;announced an addition of nine new grades of bioplastics&nbsp;aimed at single-use and plastic packaging markets, as the industry looks to adjust to increasingly strict government mandates and regulations related to single-use plastics. In an effort to support similar conversions, in this case to post-consumer recycled plastics,&nbsp;AVNT announced its post-consumer recycled (PCR) Color Prediction Service&nbsp;for polyolefins and polyethylene terephthalate (PET) resins as well as its new polyolefin antioxidants, Cesa Nox A4R Additives for recycled plastics, thereby lowering adoption obstacles for consumers looking to incorporate post-consumer recycled plastic into their product designs.
EAF.&nbsp;While GrafTech’s 2Q22 results and guidance for the balance of 2022 left analysts and investors unimpressed with the company’s near-term margin and volume headwinds, investors may be missing the longer-term prospects for the company as its graphite electrodes going into electric ark furnaces (EAF) are enabling a transition from high carbon-producing coal furnaces to less environmentally impactful EAF technologies, which also use steel scrap, rather than iron ore, as a raw material.&nbsp;A recent study confirming the lower carbon-generating benefits of EAF&nbsp;versus conventional smelters underscores the environmental tailwind investors may be missing in evaluating EAF’s current volume issues in an environment of declining steel production globally.
Rating and Price Target Changes
ALB –&nbsp;UBS raised its price target (PT) to $265 from $218 but maintained its Neutral rating; Oppenheimer raised its PT to $440 from $368 and reiterated its Outperform rating.
CTVA –&nbsp;Credit Suisse raised its PT to $72 from $68 and reiterated its Outperform rating; UBS raised its PT to $66 from $64 and reiterated its Buy recommendation; CFRA lowered its PT to $61 from $65 and maintained its Hold rating.
EMN –&nbsp;CFRA reiterated its Buy rating and $125 PT; Citigroup downgraded the stock to Neutral from Buy; KeyBank raised its PT to $125 from $124 and reiterated its Overweight rating; Deutsche Bank lowered its PT to $115 from $125 and reiterated its Buy rating; Stifel Nicolaus lowered its PT to $134 from $155 and reiterated its Buy rating; Barclays lowered its PT to $110 from $120 and maintained its Equal Weight rating; Wells Fargo lowered its PT to $110 from $115 and reiterated its Overweight rating; RBC raised its PT to $97 from $94 and maintained its Sector Perform rating.
FMC –&nbsp;Credit Suisse lowered its PT to $105 from $109 and reiterated its Underperform rating; CFRA lowered its PT to $120 from $126 and maintained its Hold rating; Mizuho Securities lowered its PT to $144 from $149 and reiterated its Buy rating.
FUL –&nbsp;Berenberg Bank lowered its PT to $82 from $85 and reiterated its Buy recommendation.
HXL –&nbsp;BMO raised its PT to $66 from $57 and maintained its Market Perform rating.
LTHM –&nbsp;CFRA lowered its PT to $28 from $36 and reiterated its Buy rating; Mizuho Securities lowered its PT to $30 from $34 and maintained its Neutral rating; Deutsche Bank raised its PT to $26 from $24 and maintained its Hold rating.
VVV –&nbsp;CFRA downgraded the stock to Hold from Buy and maintained its $34 PT.
Recent WTR Publications and Upcoming Events
Fireside Chat with Management of Westwater Resources, Inc.
Initiation of Coverage – Westwater Resources, Inc.
Management Series Report – Marrone Bio Innovations Inc. CEO Kevin Helash
Management Series Report – Westwater Resources, Inc. Executive Chairman Terence Cryan and CAO Steven Cates
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.  The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Mat-Chem Notes for the Week Ended August 7, 2022

<h2>KEY HIGHLIGHTS</h2>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;In what was another positive week for the stock market, both the Russell 2000 and S&amp;P 500 appreciated 4.3% versus week-ago levels, while our WTR-CMI index of 30 chemicals and materials technology stocks outperformed the broader market with a 4.9% return. Lithium stocks once again led our index higher, as PLL, LAC, and ALB benefited from improved investor sentiment on lithium demand and, more importantly, pricing by appreciating 21.1%, 12.3% and 10.3%, respectively. LTHM, while not quite keeping up the pace with an 8.9% improvement,&nbsp;signed a long-term lithium hydroxide supply agreement with GM, which also signed a&nbsp;long-term supply deal with South Korean LG Chem for battery cathodes. At the other end of the performance spectrum, SHW disappointed investors with its 2H22 guidance and saw its stock decline 6.6% for the week, with ASH’s 4.1% decline following an earnings beat and raise bounce the prior week and AXTA posting a 3.3% decline as its 2Q22 earrings and guidance left investors unimpressed, while the&nbsp;CEO transition, which the company announced at the same time, may also have contributed to shareholder unease.</li>
<li>Ford touts sufficient materials for EV push.&nbsp;Like many auto OEMs, Ford is not leaving the fate of its EV transition in the hands of Tier-I suppliers and instead is signing supply agreements directly with critical materials suppliers. The company recently&nbsp;announced sufficient lithium and nickel supply contracts&nbsp;to support its projected EV production into 2026.</li>
<li>China’s July new car sales continue to rebound.&nbsp;China Automobile Dealers Association expects the country’s new car sales&nbsp;to follow June’s trend of Y/Y improvement with an 18% Y/Y increase in July, as COVID lockdown restrictions continue to ease and the government’s incentives for gasoline powered vehicles kick in. NEV vehicle growth is expected to top 100% Y/Y as well.</li>
<li>MTRN commissions commercial plant.&nbsp;Materion and Kairos Power have&nbsp;jointly commissioned a Molten Salt Purification Plant (MSPP)&nbsp;for the production of beryllium fluoride and lithium fluoride for use as heat transfer fluid for the Kairos’ next generation Fluoride Salt-Cooled High-Temperature Reactor (KP-FHR) nuclear reactors.</li>
</ul>
<h2>WTR-CMI WEEKLY PERFORMANCE</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/290/054/original/image_444686316221659573234657.png?1659573237" class="editor-image img-responsive" data-smartkarma-image-id="290054"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>Fertilizer availability (and price) remains a concern heading into 2023.&nbsp;Although fertilizer prices have come off the recent highs,&nbsp;they remain at multi-year high levels heading into the 2023 season. And it doesn’t look like prices will get much lower prior to the time farmers may want to think about locking in at least some supply at prevailing prices. Concerns remain regarding European production, particularly for nitrogen fertilizers (ammonia and urea) due to reductions in Russian-supplied natural gas and the resulting impact on both volume of fertilizer production and the cost of fertilizers in Europe. Adding further concerns is the possibility that China, which is a large producer and exporter of fertilizers, may reduce its exports due to high energy costs and increased domestic demand. Therefore, while US farmers may continue to struggle to secure sufficient supply of chemical fertilizers at acceptable prices next year yet again, the situation may also provide opportunities for American-based companies, such as CF Industries (NYSE: CF), to increase their market share and maintain elevated prices that should contribute to stronger margins. It may also create an opportunity for bio-based fertilizer companies to expand their market share.</p>
<h2>Automotive &amp; Transportation</h2>
<p>High natural gas prices and uncertain availability to affect German production.&nbsp;As Russia continues to play games with natural gas supplies to Europe, the region’s governments are asking their industries to work to reduce the use of natural gas for the time being.&nbsp;The German automotive industry is not an exception, and while steps to reduce gas use have been or are being take, the industry warns that they are temporary and further reductions would require easing of emission regulations and even then, may affect output. This may suggest continuing struggles for the European automotive market to regain its stride after two years of downward volatility. Meanwhile, commercial vehicle registrations in Europe&nbsp;continued to decline, posting a 22.5% drop Y/Y in June, with first half of the year registrations down 20.3% Y/Y.</p>
<p>Toyota struggles with production in Japan.&nbsp;The company had to&nbsp;suspend night shift production&nbsp;at one of its plants in Japan on re-emerging COVID concerns and continues to see domestic production decline as a result of supply chain disruptions and COVID protocols. The company has been able to&nbsp;offset reduced domestic production with higher output from its global network outside Japan, with foreign plant output growing 5.6% Y/Y through June, helping to offset an 18% plunge in Japanese plants’ output. Still, for the first six months of 2022, Toyota saw its total global output decline almost 4% Y/Y.</p>
<p>With car builds still down in most geographies Y/Y and likely to finish 2022 below 2021 levels, companies in our index with significant exposure to the automotive and transportation markets may continue to struggle with top-line growth despite higher prices, as sluggish volumes and negative FX headwind combined with still elevated raw material costs offset internal cost savings efforts and pricing initiatives leading to top-line and margin performance that may disappoint versus current forecasts. We therefore remain cautious on PPG and AXTA and, to a lesser extent, on HXL, AVNT, and FUL.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;RBC raised its price target (PT) to $331 from $324 and reiterated its Outperform rating.</p>
<p>ASH –&nbsp;UBS raised its PT to $131 from $127 and reiterated its Buy rating; Wells Fargo also raised its PT to $110 from $107 and maintained its Equal Weight rating; BMO likewise raised its PT to $135 from $129 and reiterated its Outperform rating.</p>
<p>AVNT –&nbsp;Baird lowered its PT to $56 from $63 and reiterated its Outperform rating; Stifel also lowered its PT to $70 from $76 and reiterated its Buy recommendation; Morgan Stanley lowered its PT to $50 from $63 and maintained its Equal Weight recommendation.</p>
<p>AXTA –&nbsp;KeyBank raised its PT to $31 from $30 and reiterated its Overweight rating; JP Morgan lowered its PT to $32 from $35, while reiterating its Overweight rating; Wells Fargo raised its PT to $26 from $25 and maintained its Equal Weight rating; Baird lowered its PT to $53 from $38 and reiterated its Outperform rating.</p>
<p>CTVA –&nbsp;Mizuho Securities raised its PT to $68 from $67 and reiterated its Buy recommendation.</p>
<p>ECL –&nbsp;Deutsche Bank lowered its PT to $180 from $195 and reiterated its Buy rating; BMO lowered its PT to $172 from $181 and maintained its Market Perform rating; Mizuho Securities lowered its PT to $178 from $183 and maintained its Neutral rating; Baird lowered its PT to $171 from $193 and reiterated its Outperform rating; UBS lowered its PT to $198 from $205 and reiterated its Buy recommendation.</p>
<p>EMN –&nbsp;UBS lowered its PT to $118 from $121 and reiterated its Buy recommendation.</p>
<p>FMC –&nbsp;RBC lowered its PT to $139 from $152 and reiterated its Outperform rating; Mizuho Securities lowered its PT to $149 from $155 and reiterated its Buy recommendation.</p>
<p>HXL –&nbsp;Vertical Research raised its PT to $60 from $58 and reiterated its Buy rating; Morgan Stanley raised its PT to $59 from $57 and reiterated its Underweight recommendation.</p>
<p>PPG –&nbsp;Deutsche Bank lowered its PT to $150 from $15 and reiterated its Buy rating; Wells Fargo raised its PT to $135 from $126 and maintained its Equal Weight rating; Mizuho Securities raised its PT to $163 from $162 and reiterated its Buy rating.</p>
<p>RPM –&nbsp;UBS raised its PT to $99 from $96 and reiterated its Buy rating; RBC raised its PT to $89 from $86 and maintained its Sector Perform rating.</p>
<p>SHW –&nbsp;KeyBank lowered its PT to $290 from $335 and reiterated its Overweight rating; Deutsche Bank lowered its PT to $275 from $315 and reiterated its Buy rating; BMO lowered its PT to $251 from $274 and maintained its Market Perform rating; Wells Fargo lowered its PT to $250 from $274 and maintained its Equal Weight rating; JP Morgan lowered its PT to $275 from $300 and reiterated its Overweight rating; Morgan Stanley lowered its PT to $300 from $330 and reiterated its Overweight rating; Credit Suisse lowered its PT to $225 from $245 and reiterated its Underperform rating; UBS lowered its PT to $257 from $265 and maintained its Neutral rating; Vertical Research raised its PT to $252 from $241 and maintained its Hold rating; Berenberg Bank lowered its PT to $250 from $285 and maintained its Hold rating; RBC lowered its PT to 300 from $312 and reiterated its Outperform rating.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<h3>Upcoming</h3>
<p>Fireside Chat with Management of Westwater Resources, Inc. (NYSE: WWR) – August 4 at 11:00 am EDT</p>
<h3>Recent Publications</h3>
<p>Management Series Report – Marrone Bio Innovations CEO Kevin Helash</p>
<p>Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates</p>
<p>Initiation of Coverage – Westwater Resources, Inc.</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the Chemicals &amp; Materials Technology and BioEconomy sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;In what was another positive week for the stock market, both the Russell 2000 and S&amp;P 500 appreciated 4.3% versus week-ago levels, while our WTR-CMI index of 30 chemicals and materials technology stocks outperformed the broader market with a 4.9% return. Lithium stocks once again led our index higher, as PLL, LAC, and ALB benefited from improved investor sentiment on lithium demand and, more importantly, pricing by appreciating 21.1%, 12.3% and 10.3%, respectively. LTHM, while not quite keeping up the pace with an 8.9% improvement,&nbsp;signed a long-term lithium hydroxide supply agreement with GM, which also signed a&nbsp;long-term supply deal with South Korean LG Chem for battery cathodes. At the other end of the performance spectrum, SHW disappointed investors with its 2H22 guidance and saw its stock decline 6.6% for the week, with ASH’s 4.1% decline following an earnings beat and raise bounce the prior week and AXTA posting a 3.3% decline as its 2Q22 earrings and guidance left investors unimpressed, while the&nbsp;CEO transition, which the company announced at the same time, may also have contributed to shareholder unease.
Ford touts sufficient materials for EV push.&nbsp;Like many auto OEMs, Ford is not leaving the fate of its EV transition in the hands of Tier-I suppliers and instead is signing supply agreements directly with critical materials suppliers. The company recently&nbsp;announced sufficient lithium and nickel supply contracts&nbsp;to support its projected EV production into 2026.
China’s July new car sales continue to rebound.&nbsp;China Automobile Dealers Association expects the country’s new car sales&nbsp;to follow June’s trend of Y/Y improvement with an 18% Y/Y increase in July, as COVID lockdown restrictions continue to ease and the government’s incentives for gasoline powered vehicles kick in. NEV vehicle growth is expected to top 100% Y/Y as well.
MTRN commissions commercial plant.&nbsp;Materion and Kairos Power have&nbsp;jointly commissioned a Molten Salt Purification Plant (MSPP)&nbsp;for the production of beryllium fluoride and lithium fluoride for use as heat transfer fluid for the Kairos’ next generation Fluoride Salt-Cooled High-Temperature Reactor (KP-FHR) nuclear reactors.

WTR-CMI WEEKLY PERFORMANCE

Ag-Tech and Bio-Ag
Fertilizer availability (and price) remains a concern heading into 2023.&nbsp;Although fertilizer prices have come off the recent highs,&nbsp;they remain at multi-year high levels heading into the 2023 season. And it doesn’t look like prices will get much lower prior to the time farmers may want to think about locking in at least some supply at prevailing prices. Concerns remain regarding European production, particularly for nitrogen fertilizers (ammonia and urea) due to reductions in Russian-supplied natural gas and the resulting impact on both volume of fertilizer production and the cost of fertilizers in Europe. Adding further concerns is the possibility that China, which is a large producer and exporter of fertilizers, may reduce its exports due to high energy costs and increased domestic demand. Therefore, while US farmers may continue to struggle to secure sufficient supply of chemical fertilizers at acceptable prices next year yet again, the situation may also provide opportunities for American-based companies, such as CF Industries (NYSE: CF), to increase their market share and maintain elevated prices that should contribute to stronger margins. It may also create an opportunity for bio-based fertilizer companies to expand their market share.
Automotive &amp; Transportation
High natural gas prices and uncertain availability to affect German production.&nbsp;As Russia continues to play games with natural gas supplies to Europe, the region’s governments are asking their industries to work to reduce the use of natural gas for the time being.&nbsp;The German automotive industry is not an exception, and while steps to reduce gas use have been or are being take, the industry warns that they are temporary and further reductions would require easing of emission regulations and even then, may affect output. This may suggest continuing struggles for the European automotive market to regain its stride after two years of downward volatility. Meanwhile, commercial vehicle registrations in Europe&nbsp;continued to decline, posting a 22.5% drop Y/Y in June, with first half of the year registrations down 20.3% Y/Y.
Toyota struggles with production in Japan.&nbsp;The company had to&nbsp;suspend night shift production&nbsp;at one of its plants in Japan on re-emerging COVID concerns and continues to see domestic production decline as a result of supply chain disruptions and COVID protocols. The company has been able to&nbsp;offset reduced domestic production with higher output from its global network outside Japan, with foreign plant output growing 5.6% Y/Y through June, helping to offset an 18% plunge in Japanese plants’ output. Still, for the first six months of 2022, Toyota saw its total global output decline almost 4% Y/Y.
With car builds still down in most geographies Y/Y and likely to finish 2022 below 2021 levels, companies in our index with significant exposure to the automotive and transportation markets may continue to struggle with top-line growth despite higher prices, as sluggish volumes and negative FX headwind combined with still elevated raw material costs offset internal cost savings efforts and pricing initiatives leading to top-line and margin performance that may disappoint versus current forecasts. We therefore remain cautious on PPG and AXTA and, to a lesser extent, on HXL, AVNT, and FUL.
Rating and Price Target Changes
ALB –&nbsp;RBC raised its price target (PT) to $331 from $324 and reiterated its Outperform rating.
ASH –&nbsp;UBS raised its PT to $131 from $127 and reiterated its Buy rating; Wells Fargo also raised its PT to $110 from $107 and maintained its Equal Weight rating; BMO likewise raised its PT to $135 from $129 and reiterated its Outperform rating.
AVNT –&nbsp;Baird lowered its PT to $56 from $63 and reiterated its Outperform rating; Stifel also lowered its PT to $70 from $76 and reiterated its Buy recommendation; Morgan Stanley lowered its PT to $50 from $63 and maintained its Equal Weight recommendation.
AXTA –&nbsp;KeyBank raised its PT to $31 from $30 and reiterated its Overweight rating; JP Morgan lowered its PT to $32 from $35, while reiterating its Overweight rating; Wells Fargo raised its PT to $26 from $25 and maintained its Equal Weight rating; Baird lowered its PT to $53 from $38 and reiterated its Outperform rating.
CTVA –&nbsp;Mizuho Securities raised its PT to $68 from $67 and reiterated its Buy recommendation.
ECL –&nbsp;Deutsche Bank lowered its PT to $180 from $195 and reiterated its Buy rating; BMO lowered its PT to $172 from $181 and maintained its Market Perform rating; Mizuho Securities lowered its PT to $178 from $183 and maintained its Neutral rating; Baird lowered its PT to $171 from $193 and reiterated its Outperform rating; UBS lowered its PT to $198 from $205 and reiterated its Buy recommendation.
EMN –&nbsp;UBS lowered its PT to $118 from $121 and reiterated its Buy recommendation.
FMC –&nbsp;RBC lowered its PT to $139 from $152 and reiterated its Outperform rating; Mizuho Securities lowered its PT to $149 from $155 and reiterated its Buy recommendation.
HXL –&nbsp;Vertical Research raised its PT to $60 from $58 and reiterated its Buy rating; Morgan Stanley raised its PT to $59 from $57 and reiterated its Underweight recommendation.
PPG –&nbsp;Deutsche Bank lowered its PT to $150 from $15 and reiterated its Buy rating; Wells Fargo raised its PT to $135 from $126 and maintained its Equal Weight rating; Mizuho Securities raised its PT to $163 from $162 and reiterated its Buy rating.
RPM –&nbsp;UBS raised its PT to $99 from $96 and reiterated its Buy rating; RBC raised its PT to $89 from $86 and maintained its Sector Perform rating.
SHW –&nbsp;KeyBank lowered its PT to $290 from $335 and reiterated its Overweight rating; Deutsche Bank lowered its PT to $275 from $315 and reiterated its Buy rating; BMO lowered its PT to $251 from $274 and maintained its Market Perform rating; Wells Fargo lowered its PT to $250 from $274 and maintained its Equal Weight rating; JP Morgan lowered its PT to $275 from $300 and reiterated its Overweight rating; Morgan Stanley lowered its PT to $300 from $330 and reiterated its Overweight rating; Credit Suisse lowered its PT to $225 from $245 and reiterated its Underperform rating; UBS lowered its PT to $257 from $265 and maintained its Neutral rating; Vertical Research raised its PT to $252 from $241 and maintained its Hold rating; Berenberg Bank lowered its PT to $250 from $285 and maintained its Hold rating; RBC lowered its PT to 300 from $312 and reiterated its Outperform rating.
Recent WTR Publications and Upcoming Events
Upcoming
Fireside Chat with Management of Westwater Resources, Inc. (NYSE: WWR) – August 4 at 11:00 am EDT
Recent Publications
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates
Initiation of Coverage – Westwater Resources, Inc.
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Dmitry Silversteyn, who is the writer of this report, covers the Chemicals &amp; Materials Technology and BioEconomy sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.  The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Mat-Chem Notes for the Week Ended July 31, 2022

<h2>KEY HIGHLIGHTS</h2>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;In what was a week of recovery for the market, the S&amp;P 500 and Russell 2000 advanced 2.5% and 3.6%, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks outperformed the broader indexes by delivering a 6.1% bounce last week. The WTR-CMI’s performance was led by EAF’s 14.4% rebound from previous weeks’ losses and regained investor enthusiasm for lithium following Elon Musk’s remarks, which saw LTHM, PLL, LAC, and ALB deliver double-digit gains for the week. PKE and AVD were the only stocks in our index to finish the week in the red.</li>
<li>NEVs are not immune from market forces.&nbsp;An&nbsp;ACEA summary of the EU’s 2Q22 auto sales by fuel type&nbsp;showed that while the share of new energy vehicles (NEVs) of new car sales has increased Y/Y, it was more a function of declining sales volumes of conventional fueled vehicles as growth, as Y/Y sales of BEVs increased a relatively modest 11%,. Furthermore, hybrid vehicle (HEV) and plug-in hybrid vehicle (PHEV) sales declined. This suggests that a deepening and spreading economic recession may slow the pace of NEV sales versus expectations and, by extent, affect growth forecasts for key material.</li>
<li>ASH provides positive outlook.&nbsp;Citing lower exposure to pet-chem-driven RM inflation and stable end-markets,&nbsp;ASH pre-announced&nbsp;stronger F3Q22 (Jun-Q) results and raised guidance for its Sep-Q by 3% for revenue and 4% for EBITDA, helping the stock keep up with the WTR-CMI index last week. Similar RM and end-market exposure may benefit ECL, SXT, and NGVT.</li>
<li>Keeping an eye on the future.&nbsp;Even as recession concerns grow, EV manufacturers are looking to ensure sufficient supply of critical materials for lithium batteries, casting their nets wide. Thus,&nbsp;CMP announced a signing&nbsp;of a non-binding memorandum of understanding with Ford to potentially supply the company or its battery partners with battery-grade lithium from CMP’s yet-to-be designed lithium extraction and conversion facility.</li>
<li>A new trend continues to emerge in ag.&nbsp;Indoor farming, or&nbsp;controlled environment agriculture (CEA)&nbsp;continues to evolve in order to overcome the expected land shortage and address consumer demands. We believe innovations around this sector will disproportionately benefit bio-ag companies such as BIOX and BHIL, as their products also address similar concerns.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/288/568/original/image_102276742221658965404091.png?1658965406" class="editor-image img-responsive" data-smartkarma-image-id="288568"></figure>
<h2>Automotive &amp; Transportation Market</h2>
<p>Chipping away at semiconductor shortages.&nbsp;Volvo, in announcing stronger 2Q22 results, also warned that&nbsp;its total car production in 2022 may be flat to down versus last year, largely due to continuing supply issues, particularly related to semiconductor availability. It therefore appears that near-term chip availability may remain an issue holding back new car production through the balance of 2022 and affecting major auto suppliers in our WTR-CMI index, such as PPG and AXTA. As we noted last week, car companies and the semiconductor industry are not taking this shortage lying down. Last week,&nbsp;VW announced a partnership with STMicroelectronics&nbsp;to co-develop semiconductors for a cross-brand single software platform. The new semiconductors are expected to be built by TSMC. Meanwhile, American semiconductor company SkyWater Technology Inc. (NASDAQ: SKYT) announced&nbsp;plans for building a chip R&amp;D and production center&nbsp;in Indiana, with groundbreaking expected sometime in 2023. Again, these steps, while essential in shortening and strengthening the automotive supply chain for the long term, are unlikely to have a material impact on chip availability in the short term and we remain cautious on the automotive sector and those companies in our industry who rely on that market for substantial portions of their sales.</p>
<h2>EVs &amp; Battery Ecosystem</h2>
<p>Maximizing climate and economic benefits.&nbsp;A European environmental group’s study concluded that&nbsp;solid state batteries for EVs will significantly reduce the carbon footprint&nbsp;of such battery production, including lower use of metals coming from such places as the DRC. The group is therefore encouraging the EU parliament and member nations to increase their focus on promoting innovations in solid state battery technology and incorporating carbon goals for EV battery production into the region’s regulations. Meanwhile, Swedish battery company&nbsp;Northvolt is looking at technology that would utilize carbon from wood, which is plentiful in Sweden, rather than natural or pet-chem based synthetic graphite for the anode material of an EV battery, in an attempt to make the EU battery market less dependent on non-EU sources of critical battery materials. Domesticating critical supply and driving economic expansion appear to be the motivations behind&nbsp;Morocco’s efforts to attract an EV battery factory to the country&nbsp;and to integrate the country’s emerging cobalt industry more fully into the automotive battery sector. As North African countries look to compete more effectively with China and India, we may see similar strategies being followed by other nations in the region, looking to spur their economies and better the lives of their citizenry.</p>
<p>Another reason for concern.&nbsp;S&amp;P predicts global copper demand could nearly double during the next decade, from 25M mt annually now to about 50M mt in 2035 and there is a growing concern that mined copper is falling well short of this projected growth in demand. What’s more, there&nbsp;may not be sufficient copper available to meet the world’s net-zero 2050 goals, even factoring in “strong price signals and incentivizing policy initiatives, aggressive capacity utilization rates and all-time high recycling rates”. We believe that, at the very least, such physical limitations (and copper is far from the most concerning supply-demand discrepancy stories) will come into play over the next decade, potentially upsetting many of the current optimistic projections. In such an environment, we would look to market segments, such as graphite anode materials, that face nearer-term supply-demand imbalances that would still exist even under significantly reduced EV growth forecasts. We believe Westwater Resources (NYSE: WWR) offers a compelling investment opportunity in this regard.</p>
<h2>Ag-Chem and Ag-Tech</h2>
<p>US crop conditions—so far so good.&nbsp;As of last week,&nbsp;corn and soybean crop conditions held steady, with 64% of corn crop listed as in good-to-excellent condition versus 65% last year, while in soybeans, good-to-excellent conditions were characterized for 61% of the crop versus 60% last year. One area of concern remains—late corn plantings resulted in only 37% of the crop silking, compared with the 48% five-year average at this time. But even assuming USDA yield and acreage projections hold, getting the harvested grain to where it needs to go via rail in the US may present its own set of problems. And while Ukraine and Russia appear to have reached an agreement on exporting Ukrainian grain through Russia-blockaded Black Sea ports, domestically,&nbsp;rail companies and unions are embroiled in labor negotiations&nbsp;that may lead to even more logistical disruptions this fall, even as grain is needing to move to processing facilities or exporting hubs.</p>
<p>Fertilizer availability (and price) remain a concern heading into 2023.&nbsp;Supply chain and logistical disruptions in the agricultural sector caused by Russia’s war in Ukraine, among other factors, are giving rise to growing concerns for the 2022-23 ag season. While fertilizer prices&nbsp;have come off their mid-season highs in North America, due to both lower off-season demand and declining energy costs, concerns remain over price and availability remain. Thus, Norwegian fertilizer company Yara, while reporting modestly stronger than expected 2Q22,&nbsp;cautioned that high natural gas prices and concerns over its availability&nbsp;given the heavy European reliance on Russian sources may result in lower production of nitrogen fertilizers in 2023, which we feel may lead to a repeat of 2021-22 price inflation in urea and ammonia, at least in the EU region. Europeans’ inability to produce sufficient fertilizer products at an acceptable cost may provide opportunities for American-based companies, such as CF Industries (NYSE: CF), to increase their market share and maintain elevated prices that should contribute to stronger margins.</p>
<p>Can grain prices support higher input cost expectations?&nbsp;With fertilizer and other crop input costs still well above 2020 levels, even after coming off mid-season peak, farmer income and farmers’ ability to withstand similar price spikes next season will depend to a large degree on commodity crop prices when this year’s harvest is monetized. As the largest importer of ag products, China’s economic health is becoming a growing concern in this regard. With the&nbsp;country’s economy slowing to 0.4% GDP growth in 2Q22&nbsp;from 4.8% growth seen in 1Q22, the Chinese government has significantly reduced its purchases of ag commodities, especially from the US, despite lower soybean production in LATAM. With Chinese imports perhaps slowing even more in conjunction with slowing economic growth, a main source of demand for ag commodities may wane over the next six to nine months, which may in turn lead to lower commodity grain prices, even as domestic farmers look to sell their supplies. Lower grain prices mean lower farmer cash income, which suggests lower ability to pay for still high input costs come 2023. US farmers may have dodged the profit contraction bullet in 2022, but it is not clear if they would be able to do it again in 2023.</p>
<p>Lower planted acreage, reduced utilization of fertilizer and ag-chem inputs per acre (as we already saw this year), and changing crop acreage decisions have the potential to negatively affect ag-chem companies such as FMC, AVD, and CTVA and we are becoming more concerned with investors’ outlook on these names souring in the months ahead. On the other hand, farmers’ strong incentive to look for alternative ways of growing and protecting their crops as well as receiving premium prices for their products may lead to faster expansion of organic farming in row crops and to accelerating adoption of bio-based fertilizers, soil conditioning products and bio-based pesticides, which we see as a positive for BIOX and BHIL.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;KeyBank upgraded the stock to Sector Weight from Underweight.</p>
<p>ASH –&nbsp;Wells Fargo lowered its price target (PT) to $107 from $113 and maintained its Equal Weight rating; Deutsche Bank lowered its PT to $120 from $122 and reiterated its Buy rating; Mizuho Securities raised its PT to $139 from $138, while also reiterating its Buy rating.</p>
<p>AVNT –&nbsp;Oppenheimer lowered its PT to $58 from $69 and reiterated its Outperform rating.</p>
<p>AXTA –&nbsp;KeyBank upgraded the stock to Overweight from Sector Weight and established a PT of $30.</p>
<p>ECVT –&nbsp;KeyBank lowered its PT to $13 from $16 and reiterated its Overweight rating.</p>
<p>EMN –&nbsp;KeyBank lowered its PT to $124 from $142 and reiterated its Overweight rating.</p>
<p>FMC –&nbsp;KeyBank raised its rating on the stock to Overweight from Sector Weight and established a $122 PT.</p>
<p>PPG –&nbsp;Wells Fargo lowered its PT to $126 from $140 and maintained its Equal Weight rating; CFRA downgraded the stock to Hold from Buy and lowered its PT to $135 from $165; Credit Suisse lowered its PT to $110 from $115 and reiterated its Underperform rating; UBS also lowered its PT to $160 from $161 but reiterated its Buy recommendation.</p>
<p>SHW –&nbsp;Wells Fargo lowered its PT to $270 from $285 and maintained its Equal Weight rating.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Marrone Bio Innovations CEO Kevin Helash</p>
<p>Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates</p>
<p>Initiation of Coverage – Westwater Resources, Inc.</p>
<h2>DISCLOSURES</h2>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the Chemicals &amp; Materials Technology and BioEconomy sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;In what was a week of recovery for the market, the S&amp;P 500 and Russell 2000 advanced 2.5% and 3.6%, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks outperformed the broader indexes by delivering a 6.1% bounce last week. The WTR-CMI’s performance was led by EAF’s 14.4% rebound from previous weeks’ losses and regained investor enthusiasm for lithium following Elon Musk’s remarks, which saw LTHM, PLL, LAC, and ALB deliver double-digit gains for the week. PKE and AVD were the only stocks in our index to finish the week in the red.
NEVs are not immune from market forces.&nbsp;An&nbsp;ACEA summary of the EU’s 2Q22 auto sales by fuel type&nbsp;showed that while the share of new energy vehicles (NEVs) of new car sales has increased Y/Y, it was more a function of declining sales volumes of conventional fueled vehicles as growth, as Y/Y sales of BEVs increased a relatively modest 11%,. Furthermore, hybrid vehicle (HEV) and plug-in hybrid vehicle (PHEV) sales declined. This suggests that a deepening and spreading economic recession may slow the pace of NEV sales versus expectations and, by extent, affect growth forecasts for key material.
ASH provides positive outlook.&nbsp;Citing lower exposure to pet-chem-driven RM inflation and stable end-markets,&nbsp;ASH pre-announced&nbsp;stronger F3Q22 (Jun-Q) results and raised guidance for its Sep-Q by 3% for revenue and 4% for EBITDA, helping the stock keep up with the WTR-CMI index last week. Similar RM and end-market exposure may benefit ECL, SXT, and NGVT.
Keeping an eye on the future.&nbsp;Even as recession concerns grow, EV manufacturers are looking to ensure sufficient supply of critical materials for lithium batteries, casting their nets wide. Thus,&nbsp;CMP announced a signing&nbsp;of a non-binding memorandum of understanding with Ford to potentially supply the company or its battery partners with battery-grade lithium from CMP’s yet-to-be designed lithium extraction and conversion facility.
A new trend continues to emerge in ag.&nbsp;Indoor farming, or&nbsp;controlled environment agriculture (CEA)&nbsp;continues to evolve in order to overcome the expected land shortage and address consumer demands. We believe innovations around this sector will disproportionately benefit bio-ag companies such as BIOX and BHIL, as their products also address similar concerns.

WTR-CMI WEEKLY PERFORMANCE

Automotive &amp; Transportation Market
Chipping away at semiconductor shortages.&nbsp;Volvo, in announcing stronger 2Q22 results, also warned that&nbsp;its total car production in 2022 may be flat to down versus last year, largely due to continuing supply issues, particularly related to semiconductor availability. It therefore appears that near-term chip availability may remain an issue holding back new car production through the balance of 2022 and affecting major auto suppliers in our WTR-CMI index, such as PPG and AXTA. As we noted last week, car companies and the semiconductor industry are not taking this shortage lying down. Last week,&nbsp;VW announced a partnership with STMicroelectronics&nbsp;to co-develop semiconductors for a cross-brand single software platform. The new semiconductors are expected to be built by TSMC. Meanwhile, American semiconductor company SkyWater Technology Inc. (NASDAQ: SKYT) announced&nbsp;plans for building a chip R&amp;D and production center&nbsp;in Indiana, with groundbreaking expected sometime in 2023. Again, these steps, while essential in shortening and strengthening the automotive supply chain for the long term, are unlikely to have a material impact on chip availability in the short term and we remain cautious on the automotive sector and those companies in our industry who rely on that market for substantial portions of their sales.
EVs &amp; Battery Ecosystem
Maximizing climate and economic benefits.&nbsp;A European environmental group’s study concluded that&nbsp;solid state batteries for EVs will significantly reduce the carbon footprint&nbsp;of such battery production, including lower use of metals coming from such places as the DRC. The group is therefore encouraging the EU parliament and member nations to increase their focus on promoting innovations in solid state battery technology and incorporating carbon goals for EV battery production into the region’s regulations. Meanwhile, Swedish battery company&nbsp;Northvolt is looking at technology that would utilize carbon from wood, which is plentiful in Sweden, rather than natural or pet-chem based synthetic graphite for the anode material of an EV battery, in an attempt to make the EU battery market less dependent on non-EU sources of critical battery materials. Domesticating critical supply and driving economic expansion appear to be the motivations behind&nbsp;Morocco’s efforts to attract an EV battery factory to the country&nbsp;and to integrate the country’s emerging cobalt industry more fully into the automotive battery sector. As North African countries look to compete more effectively with China and India, we may see similar strategies being followed by other nations in the region, looking to spur their economies and better the lives of their citizenry.
Another reason for concern.&nbsp;S&amp;P predicts global copper demand could nearly double during the next decade, from 25M mt annually now to about 50M mt in 2035 and there is a growing concern that mined copper is falling well short of this projected growth in demand. What’s more, there&nbsp;may not be sufficient copper available to meet the world’s net-zero 2050 goals, even factoring in “strong price signals and incentivizing policy initiatives, aggressive capacity utilization rates and all-time high recycling rates”. We believe that, at the very least, such physical limitations (and copper is far from the most concerning supply-demand discrepancy stories) will come into play over the next decade, potentially upsetting many of the current optimistic projections. In such an environment, we would look to market segments, such as graphite anode materials, that face nearer-term supply-demand imbalances that would still exist even under significantly reduced EV growth forecasts. We believe Westwater Resources (NYSE: WWR) offers a compelling investment opportunity in this regard.
Ag-Chem and Ag-Tech
US crop conditions—so far so good.&nbsp;As of last week,&nbsp;corn and soybean crop conditions held steady, with 64% of corn crop listed as in good-to-excellent condition versus 65% last year, while in soybeans, good-to-excellent conditions were characterized for 61% of the crop versus 60% last year. One area of concern remains—late corn plantings resulted in only 37% of the crop silking, compared with the 48% five-year average at this time. But even assuming USDA yield and acreage projections hold, getting the harvested grain to where it needs to go via rail in the US may present its own set of problems. And while Ukraine and Russia appear to have reached an agreement on exporting Ukrainian grain through Russia-blockaded Black Sea ports, domestically,&nbsp;rail companies and unions are embroiled in labor negotiations&nbsp;that may lead to even more logistical disruptions this fall, even as grain is needing to move to processing facilities or exporting hubs.
Fertilizer availability (and price) remain a concern heading into 2023.&nbsp;Supply chain and logistical disruptions in the agricultural sector caused by Russia’s war in Ukraine, among other factors, are giving rise to growing concerns for the 2022-23 ag season. While fertilizer prices&nbsp;have come off their mid-season highs in North America, due to both lower off-season demand and declining energy costs, concerns remain over price and availability remain. Thus, Norwegian fertilizer company Yara, while reporting modestly stronger than expected 2Q22,&nbsp;cautioned that high natural gas prices and concerns over its availability&nbsp;given the heavy European reliance on Russian sources may result in lower production of nitrogen fertilizers in 2023, which we feel may lead to a repeat of 2021-22 price inflation in urea and ammonia, at least in the EU region. Europeans’ inability to produce sufficient fertilizer products at an acceptable cost may provide opportunities for American-based companies, such as CF Industries (NYSE: CF), to increase their market share and maintain elevated prices that should contribute to stronger margins.
Can grain prices support higher input cost expectations?&nbsp;With fertilizer and other crop input costs still well above 2020 levels, even after coming off mid-season peak, farmer income and farmers’ ability to withstand similar price spikes next season will depend to a large degree on commodity crop prices when this year’s harvest is monetized. As the largest importer of ag products, China’s economic health is becoming a growing concern in this regard. With the&nbsp;country’s economy slowing to 0.4% GDP growth in 2Q22&nbsp;from 4.8% growth seen in 1Q22, the Chinese government has significantly reduced its purchases of ag commodities, especially from the US, despite lower soybean production in LATAM. With Chinese imports perhaps slowing even more in conjunction with slowing economic growth, a main source of demand for ag commodities may wane over the next six to nine months, which may in turn lead to lower commodity grain prices, even as domestic farmers look to sell their supplies. Lower grain prices mean lower farmer cash income, which suggests lower ability to pay for still high input costs come 2023. US farmers may have dodged the profit contraction bullet in 2022, but it is not clear if they would be able to do it again in 2023.
Lower planted acreage, reduced utilization of fertilizer and ag-chem inputs per acre (as we already saw this year), and changing crop acreage decisions have the potential to negatively affect ag-chem companies such as FMC, AVD, and CTVA and we are becoming more concerned with investors’ outlook on these names souring in the months ahead. On the other hand, farmers’ strong incentive to look for alternative ways of growing and protecting their crops as well as receiving premium prices for their products may lead to faster expansion of organic farming in row crops and to accelerating adoption of bio-based fertilizers, soil conditioning products and bio-based pesticides, which we see as a positive for BIOX and BHIL.
Rating and Price Target Changes
ALB –&nbsp;KeyBank upgraded the stock to Sector Weight from Underweight.
ASH –&nbsp;Wells Fargo lowered its price target (PT) to $107 from $113 and maintained its Equal Weight rating; Deutsche Bank lowered its PT to $120 from $122 and reiterated its Buy rating; Mizuho Securities raised its PT to $139 from $138, while also reiterating its Buy rating.
AVNT –&nbsp;Oppenheimer lowered its PT to $58 from $69 and reiterated its Outperform rating.
AXTA –&nbsp;KeyBank upgraded the stock to Overweight from Sector Weight and established a PT of $30.
ECVT –&nbsp;KeyBank lowered its PT to $13 from $16 and reiterated its Overweight rating.
EMN –&nbsp;KeyBank lowered its PT to $124 from $142 and reiterated its Overweight rating.
FMC –&nbsp;KeyBank raised its rating on the stock to Overweight from Sector Weight and established a $122 PT.
PPG –&nbsp;Wells Fargo lowered its PT to $126 from $140 and maintained its Equal Weight rating; CFRA downgraded the stock to Hold from Buy and lowered its PT to $135 from $165; Credit Suisse lowered its PT to $110 from $115 and reiterated its Underperform rating; UBS also lowered its PT to $160 from $161 but reiterated its Buy recommendation.
SHW –&nbsp;Wells Fargo lowered its PT to $270 from $285 and maintained its Equal Weight rating.
Recent WTR Publications and Upcoming Events
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates
Initiation of Coverage – Westwater Resources, Inc.
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Dmitry Silversteyn, who is the writer of this report, covers the Chemicals &amp; Materials Technology and BioEconomy sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.  The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Mat-Chem Notes for the Week Ended July 24, 2022

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;For the second week in a row, the market posted positive gains for the week, with the Russell 2000 leading with a 2.4% improvement, double the 1.2% appreciation of the S&amp;P 500. Our WTR-CMI index nearly kept pace with the large cap index by appreciating 0.9% last week.
Winners and losers.&nbsp;KOP and KWR led the stocks in our index with a 7.6% and 7.5% improvement, respectively. VVV also had a good week with a 5.2% appreciation, likely driven by the news that the company bought out its 50% JV partner in&nbsp;VCA Solutions, as well as reports that&nbsp;Saudi Aramco approached VVV&nbsp;about buying its industrial and fleet lube oil business. While lithium stocks were the top performers the prior week, with&nbsp;LAC announcing a collaboration agreement&nbsp;with Arena Minerals,&nbsp;PLL announcing positive results&nbsp;from a feasibility study of its Canadian spodumene property,&nbsp;LTHM announcing a collaboration&nbsp;with Lilium N.V. (NASDAQ: LILM), and&nbsp;ALB raising its 2022 guidance&nbsp;for the second time, last week saw these stocks at the bottom of the list as investors took profit and concerns over a lithium pricing peak were annunciated by a bulge bracket bank.
Another month of pain for the auto industry and its suppliers.&nbsp;After an ugly April, early May data on new car sales offer little hope of an improvement before 2H22. New car sales in&nbsp;France declined 10% Y/Y,&nbsp;Chinese sales&nbsp;look to be down 19% Y/Y, and companies still reporting monthly&nbsp;US sales&nbsp;indicate the domestic market in May was down 31% Y/Y. We therefore remain cautious on PPG and AXTA, given their high exposure to the automotive industry.
Organic food popularity continues to grow.&nbsp;Organic food sales&nbsp;grew 6% Y/Y in 2021&nbsp;and are expected to continue to grow at above-market rates. With organic farming being the first and still most important market for bio-based ag input products, the trend is especially beneficial to MBII and BIOX, as well as other ag-chem companies focused on bio-based alternatives.
End of a saga.&nbsp;Cruiser Capital was the winner of the proxy fight with AVD management, as&nbsp;all three of its board member nominees won shareholder approval. Cruiser, an activist shareholder focused on unlocking value, may now influence AVD’s future direction and strategy.

WTR-CMI WEEKLY PERFORMANCE

Automotive &amp; Transportation Market
Commercial vehicle market’s struggles continue.&nbsp;The European&nbsp;ACEA released its new commercial vehicle sales&nbsp;data for April, which showed a 27% Y/Y decline (20% reduction YTD) in monthly sales of commercial vehicles in the region, going against tough post-pandemic bounce in demand in 2021. While comps should get easier in June, May results may continue to see double-digit declines in sales (and by extension, production) of commercial vehicles. Furthermore, with Europe struggling with the economic impact of Russian sanctions, demand may not improve in 2H22 as we previously hoped, suggesting that negative monthly comps may continue through the summer months, and it may be 4Q22 before markets stabilize and demand turns positive.
Passenger vehicle markets decline.&nbsp;Although the Chinese government&nbsp;lifted the lockdown mandate in Shanghai&nbsp;earlier this month and cut taxes on new vehicle purchases in half to 5% through the end of 2022, the moves aren’t likely to reverse the multi-month trend of Y/Y sales declines of new passenger vehicles in the country in the short term. While the tax cut may spur a buying spree in 2H22, as a similar move did in 2015, it’s likely to come at the expense of future growth by pulling forward demand into 2022 and resulting in slower growth in 2023, as the tax regime returns to normal levels. But with the continuation of the zero tolerance policy when it comes to COVID cases, the Chinese economy may remain sluggish, suggesting the world’s largest automotive market is not out of the woods yet.
June starts off on a low note.&nbsp;Meanwhile,&nbsp;Toyota blamed parts shortages&nbsp;due to the Shanghai lockdowns for its reduction in June production targets to 850,000 vehicles worldwide, down from 950,000 expected previously. The company hopes to maintain that rate of production through August, but unless Shanghai ramps up its production activities rapidly in June, summer targets may be subject to further reductions. Similarly,&nbsp;Stellantis announced&nbsp;that its Jeep production plant in Southern Italy will stop production for a week due to semiconductor chip shortages, as that problem continues to persist in global markets, placing a limit on the speed of production recovery in the automotive industry in 2022. Consequently, 2Q22 may continue to see Y/Y declines in automotive and transportation markets affecting key suppliers to the industry, which in our sector include companies like PPG and AXTA, the two leading automotive coatings companies, as well as other suppliers, such as FUL (adhesives &amp; sealants), AVNT (specialty plastics and composites), and HXL (composites), among others.
Lithium &amp; EV Ecosystem
Domestic EV supply chain continues to evolve.&nbsp;Stellantis announced plans,&nbsp;in conjunction with its partner, Samsung SDI, to invest $2.5 billion in a new EV battery plant in Indiana, with production slated for 2025. To ensure adequate supply of lithium for the battery plant,&nbsp;Stellantis also announced an agreement&nbsp;with Controlled Thermal Resources Ltd. (CTR) to supply the company with up to 25,000 metric tons per year of lithium hydroxide over the 10-year term of the agreement. Meanwhile, even as the EV industry looks at a potential shortage of batteries needed to fully meet consumer demand by 2024-25,&nbsp;Panasonic is looking to triple the size of its battery business in North America&nbsp;by 2029 to try to meet the expected market demand in the region, as consumers here are expected to show a greater appetite for EVs, given the exorbitant gasoline prices in the wake of misguided federal policies and repercussions of Russian sanctions.
EV game is not for the faint of heart.&nbsp;The EV battery industry may be entering an early consolidation phase, as the UK’s&nbsp;Britishvolt said it will buy German battery cell developer and manufacturer EAS&nbsp;from Bulgaria’s Monbat for €36 million ($38.6 million) to help it scale up its own production of EV batteries. Meanwhile, another British company, Johnson Matthey, is getting out of the EV battery business by&nbsp;selling its related operations&nbsp;to EV Metals Group (European operations) and Nano One Materials (North American operations). Pooling resources and technological know-how may result in faster investments in battery production around the world, as well as accelerate improvements in battery technologies that can potentially close the industry’s lithium and other critical materials supply gap&nbsp;looming just over the horizon. One answer to the lithium and other battery materials expected shortage is to ramp up lithium battery recycling capacity. To that end,&nbsp;BMW’s Brilliance Automotive (BBA) joint venture has established a closed cycle recycling operation in China&nbsp;for the reuse of the raw materials nickel, lithium, and cobalt from high-voltage batteries. Although still in in the pilot stage, end-of-life battery recycling will be an essential part of the EV battery supply chain, driven by both critical material scarcity and environmental concerns, as recycling batteries reduces CO2&nbsp;emissions by up to 70% compared with mining, processing, and converting virgin materials for the battery industry.
African countries getting into the EV act.&nbsp;Not content to be relegated to a raw material supplier for critical metals such as cobalt and copper, The Democratic Republic of Congo and Zambia concluded a&nbsp;cooperation agreement&nbsp;to help develop a battery and electric materials industry in the region, rather than continue supplying the more developed parts of the world with the critical metals, losing out on the value creation that accompanies the processing of these metals into higher-value products for the battery and electrical components industries. It remains to be seen how successful these efforts are and what, if any, role China will play in developing the required infrastructure, but we are encouraged to see countries with primary metal deposits attempting to improve their economies by developing downstream capabilities, rather than exporting raw metals with economic benefits accruing to other regions.
Ag-Chem and Ag-Tech
Best cure for high prices is high prices (part 1).&nbsp;Sky-high fertilizer prices may have resulted in demand destruction, as farmers look for alternatives, like manure, minimize per ace use, and look for other ways to reduce their input costs. As a result, CF Industries (NYSE: CF) led a&nbsp;recent 30% price drop&nbsp;for nitrogen (ammonia) fertilizers. While the price reduction isn’t likely to positively affect farmers’ costs in the current season, it may begin a trend of input prices returning to more reasonable levels, which would set up US farmers for better incomes in 2023, provided commodity prices remain elevated, which appears likely given the disruptions to the global crop markets caused by Russia’s invasion of Ukraine and resulting disruptions not just to shipments of stored grains, but to this year’s plantings and therefore next year’s crop supplies.
US plantings finally catching up to five-year averages.&nbsp;Over the past two weeks, US farmers were able to take advantage of drier and warmer weather to&nbsp;almost catch up with their plantings of corn and soybeans, which now stand at just 1% below five-year averages. However, it may be too soon to declare victory, as soybean emergence stands at only 39% at the end of May 2022, compared with 59% last year and the five-year average of 43%. Finally, only 73% of the US spring wheat crop is in the ground. Normally 92% of it is planted by late May. We have yet to find out how much acreage was actually planted in the US compared with the USDA’s estimates and how much more acreage will be left fallow or planted with cover crops awaiting a better year next year (hopefully). Bottom line, we believe even with superior yields, US and LATAM harvests may fall short of meeting the global need for row crops and cereals, given the continuing war in Ukraine and disrupted supply chain as a result. This suggests commodity crop prices will remain elevated into the 2022-23 planting season, allowing US farmers to absorb the inflation seen in ag inputs from seeds to ag-chemicals to fertilizers. In turn, this should be a positive for ag-chem companies such as FMC, AVD, and CTVA, as well as bio-based crop protection companies such as MBII and BIOX.
In Other News
Bio-based inputs find applications beyond ag markets.&nbsp;The global market for&nbsp;bio-adhesives, or those products that use intermediates such as starch or gelatin, reached nearly $2.2 billion in 2021. Looking forward, IMARC Group expects the market to reach $4.81 billion by 2027, expanding at a CAGR of 13.9% from 2022-2027. Yet another industry being affected by improved performance of&nbsp;bio-based alternatives is plastics, specifically bio-based polyethylene and polypropylene made from renewable resources such as sugar cane, non-edible plants, and biogenic fats and oils. These and other similar developments highlight the chemical industry’s leading role in helping the global economy reach government-set mandates for carbon emission, minimized environmental impact of plastics and enable zero emissions and circular economy trends.
In the world of paints &amp; coatings.&nbsp;Chinese chloride-based TiO2&nbsp;historically has been a poor cousin to sulfate-based production in Europe and North America, which results in higher purity pigment that can be used in more demanding applications. However, most of TiO2&nbsp;capacity expansions to serve the paints &amp; coatings industry (TiO2’s primary end-market) have occurred in China. As the Chinese housing market stalled,&nbsp;more of this volume found a home in export markets. As chloride-based technology improves and the performance gap between chloride and sulfate processes narrows, price differences between the two sources are narrowing as well. Should China’s construction market recover, higher domestic demand may result in less export volumes, which has the potential to drive up TiO2&nbsp;prices and put further pressure on paints &amp; coatings companies’ margins, even as volume growth remains elusive and consumer tolerance of higher prices erodes. We therefore remain cautious on SHW, PPG, AXTA, and RPM for the time being. Speaking of PPG,&nbsp;a recent story&nbsp;suggests the company may be looking at joining forces with AXTA, something that’s been rumored on and off for the past two years. While we believe antitrust issues related to automotive OEM and collision repair coatings may make the combination difficult (we believe SHW to be a more natural acquirer of AXTA, given its lack of sizable transportation coatings business), a merger and subsequent divestitures of some of the businesses could be a solution PPG may be willing to entertain.
Best cure for high prices is high prices (part 2).&nbsp;Subdued demand and full warehouses are resulting in&nbsp;commodity resin prices, such as those of polyethylene and polypropylene, to decline recently for the first time in several months. While it remains to be seen if the trend can hold, given rising oil and natural gas prices, the reduction in spot and contract prices may be a positive for large commodity plastic consumers, such as AVNT, as well companies that utilize plastic packaging in their products (everyone from ECL to MBII), which may see their margins improve ahead of expectations over the next one to two quarters.
Recent WTR Publications and Upcoming Events
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
Westwater Resources (NYSE: WWR) Fireside Chat – June 9
Rating and Price Target Changes
ALB –&nbsp;KeyBank raised its price target (PT) to $217 from $215 and reiterated its Underweight rating; Wells Fargo raised its PT to $320 from $285 and reiterated its Outperform rating; RBC raised its PT to $314 from $300 and reiterated its Outperform rating; Deutsche Bank raised its PT to $320 from $290 and reiterated its Buy recommendation; Berenberg Bank raised its PT to $260 from $250 and reiterated its Buy rating; UBS downgraded the stock to Neutral from Buy and reduced its PT to $260 from $300.
CMP –&nbsp;Deutsche Bank lowered its PT to $55 from $73 but reiterated its Buy recommendation.
CTVA –&nbsp;Deutsche Bank raised its PT to $72 from $64 and reiterated its Buy rating; Barclays initiated coverage with an Overweight recommendation and $71 PT.
ECL –&nbsp;Argus lowered its PT to $200 from $230 but reiterated its Buy recommendation; UBS on the other hand upgraded the stock to Buy from Neutral and raised its PT to $205 from $186; Credit Suisse upgraded the stock to Outperform from Neutral and raised its PT to $195 from $180.
EMN –&nbsp;Credit Suisse initiated coverage with Outperform and $130 PT.
FMC –&nbsp;Credit Suisse initiated coverage with Underperform and $109 PT.
PLL –&nbsp;Cowen initiated coverage with Outperform and $90 PT.
PPG –&nbsp;Credit Suisse initiated coverage with Underperform and $115 PT.
SHW –&nbsp;Credit Suisse initiated coverage with Underperform and $245 PT; Evercore ISI raised its PT to $310 from $290 and reiterated its Outperform rating.
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Mat-Chem Notes for the Week Ended June 5, 2022

United States

Compass Minerals International, Inc. produces highway deicing salt in North America and the United Kingdom.  The Company also produces general trade salt and sulfate of potash.  Compass Minerals sells its highway deicing salt primarily to state, provincial, county, and municipal highway departments for deicing applications.

Compass Minerals International, Inc (CMP US)

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Compass Minerals International, Inc (CMP US)

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