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)

<h3>KEY HIGHLIGHTS</h3>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;In another down week for the market, the S&amp;P 500 retreated 3.3%, while the Russell 2000 lost 4.7% of its value. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market, declining 5.5% for the week. All the stocks in our index finished the week in the red, with large cap coating names—AXTA, SHW, and PPG—posting the lowest declines, along with CTVA, which may have benefited from its&nbsp;announcement of a joint development of a new soybean seed with BASF. Prior week’s leader ALB was the worst performer last week, losing 9.8% of its value, as investors may have been disappointed with the&nbsp;company’s decision to keep the Catalysts business.</li>
<li>Damn the torpedoes, part 2.&nbsp;Going full-speed ahead with the development of its Ghana and Quebec mine reserves, while awaiting permitting for its NC mine,&nbsp;PLL announced plans to construct&nbsp;the country’s largest lithium hydroxide production plant in Tennessee, with production targeted for 2025.</li>
<li>US farmers appear to survive 2022 rollercoaster.&nbsp;Despite record high fertilizer, seed, and pesticide costs, not to mention supply disruptions, weather, and fuel costs,&nbsp;the USDA forecasts that US farmers will enjoy record cash incomes&nbsp;in 2022, although net farm income is expected to decline 3.3% from 2021, despite high crop prices due to aforementioned cost headwinds. With input costs continuing to go up (diesel moving north of $5/gal average again) and a slightly dented pocketbook heading into the 2022-23 season, US farmers’ ability to withstand another year of similar shocks remains under question.</li>
<li>Auto sales finally begin to recover.&nbsp;New car registrations in&nbsp;France&nbsp;and&nbsp;the US&nbsp;rose 4% Y/Y in August, albeit coming against increasingly easy year-ago comps. Still, the news is encouraging for Tier 1 auto suppliers such as PPG and AXTA in our index.</li>
<li>Builder confidence sinks.&nbsp;August was the eighth straight month of US&nbsp;builders’ confidence declining, with the August reading of 49 falling below the neutral outlook level for the first time since May 2020. We see this as a broad negative for our sector, especially for SHW, RPM, NGVT, and FULL, for whom the building &amp; construction industry represents a major end- market.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/296/883/original/image_18510131561662594923949.png?1662594926" class="editor-image img-responsive" data-smartkarma-image-id="296883"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>LATAM markets take center stage.&nbsp;With everything but the shouting over in the North American ag market for the 2021-22 season, attention is shifting to LATAM’s 2022-23 ag market forecasts. According to the Brazilian National Supply Company (CONAB), both&nbsp;soybean and corn planted acres are expected to grow in Brazil&nbsp;in 2022-23 compared with 2021-22, with more than 100 million acres of soybean being planted in the country for the first time. Still, while acres and yields are expected to grow, farms’ operating margins are forecast to decline versus this year, due primarily to higher input costs that are more than offsetting strong commodity prices and favorable currency exchange rates.</p>
<p>Higher planted acres expected in the region as well as higher use of fertilizers and pesticides are expected to benefit ag input companies. As recent research indicated,&nbsp;large multinationals are outperforming their local peers&nbsp;in this regard when it comes to LATAM markets in general, and Brazil, the region’s largest, in particular. We see this as a positive for companies like CTVA and FMC, given their strong positions in the region. Coming off a solid North American and European season, it appears ag majors are well positioned to continue their positive growth trajectory as sales shift to LATAM and we see current stock prices for both FMS and CTV as attractive entry points for investors looking to benefit from strong demand and pricing dynamics in the ag-input industry.</p>
<p>Ag majors aren’t the only ones likely to benefit from solid market conditions in LATAM. According to the Brazilian Ministry of Agriculture, Livestock and Supply (MAPA),&nbsp;there were 92 biological or low-impact pesticides approved in 2021, down slightly from the 95 approved in 2020. However, continuing expansion of bio-based pesticides, whose review and approvals are given priority by the agency, is a positive for both farmers, who will have more alternatives and solutions should synthetic chemical inputs’ cost and availability remain an issue in 2022-23, and for emerging bio-ag players, such as BIOX and BHIL, among others, who are rapidly developing bio-based alternatives to traditional synthetic pesticides.</p>
<h2>Battery Materials &amp; Energy Transformation</h2>
<p>Government regulations working at cross purposes to government intentions when it comes to electrification.&nbsp;Even as realization spreads that virtually everywhere one looks, there is a pending shortage of battery-critical materials essential for the electrification revolution to realize its full potential and growing concerns of overreliance on China for such materials already, ramping up local supply of these materials remains problematic. One consistent obstacle is government regulations around mining—the key element in domesticating the battery supply chain and reducing reliance on China and other less-than-friendly regimes. Sweden, home to many materials that could be mined to supply the burgeoning EV battery demand in EU,&nbsp;has been called out recently&nbsp;for its slow regulatory process when it comes to approving new mines in the country. In the US, there is an&nbsp;industry push to shorten and streamline&nbsp;the US mine permit review process. As companies who are looking to develop domestic supply of everything from lithium, to graphite, to rare earths and more prosaic metals such as nickel and copper, continue to bleed red ink due to permitting delays of their major projects, government regulations continue to erect barriers and raise the cost of developing such projects, which appear contrary to many governments’ stated goals and deadlines for sufficiently reducing, if not outright eliminating, dependence on fossil fuels as the basis for the economy. As the saying goes, something’s gotta give.</p>
<p>More investments and intentions announced.&nbsp;Toyota, long viewed as a laggard in EV transition race, announced it will invest close to&nbsp;$5.6 billion into making more EV batteries in the US and Japan, with the goal of raising its production capacity by 40 GWh. The company announced that $2.5 billion of that will go toward its investments into the&nbsp;North Carolina battery plant&nbsp;that will supply batteries for both hybrid as well as fully electric vehicles. Initial production is expected in 2025.</p>
<p>Meanwhile, American Manganese Inc. (OTC: AMYZF) announced that its RecycLiCo Battery Materials arm, in partnership with Kemetco Research Inc., has successfully run a bench test whereby&nbsp;the patented process recovered more than 99% of the lithium&nbsp;contained in lithium-iron-phosphate (LFP) battery cathode materials, extending the process ability, previously demonstrated for nickel-rich, manganese-rich and cobalt-rich cathode chemistries. As we highlighted in our previous issue, work continues on other, non-battery-based energy alternatives, such as hydrogen fuel cells. Recently, German&nbsp;Bosch announced plans to invest $200 million&nbsp;in its US capacity to produce said fuel cells at its South Carolina plant.</p>
<h2>Automotive &amp; Transportation</h2>
<p>We’re not out of the woods yet.&nbsp;Although new car sales comps are beginning to turn positive, as we mentioned above, we note that August improvements (and we expect the remainder of the year to follow suit) came against record low production levels seen in 2H21 and the global industry remains materially below 2019 production levels. Many issues that have plagued the industry over the last three years remain. Thus,&nbsp;Volvo will temporarily close its plant in the Chinese city&nbsp;of Chengdu due to local coronavirus restrictions.&nbsp;Stellantis halted its Sevel van-making plant&nbsp;in central Italy due to a shortage in supplies of parts.&nbsp;Toyota announced that its global output sank&nbsp;for the fourth straight month in July, as a shortage of semiconductors and supply chain disruptions caused by COVID lockdowns in China hurt production. With the world possibly entering a recession, big ticket items such as new cars may continue to see an uneven recovery in demand, even off the 2021-22 lows. While Y/Y growth in new vehicle registrations is encouraging, ongoing issues with semiconductor and other parts supplies, logistical snags, and on-again-off-again production in China as rolling COVID lockdowns continue, the industry still seems some way off from regaining its footing.</p>
<h2>Chemicals and Materials Technology in the News</h2>
<p>Architectural coatings market growth intact.&nbsp;A report by&nbsp;Research and Markets forecasts that global demand for architectural coatings&nbsp;will continue to grow at above GDP rates, driven by residential construction and remodeling, as well as commercial and infrastructure projects. The global market for architectural coatings estimated at $64.2 billion in 2022 is projected to grow at a 4.9% CAGR through 2026, reaching $79.5 billion by 2026. While this is a positive for PPG, Masco (NYSE: MAS), which supplies Behr and Kilz brand paints to Home Depot (NYSE: HD), and Berkshire Hathaway’s Benjamin Moore paint, it is particularly impactful for SHW, which dominates the paint market in the US and is one of the leading global suppliers of architectural coatings. Furthermore, with the Do It For Me&nbsp;(DIFM) trend growing once more in the US&nbsp;in the wake of COVID lockdowns, SHW may benefit disproportionately, given its extensive company-owned contractor paint stores across the country and in Canada.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)</p>
<p>Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)</p>
<p>Fireside Chat with Management of Loop Industries (NASDAQ: LOOP)</p>
<p>Fireside Chat with Management of Westwater Resources (NYSE: WWR)</p>
<p>Initiation of Coverage – Westwater Resources (NYSE: WWR)</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 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.<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>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.<br><br>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.<br><br>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.<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, 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.<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 another down week for the market, the S&amp;P 500 retreated 3.3%, while the Russell 2000 lost 4.7% of its value. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market, declining 5.5% for the week. All the stocks in our index finished the week in the red, with large cap coating names—AXTA, SHW, and PPG—posting the lowest declines, along with CTVA, which may have benefited from its&nbsp;announcement of a joint development of a new soybean seed with BASF. Prior week’s leader ALB was the worst performer last week, losing 9.8% of its value, as investors may have been disappointed with the&nbsp;company’s decision to keep the Catalysts business.
Damn the torpedoes, part 2.&nbsp;Going full-speed ahead with the development of its Ghana and Quebec mine reserves, while awaiting permitting for its NC mine,&nbsp;PLL announced plans to construct&nbsp;the country’s largest lithium hydroxide production plant in Tennessee, with production targeted for 2025.
US farmers appear to survive 2022 rollercoaster.&nbsp;Despite record high fertilizer, seed, and pesticide costs, not to mention supply disruptions, weather, and fuel costs,&nbsp;the USDA forecasts that US farmers will enjoy record cash incomes&nbsp;in 2022, although net farm income is expected to decline 3.3% from 2021, despite high crop prices due to aforementioned cost headwinds. With input costs continuing to go up (diesel moving north of $5/gal average again) and a slightly dented pocketbook heading into the 2022-23 season, US farmers’ ability to withstand another year of similar shocks remains under question.
Auto sales finally begin to recover.&nbsp;New car registrations in&nbsp;France&nbsp;and&nbsp;the US&nbsp;rose 4% Y/Y in August, albeit coming against increasingly easy year-ago comps. Still, the news is encouraging for Tier 1 auto suppliers such as PPG and AXTA in our index.
Builder confidence sinks.&nbsp;August was the eighth straight month of US&nbsp;builders’ confidence declining, with the August reading of 49 falling below the neutral outlook level for the first time since May 2020. We see this as a broad negative for our sector, especially for SHW, RPM, NGVT, and FULL, for whom the building &amp; construction industry represents a major end- market.

WTR-CMI WEEKLY PERFORMANCE

Ag-Tech and Bio-Ag
LATAM markets take center stage.&nbsp;With everything but the shouting over in the North American ag market for the 2021-22 season, attention is shifting to LATAM’s 2022-23 ag market forecasts. According to the Brazilian National Supply Company (CONAB), both&nbsp;soybean and corn planted acres are expected to grow in Brazil&nbsp;in 2022-23 compared with 2021-22, with more than 100 million acres of soybean being planted in the country for the first time. Still, while acres and yields are expected to grow, farms’ operating margins are forecast to decline versus this year, due primarily to higher input costs that are more than offsetting strong commodity prices and favorable currency exchange rates.
Higher planted acres expected in the region as well as higher use of fertilizers and pesticides are expected to benefit ag input companies. As recent research indicated,&nbsp;large multinationals are outperforming their local peers&nbsp;in this regard when it comes to LATAM markets in general, and Brazil, the region’s largest, in particular. We see this as a positive for companies like CTVA and FMC, given their strong positions in the region. Coming off a solid North American and European season, it appears ag majors are well positioned to continue their positive growth trajectory as sales shift to LATAM and we see current stock prices for both FMS and CTV as attractive entry points for investors looking to benefit from strong demand and pricing dynamics in the ag-input industry.
Ag majors aren’t the only ones likely to benefit from solid market conditions in LATAM. According to the Brazilian Ministry of Agriculture, Livestock and Supply (MAPA),&nbsp;there were 92 biological or low-impact pesticides approved in 2021, down slightly from the 95 approved in 2020. However, continuing expansion of bio-based pesticides, whose review and approvals are given priority by the agency, is a positive for both farmers, who will have more alternatives and solutions should synthetic chemical inputs’ cost and availability remain an issue in 2022-23, and for emerging bio-ag players, such as BIOX and BHIL, among others, who are rapidly developing bio-based alternatives to traditional synthetic pesticides.
Battery Materials &amp; Energy Transformation
Government regulations working at cross purposes to government intentions when it comes to electrification.&nbsp;Even as realization spreads that virtually everywhere one looks, there is a pending shortage of battery-critical materials essential for the electrification revolution to realize its full potential and growing concerns of overreliance on China for such materials already, ramping up local supply of these materials remains problematic. One consistent obstacle is government regulations around mining—the key element in domesticating the battery supply chain and reducing reliance on China and other less-than-friendly regimes. Sweden, home to many materials that could be mined to supply the burgeoning EV battery demand in EU,&nbsp;has been called out recently&nbsp;for its slow regulatory process when it comes to approving new mines in the country. In the US, there is an&nbsp;industry push to shorten and streamline&nbsp;the US mine permit review process. As companies who are looking to develop domestic supply of everything from lithium, to graphite, to rare earths and more prosaic metals such as nickel and copper, continue to bleed red ink due to permitting delays of their major projects, government regulations continue to erect barriers and raise the cost of developing such projects, which appear contrary to many governments’ stated goals and deadlines for sufficiently reducing, if not outright eliminating, dependence on fossil fuels as the basis for the economy. As the saying goes, something’s gotta give.
More investments and intentions announced.&nbsp;Toyota, long viewed as a laggard in EV transition race, announced it will invest close to&nbsp;$5.6 billion into making more EV batteries in the US and Japan, with the goal of raising its production capacity by 40 GWh. The company announced that $2.5 billion of that will go toward its investments into the&nbsp;North Carolina battery plant&nbsp;that will supply batteries for both hybrid as well as fully electric vehicles. Initial production is expected in 2025.
Meanwhile, American Manganese Inc. (OTC: AMYZF) announced that its RecycLiCo Battery Materials arm, in partnership with Kemetco Research Inc., has successfully run a bench test whereby&nbsp;the patented process recovered more than 99% of the lithium&nbsp;contained in lithium-iron-phosphate (LFP) battery cathode materials, extending the process ability, previously demonstrated for nickel-rich, manganese-rich and cobalt-rich cathode chemistries. As we highlighted in our previous issue, work continues on other, non-battery-based energy alternatives, such as hydrogen fuel cells. Recently, German&nbsp;Bosch announced plans to invest $200 million&nbsp;in its US capacity to produce said fuel cells at its South Carolina plant.
Automotive &amp; Transportation
We’re not out of the woods yet.&nbsp;Although new car sales comps are beginning to turn positive, as we mentioned above, we note that August improvements (and we expect the remainder of the year to follow suit) came against record low production levels seen in 2H21 and the global industry remains materially below 2019 production levels. Many issues that have plagued the industry over the last three years remain. Thus,&nbsp;Volvo will temporarily close its plant in the Chinese city&nbsp;of Chengdu due to local coronavirus restrictions.&nbsp;Stellantis halted its Sevel van-making plant&nbsp;in central Italy due to a shortage in supplies of parts.&nbsp;Toyota announced that its global output sank&nbsp;for the fourth straight month in July, as a shortage of semiconductors and supply chain disruptions caused by COVID lockdowns in China hurt production. With the world possibly entering a recession, big ticket items such as new cars may continue to see an uneven recovery in demand, even off the 2021-22 lows. While Y/Y growth in new vehicle registrations is encouraging, ongoing issues with semiconductor and other parts supplies, logistical snags, and on-again-off-again production in China as rolling COVID lockdowns continue, the industry still seems some way off from regaining its footing.
Chemicals and Materials Technology in the News
Architectural coatings market growth intact.&nbsp;A report by&nbsp;Research and Markets forecasts that global demand for architectural coatings&nbsp;will continue to grow at above GDP rates, driven by residential construction and remodeling, as well as commercial and infrastructure projects. The global market for architectural coatings estimated at $64.2 billion in 2022 is projected to grow at a 4.9% CAGR through 2026, reaching $79.5 billion by 2026. While this is a positive for PPG, Masco (NYSE: MAS), which supplies Behr and Kilz brand paints to Home Depot (NYSE: HD), and Berkshire Hathaway’s Benjamin Moore paint, it is particularly impactful for SHW, which dominates the paint market in the US and is one of the leading global suppliers of architectural coatings. Furthermore, with the Do It For Me&nbsp;(DIFM) trend growing once more in the US&nbsp;in the wake of COVID lockdowns, SHW may benefit disproportionately, given its extensive company-owned contractor paint stores across the country and in Canada.
Recent WTR Publications and Upcoming Events
Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)
Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)
Fireside Chat with Management of Loop Industries (NASDAQ: LOOP)
Fireside Chat with Management of Westwater Resources (NYSE: WWR)
Initiation of Coverage – Westwater Resources (NYSE: WWR)
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 September 4 2022

<h2>KEY HIGHLIGHTS</h2>
<ul>
<li>WTR-CMI last week.&nbsp;Propelled by lithium stocks that are benefiting from resumed price increases and continuing growth in EV production, our WTR-CMI index of 30 chemicals and materials stocks held its ground last week by pulling back only 1.3%, compared with the declines of the Russell 2000 and the S&amp;P 500 of 2.9% and 4.0%, respectively. On Y/Y bases, our index has reached parity (up 0.1%), while both the Russell 2000 and the S&amp;P 500 remained underwater by (14.2%) and (9.2%), respectively.</li>
<li>Damn the torpedoes.&nbsp;Undeterred by continuing issues with obtaining state and local permits in North Carolina, a process that is expected to last into 2023,&nbsp;PLL has invested $100 million in land&nbsp;purchases in the region of its future lithium mine, which investors may see as management’s vote of confidence in the ultimate positive resolution of its permitting process.</li>
<li>Dual wet blankets in ag market.&nbsp;Affected by high natural gas prices in Europe, Yara (OTC: YARIY), one of Europe’s largest fertilizer producers, is&nbsp;curtailing ammonia production&nbsp;across its network of plants, likely putting upward pressure on fertilizer prices heading into the 2023 ag season. Not to be outdone, the&nbsp;Trudeau government in Canada has put forth a “recommendation”&nbsp;for its farmers to use less fertilizer (thus affecting yields) or face the consequence of being excluded from participation in C$1.5 billion in government financial aid to farmers. Compliance with the recommendation is, of course, purely voluntary.</li>
<li>Energy availability a real concern.&nbsp;Car executives in&nbsp;the UK are growing increasingly concerned&nbsp;with the staggeringly high natural gas and energy prices in the country and their potential impact on both near-term production and the ability to attract needed investment into the country. Energy availability is not just an EU problem as&nbsp;Toyota had to suspend production&nbsp;at its Chinese plant earlier in August due to local energy curtailment policies.</li>
<li>ALB keeps catalysts, realigns bromine and lithium.&nbsp;After completing its strategic review, ALB announced its decision to&nbsp;hold on to its Catalysts business&nbsp;in the form of a wholly owned subsidiary, while also&nbsp;realigning its Bromine and Lithium&nbsp;operations to create two SBUs—one focused on energy storage and one focused on other industrial uses and applications.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/295/972/original/image_85467367041662171205175.png?1662171207" class="editor-image img-responsive" data-smartkarma-image-id="295972"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>Cracks grow in US ag economy.&nbsp;Creighton University’s&nbsp;Rural Mainstreet Index (RMI)&nbsp;took another step down in August, declining to 44 from July’s 46 (50 being a growth-neutral outlook) as farmers face increasing economic pressures from high costs and supply bottlenecks, combined with softening commodity prices and what may be lower yields as weather affects crop-growing regions. Interestingly, 92% of the rural bank CEOs queried believe that China’s purchases of US farmland are a threat to the regional economy (not to mention national security) and it appears there are plenty of reasons for concern. The recently completed&nbsp;Pro Farmer Crop Tour&nbsp;was far from optimistic. While soybean estimates largely met the August 2022 USDA forecast of 4.53 billion bushels, Pro Farmer’s estimate for corn fell short of government projections, as higher eastern corn belt yield estimates failed to offset drought affected western corn belt yield reductions, with 13.8 billion bushels&nbsp;projected by Pro Farmer&nbsp;based on its in-field scouting, compared with the USDA’s 14.4 billion bushel forecast.</p>
<p>Lower production would need to be offset by higher grain prices for US farmers to generate the cash income they need to finance the supply of inputs, rent farmland, and purchase farm equipment for the 2023 planting season. As we highlighted in our previous report, farmer profit per acre is already expected to decline dramatically in 2023 compared with 2020-22 and constraints on availability of fertilizers (see above) and likely continued price increases in pesticides, thanks in part to record energy and natural gas costs in Europe and China and exacerbated by short-sighted government actions that further constrain production, may erode it further, possibly prompting more US farmers to not plant crops next year.</p>
<p>To the extent there is a silver lining, these developments may provide further opportunities for bio-based ag inputs, such as those manufactured and sold by BIOX and BHIL, to gain share in the market due to both better availability and closer price parity with inflating chemicals-based alternatives. Additionally, as profitability of conventional grain farming shrinks, more row crop acres may be transitioned to organic farming, with crops thus commanding a premium in the marketplace, which may help offset higher costs and improve profitability.</p>
<p>Speaking of organic produce, it appears that input cost inflation is also affecting this sector of the ag industry and&nbsp;participants are dealing with many of the same issues&nbsp;conventional crop producers are struggling with, in terms of transportation costs and logistics. However, the well-entrenched wellness trend is helping keep sales volumes positive Y/Y and&nbsp;retail price inflation for organic produce&nbsp;is only half that of conventional alternatives.</p>
<h2>Battery Materials &amp; Energy Transformation</h2>
<p>Where to charge the growing EV fleet?&nbsp;Even as EV production and sales continue to ramp up, with&nbsp;US sales growing 41%&nbsp;Y/Y through the first half of the year, concerns are increasing over the slow pace of charging stations rollout and their dependability, or lack thereof. Industry concerns are centered around the obstacles the absence of sufficient reliable charging points may have on the&nbsp;pace of adoption of EV technology by consumers. While efforts are being made to alleviate that problem, such as&nbsp;SK’s recent investment of $100 million&nbsp;in US company Atom Power, other challenges arise. Specifically, as EV fleets grow, so does the demand for electricity to charge them. Availability of charging stations aside, availability of electrical power is becoming an issue, especially against the background of supply dislocations caused by the Russian invasion of Ukraine and subsequent NATO and EU sanctions. In China, where EV fleet growth is the fastest, but power infrastructure and capacity are lacking,&nbsp;Tesla and Nio are suspending EV charging services&nbsp;as&nbsp;governments ration electricity supply. Clearly, more thought needs to be given to ensuring that the ramp-up in EVs is accompanied by investments into charging networks, electricity production and grid integrity, if the promise of green transportation is to be realized.</p>
<p>Battery material availability still an issue.&nbsp;We can add&nbsp;copper to the list of critical metals for the EV battery industry&nbsp;that are projected to be in short supply just as EV market growth is accelerating. It is becoming increasingly clear that to keep up with expected demand, robust end-of-life battery recycling programs and technologies will be needed. As the lithium battery recycling industry is still in its infancy, several technologies for efficiently processing and recovering critical metals and other components from end-of-life batteries are being developed. Recently, an R&amp;D program at&nbsp;Worcester Polytechnic Institute (WPI) has developed a sustainable lithium recovery process&nbsp;that can selectively leach and recover lithium with formic acid before recycling valuable metals. While commercialization is likely still years away, the acuteness of the supply problem should keep R&amp;D dollars flowing into similar academic and private research programs, as well as proof of concept and pilot production. In the meantime, governments around the world are taking steps to ensure their countries are positioned to capture their share of the economic opportunity inherent in such once-in-a-century transformations. While specific approaches vary, governments in emerging economies are increasingly opting for state-run enterprises to control the mining of materials required for the global energy market. Most recently, the&nbsp;Mexican government founded a state-owned company&nbsp;to extract and market lithium in the country. Time will tell whether government control or free enterprise is the best vehicle (pun intended) for achieving the sustainability goals and commitments and meet consumer demand in the most efficient fashion.</p>
<p>Not putting all the eggs into the BEV basket.&nbsp;While battery powered vehicles (BEVs), along with hybrid (HEV) and plug-in hybrid (PHEV) vehicles based on lithium batteries as a power source, dominate the current New Energy Vehicle (NEV) market, to borrow Chinese terminology, the automotive industry keeps looking at alternatives. One such alternative has been fuel cell technology, which combines oxygen and hydrogen to produce electricity with water vapor as the only emission. Toyota, long the champion of this approach to sustainable transportation architecture, has been recently joined by&nbsp;BMW, which is adding hydrogen fuel cell-based models&nbsp;to its proposed New Class (Neue Klasse)&nbsp;of electric vehicle platforms. Let the technology competition begin!</p>
<h2>Chemicals and Materials Technology in the News</h2>
<p>Architectural coatings market growth intact.&nbsp;A report by&nbsp;Research and Markets forecasts that global demand for architectural coatings&nbsp;will continue to grow at above-GDP rates, driven by residential construction and remodeling, as well as commercial and infrastructure projects. The global market for architectural coatings, estimated at $64.2 billion in 2022, is projected to grow at a 4.9% CAGR through 2026, reaching $79.5 billion by 2026. While this is a positive for PPG, Masco (NYSE: MAS), which supplies Behr and Kilz brand paints to Home Depot (NYSE: HD), and Berkshire Hathaway’s Benjamin Moore paint, it is particularly impactful for SHW, which dominates the paint market in the US and is one of the leading global suppliers of architectural coatings. Furthermore, with the Do-It-For-Me&nbsp;(DIFM) trend growing once more in the US&nbsp;in the wake of the COVID lockdowns, SHW may benefit disproportionately, given its extensive company-owned contractor paint stores across the country and in Canada.</p>
<p>Plastics evolution.&nbsp;While plastics have been around for nearly a century, the industry is continuing to develop and evolve. In recent years, much of the effort has been centered around two areas, both aiming to reduce the environmental impact of plastic production and its impact on the ecosystem in post-production use. The first such area is substituting oil and natural gas as a starting point for most plastics production with a bio-based alternative, collectively known as bioplastics. With growing government regulations around net-zero, the circular economy and sustainability companies, especially consumer brand owners, have been working to incorporate such products into their supply chain. However, as with other areas of environmentally driven transformation, such as the EV market,&nbsp;demand for alternative sources of plastics&nbsp;is not keeping up with supply. The good news is that companies engaged in the commercialization of bioplastics have a clear pathway to growth, provided sufficient capital is made available. The bad news, of course, is that much of the technology remains to be proven at commercial scale and may not be the most efficient way to meet government and consumer sustainability goals in the near to mid-term.</p>
<p>The other alternative to using fossil fuels to produce basic plastic resins is, of course, recycling of existing plastic waste, The approach also addresses the issue of the billions of tons of plastic already in the environment. Earlier this week, we sat down with one company doing something about it—Loop Industries (see below)—which is a pioneer in low energy molecular recycling of PET and polyester. While Loop should become a major player in the plastics recycling industry, it is not alone.&nbsp;Honeywell (NYSE: HON) has been working on plastic recycling as well, moving from proof of concept to pilot plant to now getting ready to commercialize its process globally. Other innovators continue to emerge, bringing their R&amp;D skills to bear to build a better mousetrap when it comes to economic recycling of pesky plastics. One such company is Finnish Olefy, which is working to&nbsp;commercialize a gasification process to break down plastic waste&nbsp;into its constituents in an effort to crate virgin-like resins. While Olefy’s process appears more generic than Loop’s PET/polyester-specific process, it requires very high temperatures to run, giving Loop an advantage from an operating cost and environmental impact perspective. The good news for all these companies is that, at least in the short term,&nbsp;prices of plastic scrap are continuing to decline, placing these and other plastic recyclers in an enviable position in today’s inflationary environment of easing input costs.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;UBS raised its price target (PT) to $308 from $265 and maintained its Neutral rating.</p>
<p>ECL –&nbsp;Evercore ISI reduced its PT to $190 from $200 and maintained its In-Line rating.</p>
<p>HXL –&nbsp;Berenberg Bank raised its PT to $74 from $65 and reiterated its Buy recommendation.</p>
<p>LTHM –&nbsp;CFRA upgraded the stock to Buy from Hold and raise its PT to $33 from $28.</p>
<p>RMP –&nbsp;BMO raised its PT to $111 from $104 and reiterated its Outperform rating; UBS raised its PT to $105 from $99 and reiterated its Buy recommendation.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)</p>
<p>Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)</p>
<p>Fireside Chat with Management of Loop Industries (NASDAQ: LOOP)</p>
<p>Fireside Chat with Management of Westwater Resources (NYSE: WWR)</p>
<p>Initiation of Coverage – Westwater Resources (NYSE: WWR)</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 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.<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;Propelled by lithium stocks that are benefiting from resumed price increases and continuing growth in EV production, our WTR-CMI index of 30 chemicals and materials stocks held its ground last week by pulling back only 1.3%, compared with the declines of the Russell 2000 and the S&amp;P 500 of 2.9% and 4.0%, respectively. On Y/Y bases, our index has reached parity (up 0.1%), while both the Russell 2000 and the S&amp;P 500 remained underwater by (14.2%) and (9.2%), respectively.
Damn the torpedoes.&nbsp;Undeterred by continuing issues with obtaining state and local permits in North Carolina, a process that is expected to last into 2023,&nbsp;PLL has invested $100 million in land&nbsp;purchases in the region of its future lithium mine, which investors may see as management’s vote of confidence in the ultimate positive resolution of its permitting process.
Dual wet blankets in ag market.&nbsp;Affected by high natural gas prices in Europe, Yara (OTC: YARIY), one of Europe’s largest fertilizer producers, is&nbsp;curtailing ammonia production&nbsp;across its network of plants, likely putting upward pressure on fertilizer prices heading into the 2023 ag season. Not to be outdone, the&nbsp;Trudeau government in Canada has put forth a “recommendation”&nbsp;for its farmers to use less fertilizer (thus affecting yields) or face the consequence of being excluded from participation in C$1.5 billion in government financial aid to farmers. Compliance with the recommendation is, of course, purely voluntary.
Energy availability a real concern.&nbsp;Car executives in&nbsp;the UK are growing increasingly concerned&nbsp;with the staggeringly high natural gas and energy prices in the country and their potential impact on both near-term production and the ability to attract needed investment into the country. Energy availability is not just an EU problem as&nbsp;Toyota had to suspend production&nbsp;at its Chinese plant earlier in August due to local energy curtailment policies.
ALB keeps catalysts, realigns bromine and lithium.&nbsp;After completing its strategic review, ALB announced its decision to&nbsp;hold on to its Catalysts business&nbsp;in the form of a wholly owned subsidiary, while also&nbsp;realigning its Bromine and Lithium&nbsp;operations to create two SBUs—one focused on energy storage and one focused on other industrial uses and applications.

WTR-CMI WEEKLY PERFORMANCE

Ag-Tech and Bio-Ag
Cracks grow in US ag economy.&nbsp;Creighton University’s&nbsp;Rural Mainstreet Index (RMI)&nbsp;took another step down in August, declining to 44 from July’s 46 (50 being a growth-neutral outlook) as farmers face increasing economic pressures from high costs and supply bottlenecks, combined with softening commodity prices and what may be lower yields as weather affects crop-growing regions. Interestingly, 92% of the rural bank CEOs queried believe that China’s purchases of US farmland are a threat to the regional economy (not to mention national security) and it appears there are plenty of reasons for concern. The recently completed&nbsp;Pro Farmer Crop Tour&nbsp;was far from optimistic. While soybean estimates largely met the August 2022 USDA forecast of 4.53 billion bushels, Pro Farmer’s estimate for corn fell short of government projections, as higher eastern corn belt yield estimates failed to offset drought affected western corn belt yield reductions, with 13.8 billion bushels&nbsp;projected by Pro Farmer&nbsp;based on its in-field scouting, compared with the USDA’s 14.4 billion bushel forecast.
Lower production would need to be offset by higher grain prices for US farmers to generate the cash income they need to finance the supply of inputs, rent farmland, and purchase farm equipment for the 2023 planting season. As we highlighted in our previous report, farmer profit per acre is already expected to decline dramatically in 2023 compared with 2020-22 and constraints on availability of fertilizers (see above) and likely continued price increases in pesticides, thanks in part to record energy and natural gas costs in Europe and China and exacerbated by short-sighted government actions that further constrain production, may erode it further, possibly prompting more US farmers to not plant crops next year.
To the extent there is a silver lining, these developments may provide further opportunities for bio-based ag inputs, such as those manufactured and sold by BIOX and BHIL, to gain share in the market due to both better availability and closer price parity with inflating chemicals-based alternatives. Additionally, as profitability of conventional grain farming shrinks, more row crop acres may be transitioned to organic farming, with crops thus commanding a premium in the marketplace, which may help offset higher costs and improve profitability.
Speaking of organic produce, it appears that input cost inflation is also affecting this sector of the ag industry and&nbsp;participants are dealing with many of the same issues&nbsp;conventional crop producers are struggling with, in terms of transportation costs and logistics. However, the well-entrenched wellness trend is helping keep sales volumes positive Y/Y and&nbsp;retail price inflation for organic produce&nbsp;is only half that of conventional alternatives.
Battery Materials &amp; Energy Transformation
Where to charge the growing EV fleet?&nbsp;Even as EV production and sales continue to ramp up, with&nbsp;US sales growing 41%&nbsp;Y/Y through the first half of the year, concerns are increasing over the slow pace of charging stations rollout and their dependability, or lack thereof. Industry concerns are centered around the obstacles the absence of sufficient reliable charging points may have on the&nbsp;pace of adoption of EV technology by consumers. While efforts are being made to alleviate that problem, such as&nbsp;SK’s recent investment of $100 million&nbsp;in US company Atom Power, other challenges arise. Specifically, as EV fleets grow, so does the demand for electricity to charge them. Availability of charging stations aside, availability of electrical power is becoming an issue, especially against the background of supply dislocations caused by the Russian invasion of Ukraine and subsequent NATO and EU sanctions. In China, where EV fleet growth is the fastest, but power infrastructure and capacity are lacking,&nbsp;Tesla and Nio are suspending EV charging services&nbsp;as&nbsp;governments ration electricity supply. Clearly, more thought needs to be given to ensuring that the ramp-up in EVs is accompanied by investments into charging networks, electricity production and grid integrity, if the promise of green transportation is to be realized.
Battery material availability still an issue.&nbsp;We can add&nbsp;copper to the list of critical metals for the EV battery industry&nbsp;that are projected to be in short supply just as EV market growth is accelerating. It is becoming increasingly clear that to keep up with expected demand, robust end-of-life battery recycling programs and technologies will be needed. As the lithium battery recycling industry is still in its infancy, several technologies for efficiently processing and recovering critical metals and other components from end-of-life batteries are being developed. Recently, an R&amp;D program at&nbsp;Worcester Polytechnic Institute (WPI) has developed a sustainable lithium recovery process&nbsp;that can selectively leach and recover lithium with formic acid before recycling valuable metals. While commercialization is likely still years away, the acuteness of the supply problem should keep R&amp;D dollars flowing into similar academic and private research programs, as well as proof of concept and pilot production. In the meantime, governments around the world are taking steps to ensure their countries are positioned to capture their share of the economic opportunity inherent in such once-in-a-century transformations. While specific approaches vary, governments in emerging economies are increasingly opting for state-run enterprises to control the mining of materials required for the global energy market. Most recently, the&nbsp;Mexican government founded a state-owned company&nbsp;to extract and market lithium in the country. Time will tell whether government control or free enterprise is the best vehicle (pun intended) for achieving the sustainability goals and commitments and meet consumer demand in the most efficient fashion.
Not putting all the eggs into the BEV basket.&nbsp;While battery powered vehicles (BEVs), along with hybrid (HEV) and plug-in hybrid (PHEV) vehicles based on lithium batteries as a power source, dominate the current New Energy Vehicle (NEV) market, to borrow Chinese terminology, the automotive industry keeps looking at alternatives. One such alternative has been fuel cell technology, which combines oxygen and hydrogen to produce electricity with water vapor as the only emission. Toyota, long the champion of this approach to sustainable transportation architecture, has been recently joined by&nbsp;BMW, which is adding hydrogen fuel cell-based models&nbsp;to its proposed New Class (Neue Klasse)&nbsp;of electric vehicle platforms. Let the technology competition begin!
Chemicals and Materials Technology in the News
Architectural coatings market growth intact.&nbsp;A report by&nbsp;Research and Markets forecasts that global demand for architectural coatings&nbsp;will continue to grow at above-GDP rates, driven by residential construction and remodeling, as well as commercial and infrastructure projects. The global market for architectural coatings, estimated at $64.2 billion in 2022, is projected to grow at a 4.9% CAGR through 2026, reaching $79.5 billion by 2026. While this is a positive for PPG, Masco (NYSE: MAS), which supplies Behr and Kilz brand paints to Home Depot (NYSE: HD), and Berkshire Hathaway’s Benjamin Moore paint, it is particularly impactful for SHW, which dominates the paint market in the US and is one of the leading global suppliers of architectural coatings. Furthermore, with the Do-It-For-Me&nbsp;(DIFM) trend growing once more in the US&nbsp;in the wake of the COVID lockdowns, SHW may benefit disproportionately, given its extensive company-owned contractor paint stores across the country and in Canada.
Plastics evolution.&nbsp;While plastics have been around for nearly a century, the industry is continuing to develop and evolve. In recent years, much of the effort has been centered around two areas, both aiming to reduce the environmental impact of plastic production and its impact on the ecosystem in post-production use. The first such area is substituting oil and natural gas as a starting point for most plastics production with a bio-based alternative, collectively known as bioplastics. With growing government regulations around net-zero, the circular economy and sustainability companies, especially consumer brand owners, have been working to incorporate such products into their supply chain. However, as with other areas of environmentally driven transformation, such as the EV market,&nbsp;demand for alternative sources of plastics&nbsp;is not keeping up with supply. The good news is that companies engaged in the commercialization of bioplastics have a clear pathway to growth, provided sufficient capital is made available. The bad news, of course, is that much of the technology remains to be proven at commercial scale and may not be the most efficient way to meet government and consumer sustainability goals in the near to mid-term.
The other alternative to using fossil fuels to produce basic plastic resins is, of course, recycling of existing plastic waste, The approach also addresses the issue of the billions of tons of plastic already in the environment. Earlier this week, we sat down with one company doing something about it—Loop Industries (see below)—which is a pioneer in low energy molecular recycling of PET and polyester. While Loop should become a major player in the plastics recycling industry, it is not alone.&nbsp;Honeywell (NYSE: HON) has been working on plastic recycling as well, moving from proof of concept to pilot plant to now getting ready to commercialize its process globally. Other innovators continue to emerge, bringing their R&amp;D skills to bear to build a better mousetrap when it comes to economic recycling of pesky plastics. One such company is Finnish Olefy, which is working to&nbsp;commercialize a gasification process to break down plastic waste&nbsp;into its constituents in an effort to crate virgin-like resins. While Olefy’s process appears more generic than Loop’s PET/polyester-specific process, it requires very high temperatures to run, giving Loop an advantage from an operating cost and environmental impact perspective. The good news for all these companies is that, at least in the short term,&nbsp;prices of plastic scrap are continuing to decline, placing these and other plastic recyclers in an enviable position in today’s inflationary environment of easing input costs.
Rating and Price Target Changes
ALB –&nbsp;UBS raised its price target (PT) to $308 from $265 and maintained its Neutral rating.
ECL –&nbsp;Evercore ISI reduced its PT to $190 from $200 and maintained its In-Line rating.
HXL –&nbsp;Berenberg Bank raised its PT to $74 from $65 and reiterated its Buy recommendation.
LTHM –&nbsp;CFRA upgraded the stock to Buy from Hold and raise its PT to $33 from $28.
RMP –&nbsp;BMO raised its PT to $111 from $104 and reiterated its Outperform rating; UBS raised its PT to $105 from $99 and reiterated its Buy recommendation.
Recent WTR Publications and Upcoming Events
Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)
Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)
Fireside Chat with Management of Loop Industries (NASDAQ: LOOP)
Fireside Chat with Management of Westwater Resources (NYSE: WWR)
Initiation of Coverage – Westwater Resources (NYSE: WWR)
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 28, 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

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>S&amp;P DJI commenced a market consultation for the S&amp;P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.</li>
<li>We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.</li>
<li>There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.</li>
</ul>


S&amp;P DJI commenced a market consultation for the S&amp;P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.
We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.
There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.


S&P Global Water Index: Market Consultation Driven Potential Changes

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

United States

Ecolab Inc. is a global provider of water, hygiene, and energy technologies and services for customers in foodservice, food processing, hospitality, healthcare, industrial, and oil and gas markets. The Company's services include water treatments, cleaning and sanitizing solutions, pest elimination, and kitchen repair and maintenance services.

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Ecolab Inc (ECL US)

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