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)

<h2>KEY HIGHLIGHTS</h2>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;Last week, the broader market recovered from the previous week’s swoon, with the S&amp;P 500 posting a 2.5% return, while the broader Russell 2000 Index gained 3.3%. Our WTR-CMI index of 30 chemicals and materials technology companies outperformed both market indexes by delivering a 4.2% improvement for the week. The prior week’s culprits, lithium stocks, were last week’s winners, with ALB, LAC, LTHM, and PLL all delivering double-digit gains following the sell-off. IOSP, SCL, and PKE were the only stocks finishing the week in the red.</li>
<li>US farmers breathe a little easier.&nbsp;Following the USDA farm income projections mentioned last week, Purdue University/CME Group’s&nbsp;Ag Economy Barometer, a survey-driven measure of farmer sentiment, recovered from multi-year lows last month to reach a reading of 117 (versus 103 in the prior month). While concerns over input costs were still weighing on respondents’ minds, the summer rally in corn and soybean prices and expectations that cost increases will moderate next year were the biggest drivers of the change in sentiment.</li>
<li>Auto sales’ tepid recovery proceeding.&nbsp;New car registrations in&nbsp;Germany&nbsp;increased 3% Y/Y in August, breaking a long string of Y/Y monthly declines, as BEV sales increased 11% Y/Y.&nbsp;UK August sales&nbsp;also edged up 1.2%, driven by 35% growth in EVs. Meanwhile,&nbsp;Mexico’s auto production&nbsp;surged 31% Y/Y, driven largely by exports.</li>
<li>Electronic adhesives market growth expected.&nbsp;According to a recent report from ResearchandMarkets, the global market for&nbsp;adhesives going into electronic applications&nbsp;will increase at a 7% CAGR over the next five years to reach almost $8 billion, driven by the growth in consumer electronics, continuing miniaturization and the proliferation of electronics and the 5G roll-out. We believe this 2x global GDP growth is a positive for companies such as FUL, which have spent the last several years building out their electronic and high-performance engineered adhesives business.</li>
<li>Stepan Company expands portfolio with acquisition.&nbsp;SCL announced that it has entered into an&nbsp;agreement to acquire the surfactant business&nbsp;and associated assets of PerformanX Specialty Chemicals, LLC. The deal will bring approximately $20 million in annual sales and be accretive to the company’s EBITDA margins.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/297/914/original/image_70624173521663118561538.png?1663118564" class="editor-image img-responsive" data-smartkarma-image-id="297914"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>Chinese pesticide price data suggest more pain in 2023.&nbsp;As we mentioned above, the cost of inputs, such as seeds, fertilizers, and pesticides, are still weighing on the minds of farmers as they prepare for the 2022-23 planting season. Recent data from China, which show that&nbsp;pesticide export prices, while off their mid-summer highs, remain elevated versus 2021 levels and are still 30-40% above the year-ago period. As China is a major exporter of chemical pesticides, as well as the manufacturing hub for many pesticide procurers, this is not good news for the ag market heading into the purchasing period in the Northern Hemisphere. Furthermore, with elevated natural gas and energy costs and possible energy rationing over the winter months, conditions may be in place for price increases of inputs to resume over the next three to six months, suggesting there may be material downside to the USDA’s recent bullish outlook for farmers’ income come 2023.</p>
<p>Efforts to mitigate fertilizer price spike.&nbsp;Fertilizers, particularly nitrogen containing products such as urea and ammonia, have seen a nearly unprecedented increase in price over the past 12-18 months. With natural gas prices and availability becoming an issue in Europe, as well as in China, potentially curtailing production, fertilizer prices may continue to stay at elevated levels, if not head higher again. Furthermore, with fossil fuel sources under pressure from numerous government goals, rules, and regulations, elevated chemical fertilizer prices may become a feature of the ag market. To reduce the impact of higher chemical nitrogen costs, efforts are underway to commercialize and expand the use of bio-based nitrogen fixing products.&nbsp;In LATAM, a region that relies almost exclusively on imported fertilizers, the effort is led by microbial N-fixing solutions, using both symbiotic (microbes that interact with plant roots) and non-symbiotic organisms. It is estimated that in Argentina alone, this $100 million annual market may grow at a mid-teen CAGR. In the US, privately held&nbsp;Pivot Bio announced&nbsp;the development and introduction of on-seed microbial nitrogen for crops including corn, grain sorghum, and spring wheat. Adapting the technology of N-fixing to seed treatment may be a way to expand the use of microbial fertilizers to farmers that may otherwise not consider the option.</p>
<h2>Automotive &amp; Transportation</h2>
<p>We’re not out of the woods yet.&nbsp;Even as the new passenger vehicle market is beginning to recover from its lows, with the first positive Y/Y monthly comps since 1H21, concerns remain. Old problems, like parts and chips availability, continue to plague the industry, demonstrated by&nbsp;Honda’s recent announcement&nbsp;that it will slash output by about 40% this month at its assembly plant in Saitama prefecture, north of Tokyo, citing ongoing supply chain and logistical problems. Chip availability remains an issue, with another 76K vehicles cut from production forecast last week, mainly in North America and Europe. Is it any wonder that&nbsp;car dealers’ sentiment&nbsp;declined, according to Cox Automotive? Given the above and combined with growing economic concerns around the globe, made worse by food and energy insecurities in many parts of the world, auto production recovery to pre-pandemic levels may be delayed until 2024, suggesting continuing issues for companies in our index, such as PPG and AXTA, when it comes to volume growth and the ability to restore margins following the raw material run-up over the course of the past 18 months. We therefore advise caution and patience when investing in these stocks.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;RBC raised its price target (PT) to $371 from $357 and reiterated its Outperform rating; Citigroup also raised its PT to $345 from $294 and reiterated its Buy recommendation.</p>
<p>ECL –&nbsp;NorthCoast Research upgraded the stock to Buy from Neutral.</p>
<p>HXL –&nbsp;Morgan Stanley upgraded the stock to Equal Weight from Underweight and raised its PT to $68 from $59.</p>
<p>PPG –&nbsp;Redburn upgraded the stock to Buy from Neutral.</p>
<p>SHW –&nbsp;Evercore ISI raised its PT to $285 from $270 and reiterated its Outperform rating.</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>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;Last week, the broader market recovered from the previous week’s swoon, with the S&amp;P 500 posting a 2.5% return, while the broader Russell 2000 Index gained 3.3%. Our WTR-CMI index of 30 chemicals and materials technology companies outperformed both market indexes by delivering a 4.2% improvement for the week. The prior week’s culprits, lithium stocks, were last week’s winners, with ALB, LAC, LTHM, and PLL all delivering double-digit gains following the sell-off. IOSP, SCL, and PKE were the only stocks finishing the week in the red.
US farmers breathe a little easier.&nbsp;Following the USDA farm income projections mentioned last week, Purdue University/CME Group’s&nbsp;Ag Economy Barometer, a survey-driven measure of farmer sentiment, recovered from multi-year lows last month to reach a reading of 117 (versus 103 in the prior month). While concerns over input costs were still weighing on respondents’ minds, the summer rally in corn and soybean prices and expectations that cost increases will moderate next year were the biggest drivers of the change in sentiment.
Auto sales’ tepid recovery proceeding.&nbsp;New car registrations in&nbsp;Germany&nbsp;increased 3% Y/Y in August, breaking a long string of Y/Y monthly declines, as BEV sales increased 11% Y/Y.&nbsp;UK August sales&nbsp;also edged up 1.2%, driven by 35% growth in EVs. Meanwhile,&nbsp;Mexico’s auto production&nbsp;surged 31% Y/Y, driven largely by exports.
Electronic adhesives market growth expected.&nbsp;According to a recent report from ResearchandMarkets, the global market for&nbsp;adhesives going into electronic applications&nbsp;will increase at a 7% CAGR over the next five years to reach almost $8 billion, driven by the growth in consumer electronics, continuing miniaturization and the proliferation of electronics and the 5G roll-out. We believe this 2x global GDP growth is a positive for companies such as FUL, which have spent the last several years building out their electronic and high-performance engineered adhesives business.
Stepan Company expands portfolio with acquisition.&nbsp;SCL announced that it has entered into an&nbsp;agreement to acquire the surfactant business&nbsp;and associated assets of PerformanX Specialty Chemicals, LLC. The deal will bring approximately $20 million in annual sales and be accretive to the company’s EBITDA margins.

WTR-CMI WEEKLY PERFORMANCE

Ag-Tech and Bio-Ag
Chinese pesticide price data suggest more pain in 2023.&nbsp;As we mentioned above, the cost of inputs, such as seeds, fertilizers, and pesticides, are still weighing on the minds of farmers as they prepare for the 2022-23 planting season. Recent data from China, which show that&nbsp;pesticide export prices, while off their mid-summer highs, remain elevated versus 2021 levels and are still 30-40% above the year-ago period. As China is a major exporter of chemical pesticides, as well as the manufacturing hub for many pesticide procurers, this is not good news for the ag market heading into the purchasing period in the Northern Hemisphere. Furthermore, with elevated natural gas and energy costs and possible energy rationing over the winter months, conditions may be in place for price increases of inputs to resume over the next three to six months, suggesting there may be material downside to the USDA’s recent bullish outlook for farmers’ income come 2023.
Efforts to mitigate fertilizer price spike.&nbsp;Fertilizers, particularly nitrogen containing products such as urea and ammonia, have seen a nearly unprecedented increase in price over the past 12-18 months. With natural gas prices and availability becoming an issue in Europe, as well as in China, potentially curtailing production, fertilizer prices may continue to stay at elevated levels, if not head higher again. Furthermore, with fossil fuel sources under pressure from numerous government goals, rules, and regulations, elevated chemical fertilizer prices may become a feature of the ag market. To reduce the impact of higher chemical nitrogen costs, efforts are underway to commercialize and expand the use of bio-based nitrogen fixing products.&nbsp;In LATAM, a region that relies almost exclusively on imported fertilizers, the effort is led by microbial N-fixing solutions, using both symbiotic (microbes that interact with plant roots) and non-symbiotic organisms. It is estimated that in Argentina alone, this $100 million annual market may grow at a mid-teen CAGR. In the US, privately held&nbsp;Pivot Bio announced&nbsp;the development and introduction of on-seed microbial nitrogen for crops including corn, grain sorghum, and spring wheat. Adapting the technology of N-fixing to seed treatment may be a way to expand the use of microbial fertilizers to farmers that may otherwise not consider the option.
Automotive &amp; Transportation
We’re not out of the woods yet.&nbsp;Even as the new passenger vehicle market is beginning to recover from its lows, with the first positive Y/Y monthly comps since 1H21, concerns remain. Old problems, like parts and chips availability, continue to plague the industry, demonstrated by&nbsp;Honda’s recent announcement&nbsp;that it will slash output by about 40% this month at its assembly plant in Saitama prefecture, north of Tokyo, citing ongoing supply chain and logistical problems. Chip availability remains an issue, with another 76K vehicles cut from production forecast last week, mainly in North America and Europe. Is it any wonder that&nbsp;car dealers’ sentiment&nbsp;declined, according to Cox Automotive? Given the above and combined with growing economic concerns around the globe, made worse by food and energy insecurities in many parts of the world, auto production recovery to pre-pandemic levels may be delayed until 2024, suggesting continuing issues for companies in our index, such as PPG and AXTA, when it comes to volume growth and the ability to restore margins following the raw material run-up over the course of the past 18 months. We therefore advise caution and patience when investing in these stocks.
Rating and Price Target Changes
ALB –&nbsp;RBC raised its price target (PT) to $371 from $357 and reiterated its Outperform rating; Citigroup also raised its PT to $345 from $294 and reiterated its Buy recommendation.
ECL –&nbsp;NorthCoast Research upgraded the stock to Buy from Neutral.
HXL –&nbsp;Morgan Stanley upgraded the stock to Equal Weight from Underweight and raised its PT to $68 from $59.
PPG –&nbsp;Redburn upgraded the stock to Buy from Neutral.
SHW –&nbsp;Evercore ISI raised its PT to $285 from $270 and reiterated its Outperform rating.
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)
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 September 11, 2022

<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

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

<h3>KEY HIGHLIGHTS</h3>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;While both broad market indexes declined last week, with the S&amp;P 500 and the Russell 2000 down 0.9% and 1.4%, respectively, our WTR-CMI index of 30 chemicals and materials technology stocks underperformed on a relative basis, declining 1.5%. BofA’s downgrade didn’t prevent SHW from appreciating 3.1%, followed by RPM’s 3.0% and AVNT’s 2.8% improvement, as consumer spending remained strong. Volatile lithium stocks contributed to our index’s decline, with PLL’s 11% drop continuing the erosion of that stock on lack of rezoning and permitting progress at its North Carolina plant/mine. LTHM saw its stock drop 9% and EAF delivered a 7.7% decline, likely on reports of&nbsp;weaker Y/Y steel production volumes.</li>
<li>Ag economy is doing its part for the environment.&nbsp;A new&nbsp;report by the USDA indicates&nbsp;the US farm economy reduced its carbon footprint from 699M mt of CO2&nbsp;in 2019 to 670M mt in 2020. With growing use of blue and green ammonia lowering the fertilizer industry’s contribution to CO2&nbsp;generation and with greater use of bio-based pesticides, the carbon footprint of the industry should continue to trend down, helping the US meet the administration’s carbon emissions 2030 goal.</li>
<li>Automotive market may be bottoming.&nbsp;June new car registrations&nbsp;fell 14% in the EU, but increased&nbsp;24% Y/Y in China, after that country’s easing of COVID lockdowns and an infusion of consumer incentives. However, industry participants don’t see the market recovering until 2024, as indicated by the Chinese market’s downward revision for 2022 growth from 5.4% to 3%, although there is growing optimism that 2H22 will be better than the previous six months. With PPG and AXTA well off their end of 2021 highs, prospects of stabilization in auto production may be seen as good news.</li>
<li>EV market struggles with battery materials.&nbsp;As the EV revolution continues, with&nbsp;China’s NEV market up 123% YTD, securing sufficient battery materials to ensure continued growth of the EV industry is still a major concern. Current geopolitics are only adding fuel to the fire, with reduced supply of nickel and other critical metals from Russia. While graphite did not make the&nbsp;list of concerns, it is this material, largely underappreciated by the investors, that may provide the best investment vehicle and we encourage investors to explore WWR, as well as its NA graphite development peers.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/287/434/original/image_14966178821658361148932.png?1658361153" class="editor-image img-responsive" data-smartkarma-image-id="287434"></figure>
<h2>Automotive &amp; Transportation Market</h2>
<p>Chipping away at semiconductor shortages.&nbsp;Last week,&nbsp;AFS estimated that more than 167,000 vehicles&nbsp;were scratched from production globally due to semiconductor shortages, mostly in Asian plants outside of China. This comes on top of the 220,000 vehicles lost due to chip shortfalls the previous week, mostly from European production. As the hopes for a quick resolution to the chip shortage crisis fade, industry participants are learning the lessons from this debacle and investing in dedicated automotive semiconductor capacity, including&nbsp;Bosch’s latest announcement of a $3 billion investment&nbsp;in chip production, including in Germany, to expand supply and shorten the supply chain in an effort to prevent similar shortages from affecting the industry in the future. Unfortunately, while these investments are scheduled to take place through 2026, near-term chip availability may remain an issue in holding back new car production and affecting major auto suppliers in our WTR-CMI index, such as PPG and AXTA.</p>
<h2>EVs &amp; Battery Ecosystem</h2>
<p>New battery plant and battery materials supply.&nbsp;Panasonic edged a step closer&nbsp;to setting up a new battery cell factory in Kansas to supply Tesla and others, expanding EV production in the US. Looking to expand the source of critical materials for battery manufacturing in North America,&nbsp;VW entered into a wide-ranging collaboration with recycling start-up Redwood Materials, whereby Redwood would work directly with VW dealers in North America to collect and recycle end-of-life EV batteries in order to extract critical metals such as copper, cobalt, lithium, and nickel for use in building new batteries built by domestic battery manufacturers. Meanwhile,&nbsp;Belgian Umicore (OTC: UMICY) is looking to build its first factory&nbsp;in North America (having picked Canada) for the production of battery-grade cathode materials, with construction scheduled to begin in 2023 and production to come online by the end of 2025, with capacity to provide for about 1 million EVs annually.</p>
<h2>Ag-Chem and Ag-Tech</h2>
<p>Soybean expectations lowered.&nbsp;The USDA’s&nbsp;World Agricultural Supply and Demand Estimates (WASDE) for July 2022&nbsp;showed no change in corn estimates, but included a reduction in soybean planted acres and therefore exports. With weather being the key focus for corn and soybean crop over the next two to four weeks, yield estimates, which were left largely unchanged, may have to be reduced, signaling that higher crop prices may remain, which may help farmers offset higher input costs and lower bushels to still generate acceptable, albeit likely lower than last year’s cash income by the end of this ag season.&nbsp;The USDA report also included raised expectations for LATAM production and higher wheat plantings and production in the US, as we mentioned last week. Most intriguing, the report includes estimates of significantly lower cotton planting and production in the US this year, driven by drought conditions across the southern plains.</p>
<p>Governments continue to tighten the regulatory noose.&nbsp;While the world is in the midst of dealing with what could turn out to be one of the worst food security issues in a generation or more, due to the conflict in Ukraine,&nbsp;the Dutch government voted last month on proposals to slash emissions of damaging pollutants, a plan that will likely force farmers in the country to cut their livestock herds or stop work altogether. The government says emissions of nitrogen oxide and ammonia, which livestock produce, must be drastically reduced to meet its and the EU’s climate goals.&nbsp;Dutch farmers have been demonstrating in cities and towns across the country&nbsp;to protest the government decision that, in farmers’ views, callously sacrifices the country’s farm industry on the altar of climate change. While one may debate the merits of government policies in normal times, enforcing these new laws during times of real geopolitical and economic crises appears questionable. On a related note, Brazil continues to actively work to lower or eliminate the use dangerous chemicals-based ag input products in the country. The government’s latest move is to suspend the import, production, distribution, and commercialization of the active ingredient&nbsp;Carbendazim and its technical products. Carbendazim is a leading broad spectrum fungicide used by itself or in combination with other active ingredients. Among the companies in our WTR-CMCCI index, FMC appears most at risk, should the government decide to permanently ban or restrict the use of the fungicide in the country. On the other hand, bio-based fungicides, such as those being manufactured by Marrone Bio, which is soon to merge with Bioceres (NASDAQ: BIOX), may get a boost from these actions, as they provide a viable alternative to chem-based fungicides.</p>
<h2>Chemicals and Materials News</h2>
<p>Looking to benefit from growth in e-commerce.&nbsp;FUL recently announced it has&nbsp;entered a strategic partnership&nbsp;in North America with Enimac, an international tape application equipment manufacturer that serves more than 100 customers in more than 30 countries. The two companies will collaborate on the development of pressure-sensitive adhesives and tape dispensing equipment to help FUL gain additional share in the packaging market, whose growth is increasingly driven by e-commerce applications. While this may not be a game changer for FUL, the partnership should allow the company to accelerate its growth in an important packaging market, potentially helping to offset an expected slowdown in construction and assembly adhesives areas.</p>
<p>Commodity prices ease, but downstream derivatives still headed higher.&nbsp;Both polyethylene (PE) and polypropylene (PP)&nbsp;resin prices declined $0.02/lb. and $0.03/lb., respectively, last week. With slowing economic conditions and easing crude oil and gas prices, commodity resin prices may continue their decline off recent highs in the weeks and months ahead. This would be a positive for AVNT, which purchases significant quantities of commodity resins before converting them to specialty and engineered plastic compounds and we may see the company’s margins begin to improve sequentially in 2H22, although Y/Y comps are likely to remain challenging into 2023. However, prices of pet-chem derivatives, such as coatings, adhesives and composites resins, are still going up, as companies attempt to restore their margins following the sharp run-up in raw material costs, including basic polymers and resins over the past 12 months. Thus,&nbsp;Wacker is increasing prices&nbsp;for dispersions, resins, and dispersible polymer powders sourced from its production sites in Europe by up to 10%. Nevertheless, intermediate suppliers such as Wacker may have the toughest time restoring their margins, given that their raw materials are commodities highly correlated with oil and gas prices, while their products are sold in a highly competitive market that limits the ability to raise prices fast enough to offset raw material inflation. In our WTR-CMI index, EMN, KOP, and KWR may be most exposed to this margin compression trend, and we remain cautious of these companies’ abilities to deliver 2022 results that would positively surprise versus current expectations.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;UBS lowered its price target (PT) to $218 from $260 and maintained its Neutral rating.</p>
<p>AXTA –&nbsp;UBS lowered its PT to $30 from $33 and reiterated its Buy rating; Mizuho Securities lowered its PT to $31 from $34 and reiterated its Buy rating.</p>
<p>CTVA –&nbsp;UBS lowered its PT to $64 from $68 and reiterated its Buy rating; Credit Suisse initiated coverage with an Outperform rating and $68 PT.</p>
<p>EAF –&nbsp;RBC downgraded the stock to Sector Perform from Outperform and lowered its PT to $7 from $10.</p>
<p>ECL&nbsp;– BofA downgraded the stock to Neutral from Buy and lowered its PT to $183 from $193; Wells Fargo initiated on the stock with Overweight and $187 PT; RBC lowered its PT to $190 from $225 and maintained its Sector Perform rating.</p>
<p>EMN –&nbsp;RBC lowered its PT to $94 from $109 and maintained its Sector Perform rating; UBS lowered its PT from $142 to $121 but reiterated its Buy rating; BofA lowered its PT to $115 from $123 and maintained its Neutral rating.</p>
<p>FMC –&nbsp;UBS lowered its PT to $140 from $149 and reiterated its Buy rating.</p>
<p>RPM –&nbsp;BofA lowered its PT to $78 from $90 and reiterated its Underperform rating; UBS lowered its PT from $106 to $96 and reiterated its Buy rating.</p>
<p>PPG –&nbsp;UBS lowered its PT to $161 from $177 and reiterated its Buy rating; BofA lowered its PT to $161 from $172 and reiterated its Buy rating; Mizuho Securities lowered its PT to $162 from $169 and reiterated its Buy rating.</p>
<p>SHW –&nbsp;Northcoast Research reinstated coverage with a Buy rating and $300 PT; BofA downgraded the stock to Neutral from Buy and lowered its PT to $292 from $313; Mizuho Securities lowered its PT to $294 from $310 and reiterated its Buy 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>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the Chemicals &amp; Materials Technology and BioEconomy sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;While both broad market indexes declined last week, with the S&amp;P 500 and the Russell 2000 down 0.9% and 1.4%, respectively, our WTR-CMI index of 30 chemicals and materials technology stocks underperformed on a relative basis, declining 1.5%. BofA’s downgrade didn’t prevent SHW from appreciating 3.1%, followed by RPM’s 3.0% and AVNT’s 2.8% improvement, as consumer spending remained strong. Volatile lithium stocks contributed to our index’s decline, with PLL’s 11% drop continuing the erosion of that stock on lack of rezoning and permitting progress at its North Carolina plant/mine. LTHM saw its stock drop 9% and EAF delivered a 7.7% decline, likely on reports of&nbsp;weaker Y/Y steel production volumes.
Ag economy is doing its part for the environment.&nbsp;A new&nbsp;report by the USDA indicates&nbsp;the US farm economy reduced its carbon footprint from 699M mt of CO2&nbsp;in 2019 to 670M mt in 2020. With growing use of blue and green ammonia lowering the fertilizer industry’s contribution to CO2&nbsp;generation and with greater use of bio-based pesticides, the carbon footprint of the industry should continue to trend down, helping the US meet the administration’s carbon emissions 2030 goal.
Automotive market may be bottoming.&nbsp;June new car registrations&nbsp;fell 14% in the EU, but increased&nbsp;24% Y/Y in China, after that country’s easing of COVID lockdowns and an infusion of consumer incentives. However, industry participants don’t see the market recovering until 2024, as indicated by the Chinese market’s downward revision for 2022 growth from 5.4% to 3%, although there is growing optimism that 2H22 will be better than the previous six months. With PPG and AXTA well off their end of 2021 highs, prospects of stabilization in auto production may be seen as good news.
EV market struggles with battery materials.&nbsp;As the EV revolution continues, with&nbsp;China’s NEV market up 123% YTD, securing sufficient battery materials to ensure continued growth of the EV industry is still a major concern. Current geopolitics are only adding fuel to the fire, with reduced supply of nickel and other critical metals from Russia. While graphite did not make the&nbsp;list of concerns, it is this material, largely underappreciated by the investors, that may provide the best investment vehicle and we encourage investors to explore WWR, as well as its NA graphite development peers.

WTR-CMI WEEKLY PERFORMANCE

Automotive &amp; Transportation Market
Chipping away at semiconductor shortages.&nbsp;Last week,&nbsp;AFS estimated that more than 167,000 vehicles&nbsp;were scratched from production globally due to semiconductor shortages, mostly in Asian plants outside of China. This comes on top of the 220,000 vehicles lost due to chip shortfalls the previous week, mostly from European production. As the hopes for a quick resolution to the chip shortage crisis fade, industry participants are learning the lessons from this debacle and investing in dedicated automotive semiconductor capacity, including&nbsp;Bosch’s latest announcement of a $3 billion investment&nbsp;in chip production, including in Germany, to expand supply and shorten the supply chain in an effort to prevent similar shortages from affecting the industry in the future. Unfortunately, while these investments are scheduled to take place through 2026, near-term chip availability may remain an issue in holding back new car production and affecting major auto suppliers in our WTR-CMI index, such as PPG and AXTA.
EVs &amp; Battery Ecosystem
New battery plant and battery materials supply.&nbsp;Panasonic edged a step closer&nbsp;to setting up a new battery cell factory in Kansas to supply Tesla and others, expanding EV production in the US. Looking to expand the source of critical materials for battery manufacturing in North America,&nbsp;VW entered into a wide-ranging collaboration with recycling start-up Redwood Materials, whereby Redwood would work directly with VW dealers in North America to collect and recycle end-of-life EV batteries in order to extract critical metals such as copper, cobalt, lithium, and nickel for use in building new batteries built by domestic battery manufacturers. Meanwhile,&nbsp;Belgian Umicore (OTC: UMICY) is looking to build its first factory&nbsp;in North America (having picked Canada) for the production of battery-grade cathode materials, with construction scheduled to begin in 2023 and production to come online by the end of 2025, with capacity to provide for about 1 million EVs annually.
Ag-Chem and Ag-Tech
Soybean expectations lowered.&nbsp;The USDA’s&nbsp;World Agricultural Supply and Demand Estimates (WASDE) for July 2022&nbsp;showed no change in corn estimates, but included a reduction in soybean planted acres and therefore exports. With weather being the key focus for corn and soybean crop over the next two to four weeks, yield estimates, which were left largely unchanged, may have to be reduced, signaling that higher crop prices may remain, which may help farmers offset higher input costs and lower bushels to still generate acceptable, albeit likely lower than last year’s cash income by the end of this ag season.&nbsp;The USDA report also included raised expectations for LATAM production and higher wheat plantings and production in the US, as we mentioned last week. Most intriguing, the report includes estimates of significantly lower cotton planting and production in the US this year, driven by drought conditions across the southern plains.
Governments continue to tighten the regulatory noose.&nbsp;While the world is in the midst of dealing with what could turn out to be one of the worst food security issues in a generation or more, due to the conflict in Ukraine,&nbsp;the Dutch government voted last month on proposals to slash emissions of damaging pollutants, a plan that will likely force farmers in the country to cut their livestock herds or stop work altogether. The government says emissions of nitrogen oxide and ammonia, which livestock produce, must be drastically reduced to meet its and the EU’s climate goals.&nbsp;Dutch farmers have been demonstrating in cities and towns across the country&nbsp;to protest the government decision that, in farmers’ views, callously sacrifices the country’s farm industry on the altar of climate change. While one may debate the merits of government policies in normal times, enforcing these new laws during times of real geopolitical and economic crises appears questionable. On a related note, Brazil continues to actively work to lower or eliminate the use dangerous chemicals-based ag input products in the country. The government’s latest move is to suspend the import, production, distribution, and commercialization of the active ingredient&nbsp;Carbendazim and its technical products. Carbendazim is a leading broad spectrum fungicide used by itself or in combination with other active ingredients. Among the companies in our WTR-CMCCI index, FMC appears most at risk, should the government decide to permanently ban or restrict the use of the fungicide in the country. On the other hand, bio-based fungicides, such as those being manufactured by Marrone Bio, which is soon to merge with Bioceres (NASDAQ: BIOX), may get a boost from these actions, as they provide a viable alternative to chem-based fungicides.
Chemicals and Materials News
Looking to benefit from growth in e-commerce.&nbsp;FUL recently announced it has&nbsp;entered a strategic partnership&nbsp;in North America with Enimac, an international tape application equipment manufacturer that serves more than 100 customers in more than 30 countries. The two companies will collaborate on the development of pressure-sensitive adhesives and tape dispensing equipment to help FUL gain additional share in the packaging market, whose growth is increasingly driven by e-commerce applications. While this may not be a game changer for FUL, the partnership should allow the company to accelerate its growth in an important packaging market, potentially helping to offset an expected slowdown in construction and assembly adhesives areas.
Commodity prices ease, but downstream derivatives still headed higher.&nbsp;Both polyethylene (PE) and polypropylene (PP)&nbsp;resin prices declined $0.02/lb. and $0.03/lb., respectively, last week. With slowing economic conditions and easing crude oil and gas prices, commodity resin prices may continue their decline off recent highs in the weeks and months ahead. This would be a positive for AVNT, which purchases significant quantities of commodity resins before converting them to specialty and engineered plastic compounds and we may see the company’s margins begin to improve sequentially in 2H22, although Y/Y comps are likely to remain challenging into 2023. However, prices of pet-chem derivatives, such as coatings, adhesives and composites resins, are still going up, as companies attempt to restore their margins following the sharp run-up in raw material costs, including basic polymers and resins over the past 12 months. Thus,&nbsp;Wacker is increasing prices&nbsp;for dispersions, resins, and dispersible polymer powders sourced from its production sites in Europe by up to 10%. Nevertheless, intermediate suppliers such as Wacker may have the toughest time restoring their margins, given that their raw materials are commodities highly correlated with oil and gas prices, while their products are sold in a highly competitive market that limits the ability to raise prices fast enough to offset raw material inflation. In our WTR-CMI index, EMN, KOP, and KWR may be most exposed to this margin compression trend, and we remain cautious of these companies’ abilities to deliver 2022 results that would positively surprise versus current expectations.
Rating and Price Target Changes
ALB –&nbsp;UBS lowered its price target (PT) to $218 from $260 and maintained its Neutral rating.
AXTA –&nbsp;UBS lowered its PT to $30 from $33 and reiterated its Buy rating; Mizuho Securities lowered its PT to $31 from $34 and reiterated its Buy rating.
CTVA –&nbsp;UBS lowered its PT to $64 from $68 and reiterated its Buy rating; Credit Suisse initiated coverage with an Outperform rating and $68 PT.
EAF –&nbsp;RBC downgraded the stock to Sector Perform from Outperform and lowered its PT to $7 from $10.
ECL&nbsp;– BofA downgraded the stock to Neutral from Buy and lowered its PT to $183 from $193; Wells Fargo initiated on the stock with Overweight and $187 PT; RBC lowered its PT to $190 from $225 and maintained its Sector Perform rating.
EMN –&nbsp;RBC lowered its PT to $94 from $109 and maintained its Sector Perform rating; UBS lowered its PT from $142 to $121 but reiterated its Buy rating; BofA lowered its PT to $115 from $123 and maintained its Neutral rating.
FMC –&nbsp;UBS lowered its PT to $140 from $149 and reiterated its Buy rating.
RPM –&nbsp;BofA lowered its PT to $78 from $90 and reiterated its Underperform rating; UBS lowered its PT from $106 to $96 and reiterated its Buy rating.
PPG –&nbsp;UBS lowered its PT to $161 from $177 and reiterated its Buy rating; BofA lowered its PT to $161 from $172 and reiterated its Buy rating; Mizuho Securities lowered its PT to $162 from $169 and reiterated its Buy rating.
SHW –&nbsp;Northcoast Research reinstated coverage with a Buy rating and $300 PT; BofA downgraded the stock to Neutral from Buy and lowered its PT to $292 from $313; Mizuho Securities lowered its PT to $294 from $310 and reiterated its Buy rating.
Recent WTR Publications and Upcoming Events
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates
Initiation of Coverage – Westwater Resources, Inc.
DISCLOSURES

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

Mat-Chem Notes for the Week Ended July 17, 2022

<h2>KEY HIGHLIGHTS</h2>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;Weekly volatility on the market continued last week, with the Russell 2000 recouping previous week’s losses by appreciating 3.6% and the S&amp;P 500 almost keeping pace with a 3.0% return. Our WTR-CMI index of 30 chemicals and materials technology companies declined 0.5% for the week and only five stocks managed to equal or exceed the S&amp;P 500’s returns, led by LAC (up 8.0%) and including PLL (up 3.0%), both of whom likely benefited from China’s new BEV incentive program. SHW, AXTA, and PPG were also among last week’s winners, benefiting from signs of easing (sequential) raw material pressures and&nbsp;China’s new car sales bounce in June. PKE’s 2Q22 results and guidance may have disappointed versus expectations, resulting in the stock’s performance (5.4%) last week, while both CMP and KWR investors appear to have taken profit after previous week’s rally in both stocks.</li>
<li>Bio-ag financing.&nbsp;Last week we highlighted recent efforts by established ag-chem companies to build and expand their bio-based businesses. However, capital investments go beyond established players and are increasingly going toward emerging innovators, with close to&nbsp;$900 million being invested in global start-ups, primarily in North America and Europe, and primarily in areas of soil health, pesticides, and technologies that lower production costs. Over time, these companies may become viable stand-alone players or provide an acquisition target for larger, more established bio-ag players, such as BIOX and BHIL.</li>
<li>Government bureaucracies undeterred by reality.&nbsp;While one branch of EU bureaucracy is imposing deadlines and mandates intended to drive the transition away from ICE cars and fossil fuels in general, other&nbsp;branches are putting roadblocks in the way of industries looking to make that happen, such as lithium materials suppliers and battery manufacturers working on developing a regional supply chain of critical materials and components. It’s a good thing the timing of the multi-billion dollar investments being considered by various industry players provides time for the EU to adjust its policies before these investments head elsewhere.</li>
<li>Resin prices ease off.&nbsp;Polyethylene and polypropylene costs declined&nbsp;modestly W/W recently on lower raw material costs and slower demand. This may be an indicator that the worst of RM inflation may be behind.</li>
</ul>
<h2>WTR-CMI WEEKLY PERFORMANCE</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/286/050/original/image_924529663101657754603958.png?1657754605" class="editor-image img-responsive" data-smartkarma-image-id="286050"></figure>
<div class="content-remarks">
<p>Source: YCharts; July 8 close</p>
</div>
<h2>Automotive &amp; Transportation Market</h2>
<p>June new car sales still affected by supply chain issues.&nbsp;The only bright spot in global automotive markets so far has been aforementioned 21% Y/Y predicted increase in new car and light truck registrations in China, which may have been the driver of the PPG and AXTA stock price bounce last week, as China is the largest automotive market in the world and PPG and AXTA are two of the top three automotive coatings suppliers. However, China’s strong showing is being driven largely by pent-up demand from April-May COVID-related lockdowns in the country. In other regions, new car registrations continued to decline on a Y/Y basis in June.&nbsp;Germany saw an 18% decline&nbsp;in Y/Y new car registrations during June,&nbsp;the UK saw a 24% Y/Y drop, making it the lowest June since 1996, and&nbsp;US new car registrations declined 13.5%&nbsp;Y/Y last month,&nbsp;with 2Q22 sales down 20.6%&nbsp;Y/Y and YTD sales down 18.3%. Looking for any silver lining, a recent report noted that semiconductor shortages may have peaked, with the last three months showing&nbsp;stable to slightly declining lead times for chip orders. However, order lead times are still double what they were in 2020 and the impact of chip shortages, COVID lockdowns, and the war in Ukraine are expected to continue to affect the automotive supply chain and thus production into 2023, as noted by the automotive union in Italy, which predicted the country’s&nbsp;Stellantis plants will put out 200,000 fewer cars&nbsp;in 2022 due in large part to supply chain issues.</p>
<h2>EVs &amp; Battery Ecosystem</h2>
<p>Damn the (government regulation) torpedoes – full steam ahead.&nbsp;Apparently undeterred by EU regulators’ efforts to classify lithium salts as reproductive and developmental toxins,&nbsp;VW recently reaffirmed its plans to invest $20 billion&nbsp;in building its battery business, including funding battery manufacturers and raw material suppliers as needed to ensure sufficient quantities of materials to affect its goal of becoming the dominant EV player globally. The plan includes six EU-based battery plants and two North American plants, as well as investments in other battery manufacturers and material suppliers. As part of the commitment, VW was a participant in the recent round of&nbsp;the Northvolt capital raise, which involved $1.1 billion in convertible notes, with proceeds to be used to expand the company’s European battery production. Meanwhile, another aspiring&nbsp;European battery manufacturer, Britishvolt, signed an agreement with South Korean company Posco Chemical for the development and supply of anode and cathode materials for electric car batteries. As previously mentioned, it remains to be seen if car and battery companies’ appetite for capital investment into battery and material infrastructure in the EU will remain should Brussels continue with its plans to raise lithium salts to the category of “substance of very high concern” alongside severely carcinogenic and mutagenic toxins, implying that the EU would want to gradually phase them out by restricting their usage. Regardless, these developments, to the extent they indicate growing capital investment by downstream customers in upstream suppliers, imply upside for such developing material suppliers as PLL, LAC, WWR, and NMG, which may need to rely on partnerships and capital infusions from strategic customers to bring their mine and conversion plant projects to fruition.</p>
<h2>Ag-Chem and Ag-Tech</h2>
<p>The fight for yield continues.&nbsp;Conditions for major row crops in the US, such as corn and soybeans,&nbsp;deteriorated slightly last week. Corn crop conditions were rated good to excellent, declining to 64% from the prior week’s 65%, as 7% of the crop is “silking” compared with the five-year average of 11% for this time. Similarly, in soybeans, crop conditions were rated good to excellent, declining to 63% from the previous week’s 65%, with 16% of the crop blooming, compared with the five-year average of 22% for early July. The triple punch of rain, hail, and high winds that moved through the corn belt in recent days may have been behind the worsening of crop conditions, in addition to providing opportunities for pests to infiltrate damaged plants and rob the fields of yield. However, this may provide an opportunity for&nbsp;ag-chem companies to sell incrementally more&nbsp;in-season insecticides and other pesticides as farmers struggle to maximize their yields to take advantage of high commodity prices and secure sufficient funds to invest into next season’s inputs. We see this as a potential positive for companies such as FMC, which is “over-represented” in insecticides, as well as CTVA and emerging bio-based crop protection suppliers, such as BIOX and BHIL.</p>
<p>Planting decisions being made to maximize returns, as income concerns grow.&nbsp;The Purdue University and CME Group’s&nbsp;Ag Economy Barometer index&nbsp;declined 2 points in June from May to a reading of 97, compared with 137 last June. Fifty-one percent of survey respondents said they expect their farms to be worse off financially a year from now, the most negative response received to this question since data collection began in 2015. Higher input costs and availability of inputs continue to weigh on farmers’ sentiment and expectations. Twenty percent of farmers surveyed indicated that they plan to change their crop mix next year, with most looking to plant more soybeans, as overall input costs are lower in that market compared with corn, largely due to less fertilizer volumes required to produce the crop. Of the farmers who planted winter wheat in the fall of 2021, approximately a quarter said they plan to increase their winter wheat acreage this fall, while 14% of those who did not plant winter wheat last fall said they intend to plant some winter wheat this fall, given the expected shortfall of global wheat supply due to the Russian invasion of Ukraine.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;Deutsche Bank lowered its price target (PT) to $255 from $320 and reiterated its Buy rating.</p>
<p>ASH –&nbsp;Mizuho Securities raised its PT to $138 from $135 and reiterated its Buy rating.</p>
<p>AVNT –&nbsp;Wells Fargo lowered its PT to $63 from $65 but maintained its Overweight recommendation.</p>
<p>LAC –&nbsp;Deutsche Bank lowered its PT to $33 from $36 and reiterated its Buy rating.</p>
<p>LTHM –&nbsp;Deutsche Bank lowered its PT to $24 from $29 and maintained its Hold recommendation.</p>
<p>MTRN –&nbsp;CL King initiated coverage of the stock with a Buy rating and $95 PT; KeyBank lowered its PT to $100 from $106 and reiterated its Outperform rating.</p>
<p>PPG –&nbsp;RBC lowered its PT to $141 from $162 and reiterated its Outperform rating.</p>
<p>RPM –&nbsp;RBC lowered its PT to $86 from $93 and maintained its Sector Perform rating.</p>
<p>SHW –&nbsp;Evercore ISI lowered its PT to $290 from $295 and reiterated its Outperform rating; RBC lowered its PT to $312 from $342 and reiterated its Outperform 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;Weekly volatility on the market continued last week, with the Russell 2000 recouping previous week’s losses by appreciating 3.6% and the S&amp;P 500 almost keeping pace with a 3.0% return. Our WTR-CMI index of 30 chemicals and materials technology companies declined 0.5% for the week and only five stocks managed to equal or exceed the S&amp;P 500’s returns, led by LAC (up 8.0%) and including PLL (up 3.0%), both of whom likely benefited from China’s new BEV incentive program. SHW, AXTA, and PPG were also among last week’s winners, benefiting from signs of easing (sequential) raw material pressures and&nbsp;China’s new car sales bounce in June. PKE’s 2Q22 results and guidance may have disappointed versus expectations, resulting in the stock’s performance (5.4%) last week, while both CMP and KWR investors appear to have taken profit after previous week’s rally in both stocks.
Bio-ag financing.&nbsp;Last week we highlighted recent efforts by established ag-chem companies to build and expand their bio-based businesses. However, capital investments go beyond established players and are increasingly going toward emerging innovators, with close to&nbsp;$900 million being invested in global start-ups, primarily in North America and Europe, and primarily in areas of soil health, pesticides, and technologies that lower production costs. Over time, these companies may become viable stand-alone players or provide an acquisition target for larger, more established bio-ag players, such as BIOX and BHIL.
Government bureaucracies undeterred by reality.&nbsp;While one branch of EU bureaucracy is imposing deadlines and mandates intended to drive the transition away from ICE cars and fossil fuels in general, other&nbsp;branches are putting roadblocks in the way of industries looking to make that happen, such as lithium materials suppliers and battery manufacturers working on developing a regional supply chain of critical materials and components. It’s a good thing the timing of the multi-billion dollar investments being considered by various industry players provides time for the EU to adjust its policies before these investments head elsewhere.
Resin prices ease off.&nbsp;Polyethylene and polypropylene costs declined&nbsp;modestly W/W recently on lower raw material costs and slower demand. This may be an indicator that the worst of RM inflation may be behind.

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; July 8 close

Automotive &amp; Transportation Market
June new car sales still affected by supply chain issues.&nbsp;The only bright spot in global automotive markets so far has been aforementioned 21% Y/Y predicted increase in new car and light truck registrations in China, which may have been the driver of the PPG and AXTA stock price bounce last week, as China is the largest automotive market in the world and PPG and AXTA are two of the top three automotive coatings suppliers. However, China’s strong showing is being driven largely by pent-up demand from April-May COVID-related lockdowns in the country. In other regions, new car registrations continued to decline on a Y/Y basis in June.&nbsp;Germany saw an 18% decline&nbsp;in Y/Y new car registrations during June,&nbsp;the UK saw a 24% Y/Y drop, making it the lowest June since 1996, and&nbsp;US new car registrations declined 13.5%&nbsp;Y/Y last month,&nbsp;with 2Q22 sales down 20.6%&nbsp;Y/Y and YTD sales down 18.3%. Looking for any silver lining, a recent report noted that semiconductor shortages may have peaked, with the last three months showing&nbsp;stable to slightly declining lead times for chip orders. However, order lead times are still double what they were in 2020 and the impact of chip shortages, COVID lockdowns, and the war in Ukraine are expected to continue to affect the automotive supply chain and thus production into 2023, as noted by the automotive union in Italy, which predicted the country’s&nbsp;Stellantis plants will put out 200,000 fewer cars&nbsp;in 2022 due in large part to supply chain issues.
EVs &amp; Battery Ecosystem
Damn the (government regulation) torpedoes – full steam ahead.&nbsp;Apparently undeterred by EU regulators’ efforts to classify lithium salts as reproductive and developmental toxins,&nbsp;VW recently reaffirmed its plans to invest $20 billion&nbsp;in building its battery business, including funding battery manufacturers and raw material suppliers as needed to ensure sufficient quantities of materials to affect its goal of becoming the dominant EV player globally. The plan includes six EU-based battery plants and two North American plants, as well as investments in other battery manufacturers and material suppliers. As part of the commitment, VW was a participant in the recent round of&nbsp;the Northvolt capital raise, which involved $1.1 billion in convertible notes, with proceeds to be used to expand the company’s European battery production. Meanwhile, another aspiring&nbsp;European battery manufacturer, Britishvolt, signed an agreement with South Korean company Posco Chemical for the development and supply of anode and cathode materials for electric car batteries. As previously mentioned, it remains to be seen if car and battery companies’ appetite for capital investment into battery and material infrastructure in the EU will remain should Brussels continue with its plans to raise lithium salts to the category of “substance of very high concern” alongside severely carcinogenic and mutagenic toxins, implying that the EU would want to gradually phase them out by restricting their usage. Regardless, these developments, to the extent they indicate growing capital investment by downstream customers in upstream suppliers, imply upside for such developing material suppliers as PLL, LAC, WWR, and NMG, which may need to rely on partnerships and capital infusions from strategic customers to bring their mine and conversion plant projects to fruition.
Ag-Chem and Ag-Tech
The fight for yield continues.&nbsp;Conditions for major row crops in the US, such as corn and soybeans,&nbsp;deteriorated slightly last week. Corn crop conditions were rated good to excellent, declining to 64% from the prior week’s 65%, as 7% of the crop is “silking” compared with the five-year average of 11% for this time. Similarly, in soybeans, crop conditions were rated good to excellent, declining to 63% from the previous week’s 65%, with 16% of the crop blooming, compared with the five-year average of 22% for early July. The triple punch of rain, hail, and high winds that moved through the corn belt in recent days may have been behind the worsening of crop conditions, in addition to providing opportunities for pests to infiltrate damaged plants and rob the fields of yield. However, this may provide an opportunity for&nbsp;ag-chem companies to sell incrementally more&nbsp;in-season insecticides and other pesticides as farmers struggle to maximize their yields to take advantage of high commodity prices and secure sufficient funds to invest into next season’s inputs. We see this as a potential positive for companies such as FMC, which is “over-represented” in insecticides, as well as CTVA and emerging bio-based crop protection suppliers, such as BIOX and BHIL.
Planting decisions being made to maximize returns, as income concerns grow.&nbsp;The Purdue University and CME Group’s&nbsp;Ag Economy Barometer index&nbsp;declined 2 points in June from May to a reading of 97, compared with 137 last June. Fifty-one percent of survey respondents said they expect their farms to be worse off financially a year from now, the most negative response received to this question since data collection began in 2015. Higher input costs and availability of inputs continue to weigh on farmers’ sentiment and expectations. Twenty percent of farmers surveyed indicated that they plan to change their crop mix next year, with most looking to plant more soybeans, as overall input costs are lower in that market compared with corn, largely due to less fertilizer volumes required to produce the crop. Of the farmers who planted winter wheat in the fall of 2021, approximately a quarter said they plan to increase their winter wheat acreage this fall, while 14% of those who did not plant winter wheat last fall said they intend to plant some winter wheat this fall, given the expected shortfall of global wheat supply due to the Russian invasion of Ukraine.
Rating and Price Target Changes
ALB –&nbsp;Deutsche Bank lowered its price target (PT) to $255 from $320 and reiterated its Buy rating.
ASH –&nbsp;Mizuho Securities raised its PT to $138 from $135 and reiterated its Buy rating.
AVNT –&nbsp;Wells Fargo lowered its PT to $63 from $65 but maintained its Overweight recommendation.
LAC –&nbsp;Deutsche Bank lowered its PT to $33 from $36 and reiterated its Buy rating.
LTHM –&nbsp;Deutsche Bank lowered its PT to $24 from $29 and maintained its Hold recommendation.
MTRN –&nbsp;CL King initiated coverage of the stock with a Buy rating and $95 PT; KeyBank lowered its PT to $100 from $106 and reiterated its Outperform rating.
PPG –&nbsp;RBC lowered its PT to $141 from $162 and reiterated its Outperform rating.
RPM –&nbsp;RBC lowered its PT to $86 from $93 and maintained its Sector Perform rating.
SHW –&nbsp;Evercore ISI lowered its PT to $290 from $295 and reiterated its Outperform rating; RBC lowered its PT to $312 from $342 and reiterated its Outperform rating.
Recent WTR Publications and Upcoming Events
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates
Initiation of Coverage – Westwater Resources, Inc.
DISCLOSURES

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

Mat-Chem Notes for the Week Ended July 10, 2022

United States

PPG Industries, Inc. supplies products for the manufacturing, construction, automotive, chemical processing, and other industries worldwide.  The Company makes protective and decorative coatings, flat glass, fabricated glass products, continuous-strand fiber glass products, and industrial and specialty chemicals.

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Ppg Industries (PPG US)

Mat-Chem Notes for the Week Ended September 11, 2022

KEY HIGHLIGHTS WTR-CMI last week. Last week, the broader market recovered from the previous week’s swoon, with the S&P 500 posting a 2.5%...

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Mat-Chem Notes for the Week Ended September 4 2022

KEY HIGHLIGHTS WTR-CMI last week. In another down week for the market, the S&P 500 retreated 3.3%, while the Russell 2000 lost 4.7% of its...

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

KEY HIGHLIGHTS WTR-CMI last week. Our WTR-CMI index of 30 chemicals and materials technology stocks couldn’t keep up with the broader market last...

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Mat-Chem Notes for the Week Ended July 17, 2022

KEY HIGHLIGHTS WTR-CMI last week. While both broad market indexes declined last week, with the S&P 500 and the Russell 2000 down 0.9% and...

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Mat-Chem Notes for the Week Ended July 10, 2022

KEY HIGHLIGHTS WTR-CMI last week. Weekly volatility on the market continued last week, with the Russell 2000 recouping previous week’s losses by...

Water Tower Research

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