Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

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

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

Equity Research Firm

Thematic (Sector/Industry)

<h3>KEY HIGHLIGHTS</h3>
<ul>
<li>WTR-CMI last week.&nbsp;In another solid week for the market, both indexes we monitor posted mid-single-digit improvements, with the Russell 2000 and the S&amp;P 500 increasing 4.6% and 5.9%, respectively. Our WTR-CMI index outperformed the market by delivering 7.6% W/W growth, led by KWR’s 23.5% bounce following solid 3Q results and AVNT’s 16.6% and ECL’s 15.5% improvements off post-3Q profit taking. Ag-chem companies saw their stocks consolidate during the week, with AVD and CTVA losing 4.7% and 0.7%, respectively, and FMC posting a modest 0.8% gain.</li>
<li>Ag-chem innovations continue.&nbsp;The last decade saw a sharp decline in regulatory approvals of new chemical active ingredients in the ag-inputs market. However, that does not mean that innovation of new ag-chem formulations has been absent, with FMC’s recent launch of a&nbsp;new fungicide formulation, which is a good example of continuing efforts to combat agricultural pests and increase crop yields with existing products.</li>
<li>Battery materials expansion efforts.&nbsp;CMP announced a&nbsp;multiyear supply agreement&nbsp;with LG Energy Solutions to supply the Korean battery manufacturer with lithium carbonate starting in 2025, when the first phase of CMP’s production plant is expected to come online. Meanwhile, NMG announced a completion of a&nbsp;financing round, during which it raised $50 million&nbsp;from three strategic investors, with the intention to use the funds to update its 2022 feasibility study for its phase 2 commercial integrated operation, including an open-pit graphite mine near Montreal and a battery material plant in Becancour, Quebec.</li>
<li>SHW expands in industrial coatings.&nbsp;The company announced&nbsp;the acquisition&nbsp;of German-based Specialized Industrial Coatings Holding (SIC Holding), which has annual sales of more than €91.5 million. The transaction is expected to close in early 2023.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/310/201/original/image_75503548321668650944643.png?1668650947" class="editor-image img-responsive" data-smartkarma-image-id="310201"></figure>
<div class="content-remarks">
<p>Source: Y-Charts as of November 11 close</p>
</div>
<h2>Ag-Tech and Bio-Ag</h2>
<p>Increasing importance of Brazilian ag market.&nbsp;The Brazilian agricultural industry&nbsp;continues to grow&nbsp;and increase its share of global grain markets. Driven by strong demand, the depreciating real (versus the US dollar), high commodity prices, and expanding farmland (one of the few geographies with increasing acreage under farming), Brazilian farmers are also benefiting from increased penetration of modern technology, including bio-based inputs, seeds, soil monitoring, and precision planting and spraying, which we believe will positively affect the growth of FMC, CTVA, BIOX, and BHIL, among others.</p>
<p>An alternative to farmland expansion.&nbsp;As arable land is in short supply in the US and other developed countries, making expansion by extension a difficult proposition, better land use appears to be one of the solutions to acreage growth. One such method is the use of&nbsp;Controlled Environment Agriculture&nbsp;(CEA). Indoor, hydroponic, and greenhouse growers are expanding their operations when it comes to specialty crops and increasing their market share and importance in the food supply chain as a result. While past its infancy stage, as the CEA industry is far from mature, offering plenty of opportunity for outsized growth both for its practitioners and for the companies supplying greenhouses, other related infrastructure, materials, equipment and services, investors may want to begin exploring.</p>
<h2>Automotive &amp; Transportation Markets</h2>
<p>October growth comes with a warning.&nbsp;While&nbsp;China’s new car sales&nbsp;increased 6.9% Y/Y in October, the pace was well off the mid-20s improvement seen in September. Furthermore,&nbsp;new energy vehicle (NEV) sales were flat M/M, although they remained above 600K units for a third straight month. Similarly, while&nbsp;the UK’s market&nbsp;also grew in October, up 26%, growth of EVs slowed within that period, up 23% Y/Y, possibly signaling that recent price increases passed on by EV OEMs to customers to help offset skyrocketing metal costs are having a dampening effect on demand. Overall, the UK’s automotive industry is expected to post its worst year since 1982 when it comes to automotive production. Then&nbsp;there is Russia, where new car registrations tumbled 63% in October, as the industry is feeling the impact of western sections both from a consumer-spending perspective, as well as from a lack of supply of foreign autos Russian consumers have come to prefer, as global OEMs are pulling their operations out and cutting ties with their JV partners in the country.</p>
<p>With Chinese sales remaining volatile, partially due to the government’s zero tolerance policies when it comes to COVID-19, European and North American sales under threat of&nbsp;a slowing economy and consumer sticker shock, not to mention semiconductor shortages that are expected to persist through 2023, recovery in auto OEM-related product demand, including coatings, adhesives, sealants, plastics, and composites, may be several quarters away, suggesting continued caution when it comes to companies in our index with high exposure to these markets, such as PPG and AXTA, but also AVNT, HXL, EAF, and FUL.</p>
<h2>Energy &amp; Battery Technology</h2>
<p>Battery metals growth accelerating, but bottlenecks are emerging.&nbsp;In 1H22, the growth and proliferation of new energy vehicles (NEVs, to use the Chinese term) accelerated globally, which has driven a sharp increase in&nbsp;critical battery metals growth. Lithium, as measured by lithium carbonate equivalents (LCE), grew to 117,200 mt in 1H22, up 76% Y/Y. Similarly, nickel volumes going into NEV batteries grew 50% Y/Y to 88,200 mt during this period and cobalt demand from NEV batteries increased 44% to 18,500 mt. With strong growth of EVs expected to continue, demand for battery metals should grow in tandem, even if at slightly lower rates due to continuing improvement in battery performance, as well as changing preferences when it comes to battery chemistries. Against this strong demand profile, one must juxtapose the realities of supply, which looks to be increasingly constrained when it comes to battery metals and therefore battery production overall. Even with the billions of dollars and euros made available by the US and EU governments recently in the form of targeted investments, tax incentives, and credits for building domestic supply of metals, materials, and batteries, deploying this capital and reaping the fruits of these investments in the form of expanded production&nbsp;will take years, suggesting the next three years may see a slowing in the pace of EV adoption and growth of renewable energy generation, not due to lack of demand, but due to lack of adequate supply.</p>
<p>Governments keep heads firmly planted in sand.&nbsp;The aforementioned projections are far from the first time we’ve seen the caution flag raised when it comes to pending supply shortages, not to mention the continuing dominance of China when it comes to production of EV-critical components, including metals, cathodes, anodes, and batteries. One would think other governments would do all they could to facilitate the development of local supply of these materials and products, if only to use up the money they themselves set aside for the projects and ensure the environmental goals and timetables they themselves have set are meaningful and achievable. One would be wrong. We previously highlighted the apparent disconnect between governments’ “commitments” to carbon reduction and environmentalism expressed in lofty goals of banning ICE vehicles, oil &amp; gas drilling, and reaching net-zero economies by some decades in the future, and those same governments’ regulatory bodies and rules and regulations they develop and enforce doing all they can to hamper and slow down the development of new metal resources, permitting the building of metal processing plants, or even recycle plants for end-of life batteries.</p>
<p>Examples of this dichotomy include the comments coming out of the recently concluded meeting of member nations of the International Seabed Authority (ISA), the UN-created body set up to develop rules and regulations around deep-sea mining in international waters. In the prior week, we mentioned Germany’s negative stance on the issue of deep-sea mining—the one unexploited resource that promises to be larger than any land-based mining for critical metals such as nickel, cobalt, and copper. Last week, the&nbsp;French government&nbsp;came out with a similar, largely hypothetical, objection to ratifying final regulations around deep-sea mining, siting lack of incontrovertible scientific data around the potential environmental impact of picking up fist-sized nodules lying on an ocean floor in regions of the ocean floor virtually devoid of biomass. Even an&nbsp;Australian mine executive&nbsp;echoed these concerns.</p>
<p>Interestingly, these comments came just days before the largest&nbsp;pilot project in recent history was successfully concluded by TMC, the company actively working on developing the technology of deep-sea nodule collection and onshore refining of battery-critical metals. Besides collecting 4,500 mt of nodules while traversing 80 km of the seafloor at depths of 3-4 km, the pilot program also included a vessel full of affiliated and independent scientists that deployed thousands of underwater sensors and followed the collection ship to monitor sediment plumes and mid-water release of process water from the collector ship. While the technical evaluation portion of the project has been completed, the scientific and monitoring work continues and, when concluded, will provide objective scientific data on the environmental impact of the collection process, which should go a long way in assuaging political concerns over the potential impact of deep-sea mining, certainly as compared with on-land mining alternatives.</p>
<p>Canada takes the first step in countering China’s expansionist plans.&nbsp;Acknowledging the geopolitical threat presented by the Chinese government’s (and there are no truly private companies in China) participation in global supply chains, especially those related to the energy transformation currently underway in developed economies,&nbsp;the Canadian government has ordered&nbsp;three Chinese firms to exit (i.e., divest their share of) Canadian lithium mining operations in the country. While the initial impact seems to affect&nbsp;two Canadian junior lithium mining firms, China’s involvement in the Canadian battery metals industry goes far beyond and similar government actions may affect a&nbsp;dozen or more companies&nbsp;looking to develop nickel, cobalt, copper, and other metal resources in the country to help reduce Chinese dominance of the supply chain. We can only hope the US and EU governments take a similar approach to protecting their strategic resources from Chinese exploitation and predatory trading practices.</p>
<h2>Chemicals &amp; Materials</h2>
<p>Adhesives play a key role in drive for sustainability.&nbsp;Last year, we wrote about the role chemicals and materials companies play in the drive for more sustainable manufacturing and production practices across multiple industries and markets. Adhesives and sealants are one such area. Growth of sustainable practices in the manufacturing of these products and their role in enabling their customers to meet sustainability and environmental requirements related to their industries are two of the ways adhesives and sealants companies help the world address the issues of sustainability. An ubiquitous element in multiple industries and sectors, adhesives and sealants play a key role in&nbsp;construction,&nbsp;renewable energy generation, and&nbsp;light-weighting&nbsp;in the automotive and transportation sectors, among others. Adhesives and sealants companies are also aggressively working on reducing their own carbon footprint and improving the sustainability of their operations.&nbsp;H.B. Fuller, the only pure-play adhesives and sealants publicly traded company in the US, is an excellent example of a responsible manufacturer, delivering tangible results when it comes to improving its sustainability profile and operations.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;Deutsche Bank raised its price target (PT) to $325 from $305 and reiterated its Buy rating; Berenberg also raised its PT to $275 rom $270 and maintained its Hold rating; RBC raised its PT to $380 from $371 and reiterated its Outperform rating.</p>
<p>ASH –&nbsp;Credit Suisse raised its PT to $125 from $120 and reiterated its Outperform rating; UBS raised its PT to $131 from $127 and reiterated its Buy recommendation; Deutsche Bank raised its PT to $125 from $120 and reiterated its Buy rating; Wells Fargo raised its PT to $118 from $104 and maintained its Equal Weight rating.</p>
<p>CTVA –&nbsp;RBC raised its PT to $78 from $72 and reiterated its Outperform rating; BMO raised its PT to $76 from $72 and reiterated its Outperform rating; Mizuho Securities raised its PT to $76 from $74 and reiterated its Buy recommendation.</p>
<p>EAF –&nbsp;RBC lowered its PT to $4 from $7 and maintained Sector Perform rating.</p>
<p>ECL –&nbsp;Credit Suisse lowered its PT to $170 from $175 and reiterated its Outperform rating; UBS lowered its PT to $171 from $184 and reiterated its Buy recommendation.</p>
<p>EMN –&nbsp;Tudor Pickering upgraded the stock to Buy from Hold and raised its PT to $99 from $98.</p>
<p>FMC –&nbsp;CFRA raised its PT to $135 from $125 and maintained its Hold rating.</p>
<p>KWR –&nbsp;Deutsche Bank raised its PT to $200 from $180 and reiterated its Buy recommendation.</p>
<h2>Recent Reports and Future Events</h2>
<p>Fireside Chat: Chairman &amp; CEO Gerard Barron, CFO Craig Shesky, and Project Director for NORI Grant Lindner, November 16, 2022, at 10:00 am EST</p>
<p>TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need</p>
<p>Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look</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;In another solid week for the market, both indexes we monitor posted mid-single-digit improvements, with the Russell 2000 and the S&amp;P 500 increasing 4.6% and 5.9%, respectively. Our WTR-CMI index outperformed the market by delivering 7.6% W/W growth, led by KWR’s 23.5% bounce following solid 3Q results and AVNT’s 16.6% and ECL’s 15.5% improvements off post-3Q profit taking. Ag-chem companies saw their stocks consolidate during the week, with AVD and CTVA losing 4.7% and 0.7%, respectively, and FMC posting a modest 0.8% gain.
Ag-chem innovations continue.&nbsp;The last decade saw a sharp decline in regulatory approvals of new chemical active ingredients in the ag-inputs market. However, that does not mean that innovation of new ag-chem formulations has been absent, with FMC’s recent launch of a&nbsp;new fungicide formulation, which is a good example of continuing efforts to combat agricultural pests and increase crop yields with existing products.
Battery materials expansion efforts.&nbsp;CMP announced a&nbsp;multiyear supply agreement&nbsp;with LG Energy Solutions to supply the Korean battery manufacturer with lithium carbonate starting in 2025, when the first phase of CMP’s production plant is expected to come online. Meanwhile, NMG announced a completion of a&nbsp;financing round, during which it raised $50 million&nbsp;from three strategic investors, with the intention to use the funds to update its 2022 feasibility study for its phase 2 commercial integrated operation, including an open-pit graphite mine near Montreal and a battery material plant in Becancour, Quebec.
SHW expands in industrial coatings.&nbsp;The company announced&nbsp;the acquisition&nbsp;of German-based Specialized Industrial Coatings Holding (SIC Holding), which has annual sales of more than €91.5 million. The transaction is expected to close in early 2023.

WTR-CMI WEEKLY PERFORMANCE


Source: Y-Charts as of November 11 close

Ag-Tech and Bio-Ag
Increasing importance of Brazilian ag market.&nbsp;The Brazilian agricultural industry&nbsp;continues to grow&nbsp;and increase its share of global grain markets. Driven by strong demand, the depreciating real (versus the US dollar), high commodity prices, and expanding farmland (one of the few geographies with increasing acreage under farming), Brazilian farmers are also benefiting from increased penetration of modern technology, including bio-based inputs, seeds, soil monitoring, and precision planting and spraying, which we believe will positively affect the growth of FMC, CTVA, BIOX, and BHIL, among others.
An alternative to farmland expansion.&nbsp;As arable land is in short supply in the US and other developed countries, making expansion by extension a difficult proposition, better land use appears to be one of the solutions to acreage growth. One such method is the use of&nbsp;Controlled Environment Agriculture&nbsp;(CEA). Indoor, hydroponic, and greenhouse growers are expanding their operations when it comes to specialty crops and increasing their market share and importance in the food supply chain as a result. While past its infancy stage, as the CEA industry is far from mature, offering plenty of opportunity for outsized growth both for its practitioners and for the companies supplying greenhouses, other related infrastructure, materials, equipment and services, investors may want to begin exploring.
Automotive &amp; Transportation Markets
October growth comes with a warning.&nbsp;While&nbsp;China’s new car sales&nbsp;increased 6.9% Y/Y in October, the pace was well off the mid-20s improvement seen in September. Furthermore,&nbsp;new energy vehicle (NEV) sales were flat M/M, although they remained above 600K units for a third straight month. Similarly, while&nbsp;the UK’s market&nbsp;also grew in October, up 26%, growth of EVs slowed within that period, up 23% Y/Y, possibly signaling that recent price increases passed on by EV OEMs to customers to help offset skyrocketing metal costs are having a dampening effect on demand. Overall, the UK’s automotive industry is expected to post its worst year since 1982 when it comes to automotive production. Then&nbsp;there is Russia, where new car registrations tumbled 63% in October, as the industry is feeling the impact of western sections both from a consumer-spending perspective, as well as from a lack of supply of foreign autos Russian consumers have come to prefer, as global OEMs are pulling their operations out and cutting ties with their JV partners in the country.
With Chinese sales remaining volatile, partially due to the government’s zero tolerance policies when it comes to COVID-19, European and North American sales under threat of&nbsp;a slowing economy and consumer sticker shock, not to mention semiconductor shortages that are expected to persist through 2023, recovery in auto OEM-related product demand, including coatings, adhesives, sealants, plastics, and composites, may be several quarters away, suggesting continued caution when it comes to companies in our index with high exposure to these markets, such as PPG and AXTA, but also AVNT, HXL, EAF, and FUL.
Energy &amp; Battery Technology
Battery metals growth accelerating, but bottlenecks are emerging.&nbsp;In 1H22, the growth and proliferation of new energy vehicles (NEVs, to use the Chinese term) accelerated globally, which has driven a sharp increase in&nbsp;critical battery metals growth. Lithium, as measured by lithium carbonate equivalents (LCE), grew to 117,200 mt in 1H22, up 76% Y/Y. Similarly, nickel volumes going into NEV batteries grew 50% Y/Y to 88,200 mt during this period and cobalt demand from NEV batteries increased 44% to 18,500 mt. With strong growth of EVs expected to continue, demand for battery metals should grow in tandem, even if at slightly lower rates due to continuing improvement in battery performance, as well as changing preferences when it comes to battery chemistries. Against this strong demand profile, one must juxtapose the realities of supply, which looks to be increasingly constrained when it comes to battery metals and therefore battery production overall. Even with the billions of dollars and euros made available by the US and EU governments recently in the form of targeted investments, tax incentives, and credits for building domestic supply of metals, materials, and batteries, deploying this capital and reaping the fruits of these investments in the form of expanded production&nbsp;will take years, suggesting the next three years may see a slowing in the pace of EV adoption and growth of renewable energy generation, not due to lack of demand, but due to lack of adequate supply.
Governments keep heads firmly planted in sand.&nbsp;The aforementioned projections are far from the first time we’ve seen the caution flag raised when it comes to pending supply shortages, not to mention the continuing dominance of China when it comes to production of EV-critical components, including metals, cathodes, anodes, and batteries. One would think other governments would do all they could to facilitate the development of local supply of these materials and products, if only to use up the money they themselves set aside for the projects and ensure the environmental goals and timetables they themselves have set are meaningful and achievable. One would be wrong. We previously highlighted the apparent disconnect between governments’ “commitments” to carbon reduction and environmentalism expressed in lofty goals of banning ICE vehicles, oil &amp; gas drilling, and reaching net-zero economies by some decades in the future, and those same governments’ regulatory bodies and rules and regulations they develop and enforce doing all they can to hamper and slow down the development of new metal resources, permitting the building of metal processing plants, or even recycle plants for end-of life batteries.
Examples of this dichotomy include the comments coming out of the recently concluded meeting of member nations of the International Seabed Authority (ISA), the UN-created body set up to develop rules and regulations around deep-sea mining in international waters. In the prior week, we mentioned Germany’s negative stance on the issue of deep-sea mining—the one unexploited resource that promises to be larger than any land-based mining for critical metals such as nickel, cobalt, and copper. Last week, the&nbsp;French government&nbsp;came out with a similar, largely hypothetical, objection to ratifying final regulations around deep-sea mining, siting lack of incontrovertible scientific data around the potential environmental impact of picking up fist-sized nodules lying on an ocean floor in regions of the ocean floor virtually devoid of biomass. Even an&nbsp;Australian mine executive&nbsp;echoed these concerns.
Interestingly, these comments came just days before the largest&nbsp;pilot project in recent history was successfully concluded by TMC, the company actively working on developing the technology of deep-sea nodule collection and onshore refining of battery-critical metals. Besides collecting 4,500 mt of nodules while traversing 80 km of the seafloor at depths of 3-4 km, the pilot program also included a vessel full of affiliated and independent scientists that deployed thousands of underwater sensors and followed the collection ship to monitor sediment plumes and mid-water release of process water from the collector ship. While the technical evaluation portion of the project has been completed, the scientific and monitoring work continues and, when concluded, will provide objective scientific data on the environmental impact of the collection process, which should go a long way in assuaging political concerns over the potential impact of deep-sea mining, certainly as compared with on-land mining alternatives.
Canada takes the first step in countering China’s expansionist plans.&nbsp;Acknowledging the geopolitical threat presented by the Chinese government’s (and there are no truly private companies in China) participation in global supply chains, especially those related to the energy transformation currently underway in developed economies,&nbsp;the Canadian government has ordered&nbsp;three Chinese firms to exit (i.e., divest their share of) Canadian lithium mining operations in the country. While the initial impact seems to affect&nbsp;two Canadian junior lithium mining firms, China’s involvement in the Canadian battery metals industry goes far beyond and similar government actions may affect a&nbsp;dozen or more companies&nbsp;looking to develop nickel, cobalt, copper, and other metal resources in the country to help reduce Chinese dominance of the supply chain. We can only hope the US and EU governments take a similar approach to protecting their strategic resources from Chinese exploitation and predatory trading practices.
Chemicals &amp; Materials
Adhesives play a key role in drive for sustainability.&nbsp;Last year, we wrote about the role chemicals and materials companies play in the drive for more sustainable manufacturing and production practices across multiple industries and markets. Adhesives and sealants are one such area. Growth of sustainable practices in the manufacturing of these products and their role in enabling their customers to meet sustainability and environmental requirements related to their industries are two of the ways adhesives and sealants companies help the world address the issues of sustainability. An ubiquitous element in multiple industries and sectors, adhesives and sealants play a key role in&nbsp;construction,&nbsp;renewable energy generation, and&nbsp;light-weighting&nbsp;in the automotive and transportation sectors, among others. Adhesives and sealants companies are also aggressively working on reducing their own carbon footprint and improving the sustainability of their operations.&nbsp;H.B. Fuller, the only pure-play adhesives and sealants publicly traded company in the US, is an excellent example of a responsible manufacturer, delivering tangible results when it comes to improving its sustainability profile and operations.
Rating and Price Target Changes
ALB –&nbsp;Deutsche Bank raised its price target (PT) to $325 from $305 and reiterated its Buy rating; Berenberg also raised its PT to $275 rom $270 and maintained its Hold rating; RBC raised its PT to $380 from $371 and reiterated its Outperform rating.
ASH –&nbsp;Credit Suisse raised its PT to $125 from $120 and reiterated its Outperform rating; UBS raised its PT to $131 from $127 and reiterated its Buy recommendation; Deutsche Bank raised its PT to $125 from $120 and reiterated its Buy rating; Wells Fargo raised its PT to $118 from $104 and maintained its Equal Weight rating.
CTVA –&nbsp;RBC raised its PT to $78 from $72 and reiterated its Outperform rating; BMO raised its PT to $76 from $72 and reiterated its Outperform rating; Mizuho Securities raised its PT to $76 from $74 and reiterated its Buy recommendation.
EAF –&nbsp;RBC lowered its PT to $4 from $7 and maintained Sector Perform rating.
ECL –&nbsp;Credit Suisse lowered its PT to $170 from $175 and reiterated its Outperform rating; UBS lowered its PT to $171 from $184 and reiterated its Buy recommendation.
EMN –&nbsp;Tudor Pickering upgraded the stock to Buy from Hold and raised its PT to $99 from $98.
FMC –&nbsp;CFRA raised its PT to $135 from $125 and maintained its Hold rating.
KWR –&nbsp;Deutsche Bank raised its PT to $200 from $180 and reiterated its Buy recommendation.
Recent Reports and Future Events
Fireside Chat: Chairman &amp; CEO Gerard Barron, CFO Craig Shesky, and Project Director for NORI Grant Lindner, November 16, 2022, at 10:00 am EST
TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need
Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look
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 November 11, 2022

<h3>KEY HIGHLIGHTS</h3>
<ul>
<li>WTR-CMI last week.&nbsp;For the second week in a row, the stock market posted solid gains, anticipating a better earnings season in some respects, with the Russell 2000 delivering a 6% appreciation, the S&amp;P 500 posting a 4% improvement, and our WTR-CMI index of 30 chemicals and materials stocks delivering a slightly better 4.1% performance. This was led by KWR’s 14.4% jump, which may have benefited from a positive initiation of coverage report from RBS and SHW’s 3Q22 results and 4Q22 guidance that appear to have been stronger than feared, given PPG’s pre-announcement the week prior. HXL’s 3Q22 disappointed, as the stock was one of only three in our index to post a price decline for the week.</li>
<li>Europe’s commercial vehicle market remains down.&nbsp;While September new passenger vehicle sales posted a modest improvement from the depths of 2021 production reduction,&nbsp;the commercial vehicle market&nbsp;remained in negative territory from a Y/Y perspective, declining 6.6% against an easy year-ago comp and finishing the first nine months of 2022 down 17.6%.</li>
<li>Food inflation hits organic produce too.&nbsp;Although sales of organic produce in the US held up well through the inflation run-up,&nbsp;the latest data show&nbsp;even this category is feeling the price pinch, as sales volumes have begun to decline on a Y/Y basis, albeit not as fast as in the conventional produce aisle. Higher prices may nonetheless provide enough of an incentive for organic farmers to continue to cultivate and even expand their production acres, which we believe will be a continued positive for ag-tech companies such as BIOX, as well as ag majors with a strong bio-based product portfolio, such as FMC and CVTA.</li>
<li>An EV investment tsunami.&nbsp;Quickly reaching the point of no return, the auto industry is planning to invest a whopping $1.2 trillion through the end of this decade in EV production, as well as in battery and even battery material production initiatives. Automakers have forecast plans to build 54 million EVs in 2030, representing more than 50% of total vehicle production, and install 5.8 terawatt hours of battery production capacity by 2030,&nbsp;according to the analysis. The implied demand for battery metals and other materials would appear to support aggressive investment in new mines, new resources, and expansion of existing mineral production and manufacturing of battery-grade materials. If only government regulatory and permitting processes weren’t stuck in 1970s…</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/307/149/original/image_58248951531667348462011.png?1667348470" class="editor-image img-responsive" data-smartkarma-image-id="307149"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>Biologics continue to make inroads here and abroad.&nbsp;Farmers’ portfolios of alternatives to chemical-based pesticides continue to expand. Fungus-based bioinsecticides have recently been&nbsp;approved for use in Brazil&nbsp;and a microbial-based fungicide gained&nbsp;EPA approval in the US. As farmers in North and South America continue to grapple with old adversaries such as pest tolerance and increasingly toxic chemical pesticide alternatives, new issues, such as stricter regulations, high costs of chemical inputs, and improving efficacy of bio-based products, demand for biological inputs should continue to increase, despite the snarled supply chains, high diesel prices, and geopolitical tensions. Companies such as BIOX and BHIL, as well as established ag majors with growing biotech business units, such as FMC and CTVA, look to benefit from these trends.</p>
<h2>Energy Technology &amp; Battery Technology</h2>
<p>Companies are doing their part.&nbsp;A week doesn’t go by without new announcements of industry participants signing supply deals, looking to open or expand metal mining resources, or build out converting plants to ensure the automotive and transportation industries have the materials they need to meet their ambitious electrification goals to address growing government pressures to halt climate change. Last week was no exception, as we’ve seen French mining major&nbsp;Imerys announce plans to mine lithium&nbsp;in France and Japan’s&nbsp;Panasonic sign an MoU&nbsp;with NMG to establish a North American source of graphite. Furthermore, Standard Lithium&nbsp;announced the successful commissioning&nbsp;of a LiCl-to-LiOH conversion plant in Arkansas, using a direct lithium extraction process, while&nbsp;Rock Tech announced&nbsp;the creation of a joint venture to secure spodumene supply for its conversion plant. One area we see increasing interest in is nickel production. Once a “boring” industrial metal with demand growing at a GDP-minus rate, high nickel content in EV batteries has led to the realization that this abundant metal may also be in short supply, given anticipated demand, existing mine depletions, and new resources being in undesirable geographies. The growing understanding of the&nbsp;nickel shortage&nbsp;potential is a positive for newer nickel developers, such as TMC, which may see their stock prices respond to increased investor interest in the sector.</p>
<p>Government giveth, government taketh away.&nbsp;Last week, we highlighted established lithium players, such as ALB, being selected to receive DOE loans aimed at establishing domestic critical resource infrastructure and it seems even&nbsp;newer pre-revenue entrants&nbsp;are now beginning to benefit from the program, which gives investors reasons to believe other potential applicants, such as WWR, LAC, PLL, etc., may gain access to funding to further their commercial plans. However, as we mentioned previously,&nbsp;realization seems to be spreading&nbsp;that all this money, which comes with strings attached in the first place, may not do as much good as hoped for without a major overhaul of current byzantine rules, regulations, and permitting processes, which appear designed in many cases to intentionally preclude such projects as new mines, new plants, or even new recycling facilities to be constructed in developed countries, including the US. When combined with good intentioned but&nbsp;short-sighted EV rebate regimes, such as the one signed into law recently here, the dichotomy between energy transformation targets and physical and political reality of often divergent regulatory and tax schemes becomes even more apparent. As the movie title said, something’s gotta give.</p>
<h2>Rating and Price Target Changes</h2>
<p>AVNT –&nbsp;Morgan Stanley lowered its price target (PT) to $37 from $50 and maintained its Equal Weight rating.</p>
<p>AXTA –&nbsp;Wells Fargo raised its PT to $26 from $24 and maintained its Equal Weight rating; BNP Paribas Exane downgraded the stock to Neutral from Outperform, with a PT of $27; Morgan Stanley lowered its PT to $28 from $30 and maintained its Equal Weight rating.</p>
<p>EMN –&nbsp;UBS lowered its PT to $96 from $105 and reiterated its Buy rating; Credit Suisse lowered its PT to $95 from $102 and reiterated its Outperform rating; CFRA raised its PT to $115 from $110 and reiterated its Buy rating.</p>
<p>HXL –&nbsp;CFRA downgraded the stock to Hold from Buy and lowered its PT to $61 from $65; RBC raised its PT to $58 from $57 and maintained its Sector Perform rating; Wells Fargo raised its PT to $60 from $58 and maintained its Equal Weight rating.</p>
<p>KWR –&nbsp;RBC initiated coverage of the stock with an Outperform rating and $196 PT.</p>
<p>LAC –&nbsp;Deutsche Bank lowered its PT to $34 from $36 and reiterated its Buy rating.</p>
<p>SXT –&nbsp;Baird lowered its PT to $70 from $90 and maintained its Neutral rating.</p>
<p>SHW –&nbsp;CFRA raised its PT to $266 from $235 and maintained its Hold rating; Deutsche Bank lowered its PT to $265 from $275 and reiterated its Buy rating; Wells Fargo raised its PT to $230 from $215 and maintained its Equal Weight rating; UBS raised its PT to $242 from $232 and maintained its Neutral rating; Baird lowered its PT to $275 from $325 and reiterated its Outperform rating; RBC raised its PT to $280 from $273 and reiterated its Outperform rating; BMO raised its PT to $251 from $244 and maintained its Market Perform rating; KeyBank lowered its PT to $265 from $290 and reiterated its Overweight recommendation.</p>
<h2>Recent Reports</h2>
<p>Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look</p>
<p>TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need</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;For the second week in a row, the stock market posted solid gains, anticipating a better earnings season in some respects, with the Russell 2000 delivering a 6% appreciation, the S&amp;P 500 posting a 4% improvement, and our WTR-CMI index of 30 chemicals and materials stocks delivering a slightly better 4.1% performance. This was led by KWR’s 14.4% jump, which may have benefited from a positive initiation of coverage report from RBS and SHW’s 3Q22 results and 4Q22 guidance that appear to have been stronger than feared, given PPG’s pre-announcement the week prior. HXL’s 3Q22 disappointed, as the stock was one of only three in our index to post a price decline for the week.
Europe’s commercial vehicle market remains down.&nbsp;While September new passenger vehicle sales posted a modest improvement from the depths of 2021 production reduction,&nbsp;the commercial vehicle market&nbsp;remained in negative territory from a Y/Y perspective, declining 6.6% against an easy year-ago comp and finishing the first nine months of 2022 down 17.6%.
Food inflation hits organic produce too.&nbsp;Although sales of organic produce in the US held up well through the inflation run-up,&nbsp;the latest data show&nbsp;even this category is feeling the price pinch, as sales volumes have begun to decline on a Y/Y basis, albeit not as fast as in the conventional produce aisle. Higher prices may nonetheless provide enough of an incentive for organic farmers to continue to cultivate and even expand their production acres, which we believe will be a continued positive for ag-tech companies such as BIOX, as well as ag majors with a strong bio-based product portfolio, such as FMC and CVTA.
An EV investment tsunami.&nbsp;Quickly reaching the point of no return, the auto industry is planning to invest a whopping $1.2 trillion through the end of this decade in EV production, as well as in battery and even battery material production initiatives. Automakers have forecast plans to build 54 million EVs in 2030, representing more than 50% of total vehicle production, and install 5.8 terawatt hours of battery production capacity by 2030,&nbsp;according to the analysis. The implied demand for battery metals and other materials would appear to support aggressive investment in new mines, new resources, and expansion of existing mineral production and manufacturing of battery-grade materials. If only government regulatory and permitting processes weren’t stuck in 1970s…

WTR-CMI WEEKLY PERFORMANCE

Ag-Tech and Bio-Ag
Biologics continue to make inroads here and abroad.&nbsp;Farmers’ portfolios of alternatives to chemical-based pesticides continue to expand. Fungus-based bioinsecticides have recently been&nbsp;approved for use in Brazil&nbsp;and a microbial-based fungicide gained&nbsp;EPA approval in the US. As farmers in North and South America continue to grapple with old adversaries such as pest tolerance and increasingly toxic chemical pesticide alternatives, new issues, such as stricter regulations, high costs of chemical inputs, and improving efficacy of bio-based products, demand for biological inputs should continue to increase, despite the snarled supply chains, high diesel prices, and geopolitical tensions. Companies such as BIOX and BHIL, as well as established ag majors with growing biotech business units, such as FMC and CTVA, look to benefit from these trends.
Energy Technology &amp; Battery Technology
Companies are doing their part.&nbsp;A week doesn’t go by without new announcements of industry participants signing supply deals, looking to open or expand metal mining resources, or build out converting plants to ensure the automotive and transportation industries have the materials they need to meet their ambitious electrification goals to address growing government pressures to halt climate change. Last week was no exception, as we’ve seen French mining major&nbsp;Imerys announce plans to mine lithium&nbsp;in France and Japan’s&nbsp;Panasonic sign an MoU&nbsp;with NMG to establish a North American source of graphite. Furthermore, Standard Lithium&nbsp;announced the successful commissioning&nbsp;of a LiCl-to-LiOH conversion plant in Arkansas, using a direct lithium extraction process, while&nbsp;Rock Tech announced&nbsp;the creation of a joint venture to secure spodumene supply for its conversion plant. One area we see increasing interest in is nickel production. Once a “boring” industrial metal with demand growing at a GDP-minus rate, high nickel content in EV batteries has led to the realization that this abundant metal may also be in short supply, given anticipated demand, existing mine depletions, and new resources being in undesirable geographies. The growing understanding of the&nbsp;nickel shortage&nbsp;potential is a positive for newer nickel developers, such as TMC, which may see their stock prices respond to increased investor interest in the sector.
Government giveth, government taketh away.&nbsp;Last week, we highlighted established lithium players, such as ALB, being selected to receive DOE loans aimed at establishing domestic critical resource infrastructure and it seems even&nbsp;newer pre-revenue entrants&nbsp;are now beginning to benefit from the program, which gives investors reasons to believe other potential applicants, such as WWR, LAC, PLL, etc., may gain access to funding to further their commercial plans. However, as we mentioned previously,&nbsp;realization seems to be spreading&nbsp;that all this money, which comes with strings attached in the first place, may not do as much good as hoped for without a major overhaul of current byzantine rules, regulations, and permitting processes, which appear designed in many cases to intentionally preclude such projects as new mines, new plants, or even new recycling facilities to be constructed in developed countries, including the US. When combined with good intentioned but&nbsp;short-sighted EV rebate regimes, such as the one signed into law recently here, the dichotomy between energy transformation targets and physical and political reality of often divergent regulatory and tax schemes becomes even more apparent. As the movie title said, something’s gotta give.
Rating and Price Target Changes
AVNT –&nbsp;Morgan Stanley lowered its price target (PT) to $37 from $50 and maintained its Equal Weight rating.
AXTA –&nbsp;Wells Fargo raised its PT to $26 from $24 and maintained its Equal Weight rating; BNP Paribas Exane downgraded the stock to Neutral from Outperform, with a PT of $27; Morgan Stanley lowered its PT to $28 from $30 and maintained its Equal Weight rating.
EMN –&nbsp;UBS lowered its PT to $96 from $105 and reiterated its Buy rating; Credit Suisse lowered its PT to $95 from $102 and reiterated its Outperform rating; CFRA raised its PT to $115 from $110 and reiterated its Buy rating.
HXL –&nbsp;CFRA downgraded the stock to Hold from Buy and lowered its PT to $61 from $65; RBC raised its PT to $58 from $57 and maintained its Sector Perform rating; Wells Fargo raised its PT to $60 from $58 and maintained its Equal Weight rating.
KWR –&nbsp;RBC initiated coverage of the stock with an Outperform rating and $196 PT.
LAC –&nbsp;Deutsche Bank lowered its PT to $34 from $36 and reiterated its Buy rating.
SXT –&nbsp;Baird lowered its PT to $70 from $90 and maintained its Neutral rating.
SHW –&nbsp;CFRA raised its PT to $266 from $235 and maintained its Hold rating; Deutsche Bank lowered its PT to $265 from $275 and reiterated its Buy rating; Wells Fargo raised its PT to $230 from $215 and maintained its Equal Weight rating; UBS raised its PT to $242 from $232 and maintained its Neutral rating; Baird lowered its PT to $275 from $325 and reiterated its Outperform rating; RBC raised its PT to $280 from $273 and reiterated its Outperform rating; BMO raised its PT to $251 from $244 and maintained its Market Perform rating; KeyBank lowered its PT to $265 from $290 and reiterated its Overweight recommendation.
Recent Reports
Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look
TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need
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 October 28, 2022

<h3>KEY HIGHLIGHTS</h3>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;Reversing the prior week’s trend, the stock market pulled back last week following the release of disappointing inflation data, with the Russell 2000 and the S&amp;P 500 losing 4.5% and 4.8% of their value, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market by declining 7.2% for the week.&nbsp;EMN’s preannouncement&nbsp;of lower 3Q22 and 2022 expectations drove the stock down nearly 15% and eight of the 30 stocks in our index posted double-digit declines. With all stocks in our WTR-CMI index losing value last week, PKE, AVD, and CTVA delivered relative outperformance by declining less than 2%.</li>
<li>Even ag-chem majors are retrenching.&nbsp;While the overall tone of&nbsp;CTVA’s Investor Day&nbsp;held last week was positive, highlighted by the rollout of a robust R&amp;D pipeline and an announcement of additional $2 billion in share repurchases (on top of existing $1.5 billion authorization), management also laid out plans for&nbsp;coping with slowing economic growth and high inflation expectations&nbsp;by exiting 35 countries and trimming its workforce by 5%.</li>
<li>Tale of two regions.&nbsp;While US passenger vehicle sales in August edged up Y/Y and new&nbsp;car registrations in the EU&nbsp;grew by 4.4% last month,&nbsp;Y/Y growth of passenger vehicles in China was 36% in August&nbsp;following the end of a two-month lockdown of Shanghai and a reduction in the gasoline tax at the end of June. Although the remaining four months of 2022 will feature easy Y/Y comps, given the depressed state of the global auto industry at the end of 2021, slowing economic growth and high energy prices may keep the recovery muted, with questions remaining with respect to 2023. PPG and AXTA may therefore continue to underperform, given their large exposure to the automotive and transportation markets.</li>
<li>CMP stepping up its lithium game.&nbsp;Having previously previewed its ambitions of becoming a lithium supplier to the EV battery industry using its existing Salt Lake resources,&nbsp;CMP picked EnergySource Minerals&nbsp;as its direct lithium extraction (DLE) technology provider and announced a $252 million&nbsp;strategic investment&nbsp;by Koch Minerals &amp; Trading, LLC (KM&amp;T) to help finance Phase 1 of its lithium project.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/221/original/image_26154726621663790447378.png?1663790451" class="editor-image img-responsive" data-smartkarma-image-id="299221"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>September USDA report acknowledges reality.&nbsp;We recently highlighted the disconnect between the August USDA Crop Production Report and the boots-on-the-ground crop tour that implied much lower commodity grain expectations. Last week, the USDA released its&nbsp;September report, which reflected the crop tour’s findings and lowered its outlook for soybean and corn production by lowering the three main components:&nbsp;planted acre, harvested acres, and yield per acre. Weather pressures and challenges securing sufficient and timely quantities of fertilizers and pesticides may have been behind the reduction in productivity expectations for US farmers reflected in the report. Lower expected Brazilian crop and what appears to be lower-than-anticipated US production are likely to result in stable, if not higher, commodity crop prices, which would go a long way in helping US farmers deal with still-elevated input costs in the 2022-23 season. Also mitigating lower production is&nbsp;lower demand from industrial end markets, such as ethanol and biofuels, which are slowing due to the overall slowdown in the US economy and miles driven.</p>
<p>Farmers remain cautious.&nbsp;Creighton University’s Rural Mainstreet Index&nbsp;(RMI) reading for September improved somewhat from August’s reading of 44 to 46.3, marking the fifth straight month of readings under 50, with 50 being a growth-neutral outlook, signaling that US farmers are bracing for another difficult year and a downturn in economic activity. Supply chain disruptions and inflationary pressures for everything from inputs to fuel to equipment to land values continue to weigh on farmers’ minds. Farmers and bankers are now also bracing for escalating interest rates, even higher farm input costs, and drought. Higher expected crop values as mentioned above may help mitigate some of the cost pressures farmers will be facing, but high energy and natural gas costs constraining fertilizer and pesticide production and leading to their higher costs and still-snarled logistics may result in even greater scarcity of needed inputs, suggesting ag-chem companies such as CTVA, FMC, and AVD, as well as CF and MOS may continue to enjoy strong demand. It may also provide opportunities for companies offering different technologies, such as bio-based pesticides, seed treatment, and soil conditioning to expand their geographic and crop reach, as farmers look for every advantage and avenue to facilitate their production. This would be a positive for emerging bio-ag companies such as BIX and BHIL.</p>
<h2>Battery and Energy Technology</h2>
<p>EV growth spurs demand and drives higher metal prices.&nbsp;As EV growth continues to accelerate, supply of metals required to build EV batteries is barely keeping pace, driving metal prices higher as a result,&nbsp;with lithium carbonate prices in China&nbsp;setting a new record at just over $71/kg. Nor is lithium an exception. Brazilian mining company&nbsp;Vale expects nickel demand&nbsp;to surge 44% by 2030 from current levels, with most new supply coming from Indonesia, Canada, and Australia. The company also expects there to be a structural deficit of the metal even when factoring in current announced production and mining expansions. An emerging player with the potential to become the second-largest nickel supplier in the world in the mid-term and the largest in the longer term is a Canadian late-stage development company&nbsp;The Metals Company&nbsp;(NASDAQ: TMC), which is getting ready to commercialize undersea collection and processing of polymetallic nodules found in ocean depths between Mexico and Hawaii.</p>
<p>Working at cross purposes.&nbsp;We recently wrote about the disconnect between national governments’ efforts to expand and domesticate the sourcing and production of materials critical in enabling the EV and energy storage transformation on the one hand and local government agencies and NGOs doing their best to push “not in my back yard” agenda when it comes to mines, processing plants, and other facilities needed to support green energy goals. We previously highlighted the issues PLL is having in securing the permits needed to begin mining and processing lithium in North Carolina. Another development-stage lithium player running into similar NGO obstacles is LAC, which is facing strong opposition to its&nbsp;Nevada mine development from environmental groups and other NGOs. While Tesla CEO thinks mining is “relatively easy” compared with lithium refining competencies and is exploring&nbsp;Tesla getting into the lithium processing business, the fact remains that additional sources of lithium, whether by direct lithium extraction from brine à la CMP and LAC, spodumene mines, or expansion of brine extraction in the Andes, are sorely needed to decouple our dependence on China and other geopolitically sensitive neighborhoods. That means governments will need to rethink their approach to incentivizing domestic development of mine and processing plant resources.</p>
<h2>Chemicals and Materials News</h2>
<p>N.I.M.B.Y.&nbsp;Everyone wants a more sustainable world. Everyone wants less plastic and other pollution. But it seems nobody wants plants and facilities that can deliver on those wants in their neighborhood—Not in My Back Yard syndrome—at least not in developed countries with a strong NGO ecosystem. The problem goes beyond permitting new mineral and metal mines, processing plants, or refineries. Even scrap plastic sorting facilities are frowned upon. Just ask PureCycle Technologies’ (NASDAQ: PCT) CEO Dustin Olson, who has received a&nbsp;letter signed by 50 different NGOs&nbsp;requesting the company abandon its plans for a new plastic sorting facility in Florida.</p>
<h2>Rating and Price Target Changes</h2>
<p>ASH –&nbsp;Credit Suisse initiated coverage of the stock with an Outperform rating and $210 price target (PT).</p>
<p>CTVA –&nbsp;KeyBanc raised its PT to $72 from $64 and reiterated its Overweight rating; BMO raised its PT to $72 from $66 and reiterated its Outperform rating; JP Morgan raised its PT to $65 from $63 and reiterated its Outperform rating; Jefferies raised its PT to $77 from $70 and reiterated its Buy recommendation; Deutsche Bank raised its PT to $75 from $68 and reiterated its Buy recommendation.</p>
<p>EMN –&nbsp;Jefferies lowered its PT to $94 from $97 and maintained its Hold rating; Tudor Pickering lowered its PT to $98 from $105 and maintained its Hold rating; Stifel Nicolaus lowered its PT to $112 from $134 and reiterated its Buy recommendation; CFRA lowered its PT to $110 rom $115 and reiterated its Buy rating; Wells Fargo downgraded the stock to Equal Weight from Overweight and lowered its PT to $95 from $110; KeyBanc lowered its PT to $111 from $125 and reiterated its Overweight rating; Citigroup lowered its PT to $93 from $102 and maintained its Neutral rating; RBC lowered its PT to $82 from $97 and maintained its Sector Perform rating; Deutsche Bank lowered its PT to $95 from $115 and reiterated its Buy recommendation.</p>
<p>LTHM –&nbsp;Vertical Research downgraded the stock to Hold from Buy, despite raising its PT to $35 from $33.</p>
<p>PPG –&nbsp;Wells Fargo lowered its PT to $130 from $135 and maintained its Equal Weight rating.</p>
<p>SHW –&nbsp;Evercore ISI lowered its PT to $260 from $285 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;Reversing the prior week’s trend, the stock market pulled back last week following the release of disappointing inflation data, with the Russell 2000 and the S&amp;P 500 losing 4.5% and 4.8% of their value, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market by declining 7.2% for the week.&nbsp;EMN’s preannouncement&nbsp;of lower 3Q22 and 2022 expectations drove the stock down nearly 15% and eight of the 30 stocks in our index posted double-digit declines. With all stocks in our WTR-CMI index losing value last week, PKE, AVD, and CTVA delivered relative outperformance by declining less than 2%.
Even ag-chem majors are retrenching.&nbsp;While the overall tone of&nbsp;CTVA’s Investor Day&nbsp;held last week was positive, highlighted by the rollout of a robust R&amp;D pipeline and an announcement of additional $2 billion in share repurchases (on top of existing $1.5 billion authorization), management also laid out plans for&nbsp;coping with slowing economic growth and high inflation expectations&nbsp;by exiting 35 countries and trimming its workforce by 5%.
Tale of two regions.&nbsp;While US passenger vehicle sales in August edged up Y/Y and new&nbsp;car registrations in the EU&nbsp;grew by 4.4% last month,&nbsp;Y/Y growth of passenger vehicles in China was 36% in August&nbsp;following the end of a two-month lockdown of Shanghai and a reduction in the gasoline tax at the end of June. Although the remaining four months of 2022 will feature easy Y/Y comps, given the depressed state of the global auto industry at the end of 2021, slowing economic growth and high energy prices may keep the recovery muted, with questions remaining with respect to 2023. PPG and AXTA may therefore continue to underperform, given their large exposure to the automotive and transportation markets.
CMP stepping up its lithium game.&nbsp;Having previously previewed its ambitions of becoming a lithium supplier to the EV battery industry using its existing Salt Lake resources,&nbsp;CMP picked EnergySource Minerals&nbsp;as its direct lithium extraction (DLE) technology provider and announced a $252 million&nbsp;strategic investment&nbsp;by Koch Minerals &amp; Trading, LLC (KM&amp;T) to help finance Phase 1 of its lithium project.

WTR-CMI WEEKLY PERFORMANCE

Ag-Tech and Bio-Ag
September USDA report acknowledges reality.&nbsp;We recently highlighted the disconnect between the August USDA Crop Production Report and the boots-on-the-ground crop tour that implied much lower commodity grain expectations. Last week, the USDA released its&nbsp;September report, which reflected the crop tour’s findings and lowered its outlook for soybean and corn production by lowering the three main components:&nbsp;planted acre, harvested acres, and yield per acre. Weather pressures and challenges securing sufficient and timely quantities of fertilizers and pesticides may have been behind the reduction in productivity expectations for US farmers reflected in the report. Lower expected Brazilian crop and what appears to be lower-than-anticipated US production are likely to result in stable, if not higher, commodity crop prices, which would go a long way in helping US farmers deal with still-elevated input costs in the 2022-23 season. Also mitigating lower production is&nbsp;lower demand from industrial end markets, such as ethanol and biofuels, which are slowing due to the overall slowdown in the US economy and miles driven.
Farmers remain cautious.&nbsp;Creighton University’s Rural Mainstreet Index&nbsp;(RMI) reading for September improved somewhat from August’s reading of 44 to 46.3, marking the fifth straight month of readings under 50, with 50 being a growth-neutral outlook, signaling that US farmers are bracing for another difficult year and a downturn in economic activity. Supply chain disruptions and inflationary pressures for everything from inputs to fuel to equipment to land values continue to weigh on farmers’ minds. Farmers and bankers are now also bracing for escalating interest rates, even higher farm input costs, and drought. Higher expected crop values as mentioned above may help mitigate some of the cost pressures farmers will be facing, but high energy and natural gas costs constraining fertilizer and pesticide production and leading to their higher costs and still-snarled logistics may result in even greater scarcity of needed inputs, suggesting ag-chem companies such as CTVA, FMC, and AVD, as well as CF and MOS may continue to enjoy strong demand. It may also provide opportunities for companies offering different technologies, such as bio-based pesticides, seed treatment, and soil conditioning to expand their geographic and crop reach, as farmers look for every advantage and avenue to facilitate their production. This would be a positive for emerging bio-ag companies such as BIX and BHIL.
Battery and Energy Technology
EV growth spurs demand and drives higher metal prices.&nbsp;As EV growth continues to accelerate, supply of metals required to build EV batteries is barely keeping pace, driving metal prices higher as a result,&nbsp;with lithium carbonate prices in China&nbsp;setting a new record at just over $71/kg. Nor is lithium an exception. Brazilian mining company&nbsp;Vale expects nickel demand&nbsp;to surge 44% by 2030 from current levels, with most new supply coming from Indonesia, Canada, and Australia. The company also expects there to be a structural deficit of the metal even when factoring in current announced production and mining expansions. An emerging player with the potential to become the second-largest nickel supplier in the world in the mid-term and the largest in the longer term is a Canadian late-stage development company&nbsp;The Metals Company&nbsp;(NASDAQ: TMC), which is getting ready to commercialize undersea collection and processing of polymetallic nodules found in ocean depths between Mexico and Hawaii.
Working at cross purposes.&nbsp;We recently wrote about the disconnect between national governments’ efforts to expand and domesticate the sourcing and production of materials critical in enabling the EV and energy storage transformation on the one hand and local government agencies and NGOs doing their best to push “not in my back yard” agenda when it comes to mines, processing plants, and other facilities needed to support green energy goals. We previously highlighted the issues PLL is having in securing the permits needed to begin mining and processing lithium in North Carolina. Another development-stage lithium player running into similar NGO obstacles is LAC, which is facing strong opposition to its&nbsp;Nevada mine development from environmental groups and other NGOs. While Tesla CEO thinks mining is “relatively easy” compared with lithium refining competencies and is exploring&nbsp;Tesla getting into the lithium processing business, the fact remains that additional sources of lithium, whether by direct lithium extraction from brine à la CMP and LAC, spodumene mines, or expansion of brine extraction in the Andes, are sorely needed to decouple our dependence on China and other geopolitically sensitive neighborhoods. That means governments will need to rethink their approach to incentivizing domestic development of mine and processing plant resources.
Chemicals and Materials News
N.I.M.B.Y.&nbsp;Everyone wants a more sustainable world. Everyone wants less plastic and other pollution. But it seems nobody wants plants and facilities that can deliver on those wants in their neighborhood—Not in My Back Yard syndrome—at least not in developed countries with a strong NGO ecosystem. The problem goes beyond permitting new mineral and metal mines, processing plants, or refineries. Even scrap plastic sorting facilities are frowned upon. Just ask PureCycle Technologies’ (NASDAQ: PCT) CEO Dustin Olson, who has received a&nbsp;letter signed by 50 different NGOs&nbsp;requesting the company abandon its plans for a new plastic sorting facility in Florida.
Rating and Price Target Changes
ASH –&nbsp;Credit Suisse initiated coverage of the stock with an Outperform rating and $210 price target (PT).
CTVA –&nbsp;KeyBanc raised its PT to $72 from $64 and reiterated its Overweight rating; BMO raised its PT to $72 from $66 and reiterated its Outperform rating; JP Morgan raised its PT to $65 from $63 and reiterated its Outperform rating; Jefferies raised its PT to $77 from $70 and reiterated its Buy recommendation; Deutsche Bank raised its PT to $75 from $68 and reiterated its Buy recommendation.
EMN –&nbsp;Jefferies lowered its PT to $94 from $97 and maintained its Hold rating; Tudor Pickering lowered its PT to $98 from $105 and maintained its Hold rating; Stifel Nicolaus lowered its PT to $112 from $134 and reiterated its Buy recommendation; CFRA lowered its PT to $110 rom $115 and reiterated its Buy rating; Wells Fargo downgraded the stock to Equal Weight from Overweight and lowered its PT to $95 from $110; KeyBanc lowered its PT to $111 from $125 and reiterated its Overweight rating; Citigroup lowered its PT to $93 from $102 and maintained its Neutral rating; RBC lowered its PT to $82 from $97 and maintained its Sector Perform rating; Deutsche Bank lowered its PT to $95 from $115 and reiterated its Buy recommendation.
LTHM –&nbsp;Vertical Research downgraded the stock to Hold from Buy, despite raising its PT to $35 from $33.
PPG –&nbsp;Wells Fargo lowered its PT to $130 from $135 and maintained its Equal Weight rating.
SHW –&nbsp;Evercore ISI lowered its PT to $260 from $285 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 18, 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

United States

Quaker Chemical Corporation produces, develops, and markets custom-formulated chemical specialty products.  The Company also provides fluid management services for manufacturers around the world, primarily in the steel, automotive, and can industries.

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Quaker Chemical (KWR US)

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