Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

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

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

Equity Research Firm

Thematic (Sector/Industry)

<h2>KEY HIGHLIGHTS</h2>
<ul>
<li>WTR-CMI last week.&nbsp;Propelled by lithium stocks that are benefiting from resumed price increases and continuing growth in EV production, our WTR-CMI index of 30 chemicals and materials stocks held its ground last week by pulling back only 1.3%, compared with the declines of the Russell 2000 and the S&amp;P 500 of 2.9% and 4.0%, respectively. On Y/Y bases, our index has reached parity (up 0.1%), while both the Russell 2000 and the S&amp;P 500 remained underwater by (14.2%) and (9.2%), respectively.</li>
<li>Damn the torpedoes.&nbsp;Undeterred by continuing issues with obtaining state and local permits in North Carolina, a process that is expected to last into 2023,&nbsp;PLL has invested $100 million in land&nbsp;purchases in the region of its future lithium mine, which investors may see as management’s vote of confidence in the ultimate positive resolution of its permitting process.</li>
<li>Dual wet blankets in ag market.&nbsp;Affected by high natural gas prices in Europe, Yara (OTC: YARIY), one of Europe’s largest fertilizer producers, is&nbsp;curtailing ammonia production&nbsp;across its network of plants, likely putting upward pressure on fertilizer prices heading into the 2023 ag season. Not to be outdone, the&nbsp;Trudeau government in Canada has put forth a “recommendation”&nbsp;for its farmers to use less fertilizer (thus affecting yields) or face the consequence of being excluded from participation in C$1.5 billion in government financial aid to farmers. Compliance with the recommendation is, of course, purely voluntary.</li>
<li>Energy availability a real concern.&nbsp;Car executives in&nbsp;the UK are growing increasingly concerned&nbsp;with the staggeringly high natural gas and energy prices in the country and their potential impact on both near-term production and the ability to attract needed investment into the country. Energy availability is not just an EU problem as&nbsp;Toyota had to suspend production&nbsp;at its Chinese plant earlier in August due to local energy curtailment policies.</li>
<li>ALB keeps catalysts, realigns bromine and lithium.&nbsp;After completing its strategic review, ALB announced its decision to&nbsp;hold on to its Catalysts business&nbsp;in the form of a wholly owned subsidiary, while also&nbsp;realigning its Bromine and Lithium&nbsp;operations to create two SBUs—one focused on energy storage and one focused on other industrial uses and applications.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/295/972/original/image_85467367041662171205175.png?1662171207" class="editor-image img-responsive" data-smartkarma-image-id="295972"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>Cracks grow in US ag economy.&nbsp;Creighton University’s&nbsp;Rural Mainstreet Index (RMI)&nbsp;took another step down in August, declining to 44 from July’s 46 (50 being a growth-neutral outlook) as farmers face increasing economic pressures from high costs and supply bottlenecks, combined with softening commodity prices and what may be lower yields as weather affects crop-growing regions. Interestingly, 92% of the rural bank CEOs queried believe that China’s purchases of US farmland are a threat to the regional economy (not to mention national security) and it appears there are plenty of reasons for concern. The recently completed&nbsp;Pro Farmer Crop Tour&nbsp;was far from optimistic. While soybean estimates largely met the August 2022 USDA forecast of 4.53 billion bushels, Pro Farmer’s estimate for corn fell short of government projections, as higher eastern corn belt yield estimates failed to offset drought affected western corn belt yield reductions, with 13.8 billion bushels&nbsp;projected by Pro Farmer&nbsp;based on its in-field scouting, compared with the USDA’s 14.4 billion bushel forecast.</p>
<p>Lower production would need to be offset by higher grain prices for US farmers to generate the cash income they need to finance the supply of inputs, rent farmland, and purchase farm equipment for the 2023 planting season. As we highlighted in our previous report, farmer profit per acre is already expected to decline dramatically in 2023 compared with 2020-22 and constraints on availability of fertilizers (see above) and likely continued price increases in pesticides, thanks in part to record energy and natural gas costs in Europe and China and exacerbated by short-sighted government actions that further constrain production, may erode it further, possibly prompting more US farmers to not plant crops next year.</p>
<p>To the extent there is a silver lining, these developments may provide further opportunities for bio-based ag inputs, such as those manufactured and sold by BIOX and BHIL, to gain share in the market due to both better availability and closer price parity with inflating chemicals-based alternatives. Additionally, as profitability of conventional grain farming shrinks, more row crop acres may be transitioned to organic farming, with crops thus commanding a premium in the marketplace, which may help offset higher costs and improve profitability.</p>
<p>Speaking of organic produce, it appears that input cost inflation is also affecting this sector of the ag industry and&nbsp;participants are dealing with many of the same issues&nbsp;conventional crop producers are struggling with, in terms of transportation costs and logistics. However, the well-entrenched wellness trend is helping keep sales volumes positive Y/Y and&nbsp;retail price inflation for organic produce&nbsp;is only half that of conventional alternatives.</p>
<h2>Battery Materials &amp; Energy Transformation</h2>
<p>Where to charge the growing EV fleet?&nbsp;Even as EV production and sales continue to ramp up, with&nbsp;US sales growing 41%&nbsp;Y/Y through the first half of the year, concerns are increasing over the slow pace of charging stations rollout and their dependability, or lack thereof. Industry concerns are centered around the obstacles the absence of sufficient reliable charging points may have on the&nbsp;pace of adoption of EV technology by consumers. While efforts are being made to alleviate that problem, such as&nbsp;SK’s recent investment of $100 million&nbsp;in US company Atom Power, other challenges arise. Specifically, as EV fleets grow, so does the demand for electricity to charge them. Availability of charging stations aside, availability of electrical power is becoming an issue, especially against the background of supply dislocations caused by the Russian invasion of Ukraine and subsequent NATO and EU sanctions. In China, where EV fleet growth is the fastest, but power infrastructure and capacity are lacking,&nbsp;Tesla and Nio are suspending EV charging services&nbsp;as&nbsp;governments ration electricity supply. Clearly, more thought needs to be given to ensuring that the ramp-up in EVs is accompanied by investments into charging networks, electricity production and grid integrity, if the promise of green transportation is to be realized.</p>
<p>Battery material availability still an issue.&nbsp;We can add&nbsp;copper to the list of critical metals for the EV battery industry&nbsp;that are projected to be in short supply just as EV market growth is accelerating. It is becoming increasingly clear that to keep up with expected demand, robust end-of-life battery recycling programs and technologies will be needed. As the lithium battery recycling industry is still in its infancy, several technologies for efficiently processing and recovering critical metals and other components from end-of-life batteries are being developed. Recently, an R&amp;D program at&nbsp;Worcester Polytechnic Institute (WPI) has developed a sustainable lithium recovery process&nbsp;that can selectively leach and recover lithium with formic acid before recycling valuable metals. While commercialization is likely still years away, the acuteness of the supply problem should keep R&amp;D dollars flowing into similar academic and private research programs, as well as proof of concept and pilot production. In the meantime, governments around the world are taking steps to ensure their countries are positioned to capture their share of the economic opportunity inherent in such once-in-a-century transformations. While specific approaches vary, governments in emerging economies are increasingly opting for state-run enterprises to control the mining of materials required for the global energy market. Most recently, the&nbsp;Mexican government founded a state-owned company&nbsp;to extract and market lithium in the country. Time will tell whether government control or free enterprise is the best vehicle (pun intended) for achieving the sustainability goals and commitments and meet consumer demand in the most efficient fashion.</p>
<p>Not putting all the eggs into the BEV basket.&nbsp;While battery powered vehicles (BEVs), along with hybrid (HEV) and plug-in hybrid (PHEV) vehicles based on lithium batteries as a power source, dominate the current New Energy Vehicle (NEV) market, to borrow Chinese terminology, the automotive industry keeps looking at alternatives. One such alternative has been fuel cell technology, which combines oxygen and hydrogen to produce electricity with water vapor as the only emission. Toyota, long the champion of this approach to sustainable transportation architecture, has been recently joined by&nbsp;BMW, which is adding hydrogen fuel cell-based models&nbsp;to its proposed New Class (Neue Klasse)&nbsp;of electric vehicle platforms. Let the technology competition begin!</p>
<h2>Chemicals and Materials Technology in the News</h2>
<p>Architectural coatings market growth intact.&nbsp;A report by&nbsp;Research and Markets forecasts that global demand for architectural coatings&nbsp;will continue to grow at above-GDP rates, driven by residential construction and remodeling, as well as commercial and infrastructure projects. The global market for architectural coatings, estimated at $64.2 billion in 2022, is projected to grow at a 4.9% CAGR through 2026, reaching $79.5 billion by 2026. While this is a positive for PPG, Masco (NYSE: MAS), which supplies Behr and Kilz brand paints to Home Depot (NYSE: HD), and Berkshire Hathaway’s Benjamin Moore paint, it is particularly impactful for SHW, which dominates the paint market in the US and is one of the leading global suppliers of architectural coatings. Furthermore, with the Do-It-For-Me&nbsp;(DIFM) trend growing once more in the US&nbsp;in the wake of the COVID lockdowns, SHW may benefit disproportionately, given its extensive company-owned contractor paint stores across the country and in Canada.</p>
<p>Plastics evolution.&nbsp;While plastics have been around for nearly a century, the industry is continuing to develop and evolve. In recent years, much of the effort has been centered around two areas, both aiming to reduce the environmental impact of plastic production and its impact on the ecosystem in post-production use. The first such area is substituting oil and natural gas as a starting point for most plastics production with a bio-based alternative, collectively known as bioplastics. With growing government regulations around net-zero, the circular economy and sustainability companies, especially consumer brand owners, have been working to incorporate such products into their supply chain. However, as with other areas of environmentally driven transformation, such as the EV market,&nbsp;demand for alternative sources of plastics&nbsp;is not keeping up with supply. The good news is that companies engaged in the commercialization of bioplastics have a clear pathway to growth, provided sufficient capital is made available. The bad news, of course, is that much of the technology remains to be proven at commercial scale and may not be the most efficient way to meet government and consumer sustainability goals in the near to mid-term.</p>
<p>The other alternative to using fossil fuels to produce basic plastic resins is, of course, recycling of existing plastic waste, The approach also addresses the issue of the billions of tons of plastic already in the environment. Earlier this week, we sat down with one company doing something about it—Loop Industries (see below)—which is a pioneer in low energy molecular recycling of PET and polyester. While Loop should become a major player in the plastics recycling industry, it is not alone.&nbsp;Honeywell (NYSE: HON) has been working on plastic recycling as well, moving from proof of concept to pilot plant to now getting ready to commercialize its process globally. Other innovators continue to emerge, bringing their R&amp;D skills to bear to build a better mousetrap when it comes to economic recycling of pesky plastics. One such company is Finnish Olefy, which is working to&nbsp;commercialize a gasification process to break down plastic waste&nbsp;into its constituents in an effort to crate virgin-like resins. While Olefy’s process appears more generic than Loop’s PET/polyester-specific process, it requires very high temperatures to run, giving Loop an advantage from an operating cost and environmental impact perspective. The good news for all these companies is that, at least in the short term,&nbsp;prices of plastic scrap are continuing to decline, placing these and other plastic recyclers in an enviable position in today’s inflationary environment of easing input costs.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;UBS raised its price target (PT) to $308 from $265 and maintained its Neutral rating.</p>
<p>ECL –&nbsp;Evercore ISI reduced its PT to $190 from $200 and maintained its In-Line rating.</p>
<p>HXL –&nbsp;Berenberg Bank raised its PT to $74 from $65 and reiterated its Buy recommendation.</p>
<p>LTHM –&nbsp;CFRA upgraded the stock to Buy from Hold and raise its PT to $33 from $28.</p>
<p>RMP –&nbsp;BMO raised its PT to $111 from $104 and reiterated its Outperform rating; UBS raised its PT to $105 from $99 and reiterated its Buy recommendation.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)</p>
<p>Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)</p>
<p>Fireside Chat with Management of Loop Industries (NASDAQ: LOOP)</p>
<p>Fireside Chat with Management of Westwater Resources (NYSE: WWR)</p>
<p>Initiation of Coverage – Westwater Resources (NYSE: WWR)</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS

WTR-CMI last week.&nbsp;Propelled by lithium stocks that are benefiting from resumed price increases and continuing growth in EV production, our WTR-CMI index of 30 chemicals and materials stocks held its ground last week by pulling back only 1.3%, compared with the declines of the Russell 2000 and the S&amp;P 500 of 2.9% and 4.0%, respectively. On Y/Y bases, our index has reached parity (up 0.1%), while both the Russell 2000 and the S&amp;P 500 remained underwater by (14.2%) and (9.2%), respectively.
Damn the torpedoes.&nbsp;Undeterred by continuing issues with obtaining state and local permits in North Carolina, a process that is expected to last into 2023,&nbsp;PLL has invested $100 million in land&nbsp;purchases in the region of its future lithium mine, which investors may see as management’s vote of confidence in the ultimate positive resolution of its permitting process.
Dual wet blankets in ag market.&nbsp;Affected by high natural gas prices in Europe, Yara (OTC: YARIY), one of Europe’s largest fertilizer producers, is&nbsp;curtailing ammonia production&nbsp;across its network of plants, likely putting upward pressure on fertilizer prices heading into the 2023 ag season. Not to be outdone, the&nbsp;Trudeau government in Canada has put forth a “recommendation”&nbsp;for its farmers to use less fertilizer (thus affecting yields) or face the consequence of being excluded from participation in C$1.5 billion in government financial aid to farmers. Compliance with the recommendation is, of course, purely voluntary.
Energy availability a real concern.&nbsp;Car executives in&nbsp;the UK are growing increasingly concerned&nbsp;with the staggeringly high natural gas and energy prices in the country and their potential impact on both near-term production and the ability to attract needed investment into the country. Energy availability is not just an EU problem as&nbsp;Toyota had to suspend production&nbsp;at its Chinese plant earlier in August due to local energy curtailment policies.
ALB keeps catalysts, realigns bromine and lithium.&nbsp;After completing its strategic review, ALB announced its decision to&nbsp;hold on to its Catalysts business&nbsp;in the form of a wholly owned subsidiary, while also&nbsp;realigning its Bromine and Lithium&nbsp;operations to create two SBUs—one focused on energy storage and one focused on other industrial uses and applications.

WTR-CMI WEEKLY PERFORMANCE

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

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

Mat-Chem Notes for the Week Ended August 28, 2022

KEY HIGHLIGHTS

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

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; August 12 close

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

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

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

KEY HIGHLIGHTS


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

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; August 5 close

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

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

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

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

KEY HIGHLIGHTS


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

WTR-CMI WEEKLY PERFORMANCE

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

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

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

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

KEY HIGHLIGHTS


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

WTR-CMI WEEKLY PERFORMANCE

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

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

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

United States

Balchem Corporation develops, manufactures, and markets specialty performance ingredients for the food, feed, and medical sterilization industries. The Company micro-encapsulates performance ingredients, and also repackages and markets specialty gases. Balchem sells its products through its own sales force, independent distributors, and sales agents.

Axalta Coating Systems Ltd. manufactures, markets and distributes coatings systems. The Company offers products and services which includes paint, color matching tools, application technologies, and customer  training and business management systems. Axalta Coating Systems serves automotive, transportation,  general industrial, and architectural and decorative sectors.

Ashland Global Holdings Inc. operates as a holding company. The Company, through its subsidiaries, produces and distributes chemicals and thermoplastic resins. Ashland Global Holdings serves construction, automotive, energy, and pharmaceutical sectors worldwide.

NewMarket Corporation develops, manufactures, and blends fuel and lubricant additives marketed worldwide to refiners and others who sell petroleum products. The Company's products are used in transportation and industrial equipment.

H.B. Fuller Company manufactures and markets adhesives, sealants, coatings, paints, and other specialty chemical products worldwide.  The Company's products are sold in countries that include North America, Europe, Latin America, the Asia Pacific region, India, the Middle East and Africa.

The Mosaic Company produces and distributes crop nutrients to the agricultural communities located in North America and other countries.  The Company's principal products include concentrated phosphates, and potash.

Cabot Corporation has businesses in chemicals, performance materials, and specialty fluids.  The Company manufactures and sells carbon black, fumed silica, plastics, ink jet colorants, tantalum, niobium, and germanium.  Cabot's specialty fluids business produces and markets cesium formate as a drilling and completion fluid for use in oil and gas well operations.

Olin Corporation manufactures chemicals and ammunition products. The Company manufactures and sells chlorine, caustic soda, sodium hydrosulfite, hydrochloric acid, hydrogen, sodium chlorate, bleach products, and potassium hydroxide. Olin also manufactures products that include sporting ammunition, reloading components, small caliber military ammunition and industrial cartridges.

Element Solutions Inc operates as a specialty chemicals company. The Company manufactures and supplies specialty chemicals used by the electronics, metal and plastic plating, graphic arts, and offshore oil production and drilling industries. Element Solutions serves customers worldwide.

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.

TORAY INDUSTRIES, INC. manufactures yarns, synthetic fibers, and man-made leather used as apparel and industrial materials.  The Company also makes chemical products such as polyester films, engineering plastics, and resin materials.  Toray develops information equipment such as electronic circuit and liquid crystal color filter.

Orica Limited is a diversified manufacturing company.  The Company produces industrial and specialty chemicals, polyethylene, surface coatings for vehicles, food and beverage flavoring and fragrances, packaging and appliances. The Company also supplies explosive and blasting services to the mining, quarrying and construction industries.

Mitsui Chemicals, Inc. manufactures and markets a variety of chemical products. The Company's products include ethylene, propylene and other petrochemicals, basic chemicals, synthetic resins, and fine chemicals.  The Company operates worldwide.

Zhejiang Huafeng Spandex Co., Ltd. manufactures and markets spandex products.

Formosa Chemicals & Fibre Corporation manufactures and markets petrochemical products, nylon fiber, and rayon staple fiber.  Formosa sells its products in Taiwan and exports to Asia.

Satelltte Chemical Co., Ltd. develops, manufactures and sells acrylic acid esters, methacrylic acids, pigment intermediates, acrylic emulsion polymers, super absorbent polymers, and other acrylic downstream products.

TongKun Group Co., Ltd. develops, produces and sells polyester and Terylene filament.  The Company also invests in real estate, finance, business trade and education businesses.

Berger Paints India Limited manufactures and distributes paints, enamels, varnishes, and synthetic resins. The Company's products are used in home, office, factory, interiors, exteriors, metal, wood, plastic, and others.

Sichuan Tianqi Lithium Industries, Inc. develops, manufactures and sells lithium products.  The Company's products include industrial lithium carbonate, battery lithium carbonate, lithium chloride, and lithium hydroxide.

The Fertilisers and Chemicals Travancore Limited manufactures petrochemicals and fertilisers.  The Group's products include Ammonia, Sulphuric Acid, Phosphoric Acid, Ammonium, Urea, Caprolactam, Nitric Acid and Soda Ash.

FMC Corp operates as a diversified research company in the chemical industry. The company offers technology solutions for agricultural, industrial, and consumer markets. FMC Corp offer an array of technologies in research and development to improve delivery of medications, enhance foods and beverages, power batteries, protect crop yields, and advance textile manufacturing.

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Fmc Corp (FMC US)

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