Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

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

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

Equity Research Firm

Thematic (Sector/Industry)

KEY HIGHLIGHTS


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

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; August 5 close

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

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

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

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

KEY HIGHLIGHTS


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

WTR-CMI WEEKLY PERFORMANCE

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

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

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

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

KEY HIGHLIGHTS


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

WTR-CMI WEEKLY PERFORMANCE

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

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

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

<h2>KEY HIGHLIGHTS</h2>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;Weekly volatility on the market continued last week, with the Russell 2000 recouping previous week’s losses by appreciating 3.6% and the S&amp;P 500 almost keeping pace with a 3.0% return. Our WTR-CMI index of 30 chemicals and materials technology companies declined 0.5% for the week and only five stocks managed to equal or exceed the S&amp;P 500’s returns, led by LAC (up 8.0%) and including PLL (up 3.0%), both of whom likely benefited from China’s new BEV incentive program. SHW, AXTA, and PPG were also among last week’s winners, benefiting from signs of easing (sequential) raw material pressures and&nbsp;China’s new car sales bounce in June. PKE’s 2Q22 results and guidance may have disappointed versus expectations, resulting in the stock’s performance (5.4%) last week, while both CMP and KWR investors appear to have taken profit after previous week’s rally in both stocks.</li>
<li>Bio-ag financing.&nbsp;Last week we highlighted recent efforts by established ag-chem companies to build and expand their bio-based businesses. However, capital investments go beyond established players and are increasingly going toward emerging innovators, with close to&nbsp;$900 million being invested in global start-ups, primarily in North America and Europe, and primarily in areas of soil health, pesticides, and technologies that lower production costs. Over time, these companies may become viable stand-alone players or provide an acquisition target for larger, more established bio-ag players, such as BIOX and BHIL.</li>
<li>Government bureaucracies undeterred by reality.&nbsp;While one branch of EU bureaucracy is imposing deadlines and mandates intended to drive the transition away from ICE cars and fossil fuels in general, other&nbsp;branches are putting roadblocks in the way of industries looking to make that happen, such as lithium materials suppliers and battery manufacturers working on developing a regional supply chain of critical materials and components. It’s a good thing the timing of the multi-billion dollar investments being considered by various industry players provides time for the EU to adjust its policies before these investments head elsewhere.</li>
<li>Resin prices ease off.&nbsp;Polyethylene and polypropylene costs declined&nbsp;modestly W/W recently on lower raw material costs and slower demand. This may be an indicator that the worst of RM inflation may be behind.</li>
</ul>
<h2>WTR-CMI WEEKLY PERFORMANCE</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/286/050/original/image_924529663101657754603958.png?1657754605" class="editor-image img-responsive" data-smartkarma-image-id="286050"></figure>
<div class="content-remarks">
<p>Source: YCharts; July 8 close</p>
</div>
<h2>Automotive &amp; Transportation Market</h2>
<p>June new car sales still affected by supply chain issues.&nbsp;The only bright spot in global automotive markets so far has been aforementioned 21% Y/Y predicted increase in new car and light truck registrations in China, which may have been the driver of the PPG and AXTA stock price bounce last week, as China is the largest automotive market in the world and PPG and AXTA are two of the top three automotive coatings suppliers. However, China’s strong showing is being driven largely by pent-up demand from April-May COVID-related lockdowns in the country. In other regions, new car registrations continued to decline on a Y/Y basis in June.&nbsp;Germany saw an 18% decline&nbsp;in Y/Y new car registrations during June,&nbsp;the UK saw a 24% Y/Y drop, making it the lowest June since 1996, and&nbsp;US new car registrations declined 13.5%&nbsp;Y/Y last month,&nbsp;with 2Q22 sales down 20.6%&nbsp;Y/Y and YTD sales down 18.3%. Looking for any silver lining, a recent report noted that semiconductor shortages may have peaked, with the last three months showing&nbsp;stable to slightly declining lead times for chip orders. However, order lead times are still double what they were in 2020 and the impact of chip shortages, COVID lockdowns, and the war in Ukraine are expected to continue to affect the automotive supply chain and thus production into 2023, as noted by the automotive union in Italy, which predicted the country’s&nbsp;Stellantis plants will put out 200,000 fewer cars&nbsp;in 2022 due in large part to supply chain issues.</p>
<h2>EVs &amp; Battery Ecosystem</h2>
<p>Damn the (government regulation) torpedoes – full steam ahead.&nbsp;Apparently undeterred by EU regulators’ efforts to classify lithium salts as reproductive and developmental toxins,&nbsp;VW recently reaffirmed its plans to invest $20 billion&nbsp;in building its battery business, including funding battery manufacturers and raw material suppliers as needed to ensure sufficient quantities of materials to affect its goal of becoming the dominant EV player globally. The plan includes six EU-based battery plants and two North American plants, as well as investments in other battery manufacturers and material suppliers. As part of the commitment, VW was a participant in the recent round of&nbsp;the Northvolt capital raise, which involved $1.1 billion in convertible notes, with proceeds to be used to expand the company’s European battery production. Meanwhile, another aspiring&nbsp;European battery manufacturer, Britishvolt, signed an agreement with South Korean company Posco Chemical for the development and supply of anode and cathode materials for electric car batteries. As previously mentioned, it remains to be seen if car and battery companies’ appetite for capital investment into battery and material infrastructure in the EU will remain should Brussels continue with its plans to raise lithium salts to the category of “substance of very high concern” alongside severely carcinogenic and mutagenic toxins, implying that the EU would want to gradually phase them out by restricting their usage. Regardless, these developments, to the extent they indicate growing capital investment by downstream customers in upstream suppliers, imply upside for such developing material suppliers as PLL, LAC, WWR, and NMG, which may need to rely on partnerships and capital infusions from strategic customers to bring their mine and conversion plant projects to fruition.</p>
<h2>Ag-Chem and Ag-Tech</h2>
<p>The fight for yield continues.&nbsp;Conditions for major row crops in the US, such as corn and soybeans,&nbsp;deteriorated slightly last week. Corn crop conditions were rated good to excellent, declining to 64% from the prior week’s 65%, as 7% of the crop is “silking” compared with the five-year average of 11% for this time. Similarly, in soybeans, crop conditions were rated good to excellent, declining to 63% from the previous week’s 65%, with 16% of the crop blooming, compared with the five-year average of 22% for early July. The triple punch of rain, hail, and high winds that moved through the corn belt in recent days may have been behind the worsening of crop conditions, in addition to providing opportunities for pests to infiltrate damaged plants and rob the fields of yield. However, this may provide an opportunity for&nbsp;ag-chem companies to sell incrementally more&nbsp;in-season insecticides and other pesticides as farmers struggle to maximize their yields to take advantage of high commodity prices and secure sufficient funds to invest into next season’s inputs. We see this as a potential positive for companies such as FMC, which is “over-represented” in insecticides, as well as CTVA and emerging bio-based crop protection suppliers, such as BIOX and BHIL.</p>
<p>Planting decisions being made to maximize returns, as income concerns grow.&nbsp;The Purdue University and CME Group’s&nbsp;Ag Economy Barometer index&nbsp;declined 2 points in June from May to a reading of 97, compared with 137 last June. Fifty-one percent of survey respondents said they expect their farms to be worse off financially a year from now, the most negative response received to this question since data collection began in 2015. Higher input costs and availability of inputs continue to weigh on farmers’ sentiment and expectations. Twenty percent of farmers surveyed indicated that they plan to change their crop mix next year, with most looking to plant more soybeans, as overall input costs are lower in that market compared with corn, largely due to less fertilizer volumes required to produce the crop. Of the farmers who planted winter wheat in the fall of 2021, approximately a quarter said they plan to increase their winter wheat acreage this fall, while 14% of those who did not plant winter wheat last fall said they intend to plant some winter wheat this fall, given the expected shortfall of global wheat supply due to the Russian invasion of Ukraine.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;Deutsche Bank lowered its price target (PT) to $255 from $320 and reiterated its Buy rating.</p>
<p>ASH –&nbsp;Mizuho Securities raised its PT to $138 from $135 and reiterated its Buy rating.</p>
<p>AVNT –&nbsp;Wells Fargo lowered its PT to $63 from $65 but maintained its Overweight recommendation.</p>
<p>LAC –&nbsp;Deutsche Bank lowered its PT to $33 from $36 and reiterated its Buy rating.</p>
<p>LTHM –&nbsp;Deutsche Bank lowered its PT to $24 from $29 and maintained its Hold recommendation.</p>
<p>MTRN –&nbsp;CL King initiated coverage of the stock with a Buy rating and $95 PT; KeyBank lowered its PT to $100 from $106 and reiterated its Outperform rating.</p>
<p>PPG –&nbsp;RBC lowered its PT to $141 from $162 and reiterated its Outperform rating.</p>
<p>RPM –&nbsp;RBC lowered its PT to $86 from $93 and maintained its Sector Perform rating.</p>
<p>SHW –&nbsp;Evercore ISI lowered its PT to $290 from $295 and reiterated its Outperform rating; RBC lowered its PT to $312 from $342 and reiterated its Outperform rating.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Marrone Bio Innovations CEO Kevin Helash</p>
<p>Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates</p>
<p>Initiation of Coverage – Westwater Resources, Inc.</p>
<h2>DISCLOSURES</h2>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the Chemicals &amp; Materials Technology and BioEconomy sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;Weekly volatility on the market continued last week, with the Russell 2000 recouping previous week’s losses by appreciating 3.6% and the S&amp;P 500 almost keeping pace with a 3.0% return. Our WTR-CMI index of 30 chemicals and materials technology companies declined 0.5% for the week and only five stocks managed to equal or exceed the S&amp;P 500’s returns, led by LAC (up 8.0%) and including PLL (up 3.0%), both of whom likely benefited from China’s new BEV incentive program. SHW, AXTA, and PPG were also among last week’s winners, benefiting from signs of easing (sequential) raw material pressures and&nbsp;China’s new car sales bounce in June. PKE’s 2Q22 results and guidance may have disappointed versus expectations, resulting in the stock’s performance (5.4%) last week, while both CMP and KWR investors appear to have taken profit after previous week’s rally in both stocks.
Bio-ag financing.&nbsp;Last week we highlighted recent efforts by established ag-chem companies to build and expand their bio-based businesses. However, capital investments go beyond established players and are increasingly going toward emerging innovators, with close to&nbsp;$900 million being invested in global start-ups, primarily in North America and Europe, and primarily in areas of soil health, pesticides, and technologies that lower production costs. Over time, these companies may become viable stand-alone players or provide an acquisition target for larger, more established bio-ag players, such as BIOX and BHIL.
Government bureaucracies undeterred by reality.&nbsp;While one branch of EU bureaucracy is imposing deadlines and mandates intended to drive the transition away from ICE cars and fossil fuels in general, other&nbsp;branches are putting roadblocks in the way of industries looking to make that happen, such as lithium materials suppliers and battery manufacturers working on developing a regional supply chain of critical materials and components. It’s a good thing the timing of the multi-billion dollar investments being considered by various industry players provides time for the EU to adjust its policies before these investments head elsewhere.
Resin prices ease off.&nbsp;Polyethylene and polypropylene costs declined&nbsp;modestly W/W recently on lower raw material costs and slower demand. This may be an indicator that the worst of RM inflation may be behind.

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; July 8 close

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

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

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

<h2>KEY HIGHLIGHTS</h2>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;The market continued to correct, with both the S&amp;P 500 and Russell 2000 declining 2.4% and 2.5%, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks didn’t quite keep up the pace, losing 2.6% over the course of last week.</li>
<li>Winners and losers.&nbsp;Possibly driven by the prospects of boardroom actions, AVD led our index last week with a 4.1% gain. Overall, only eight of our 30 stocks saw their value increase last week. The declines were led by PLL, which lost 15.5%, along with other lithium stocks in our index, including ALB, LTHM, and LAC (down 5.6%, 5.9%, and 7.0%, respectively), which are beginning to trade like energy stocks in response to announced increases in Saudi Arabian oil production.</li>
<li>Patent fights and boardroom machinations (cont.).&nbsp;FMC continues its legal battles with unlicensed manufacturers of its leading insecticide active ingredient and announced that the Ningbo Intermediate People’s Court in Zhejiang Province, China,&nbsp;granted the company a pre-suit preliminary injunction&nbsp;restraining Zhejiang Yongtai Technology Co. Ltd. from infringing on the chlorantraniliprole (Rynaxypyr®) patent. Meanwhile, Cruiser Capital Advisors responded to the AVD board’s letter to the shareholders with one of its own, accompanied by a&nbsp;presentation filed with the SEC&nbsp;that advocates its position.</li>
<li>String of auto sales declines continued in April.&nbsp;If April new car registration declines in the US, UK, and France were bad, China’s COVID lockdown policies contributed to an even steeper&nbsp;48% drop in Y/Y registrations&nbsp;to the lowest April level in 10 years. The consequences of the invasion of Ukraine and the sanctions that followed were evident in&nbsp;Russia’s 79% Y/Y plunge&nbsp;in new car registrations last month. Even&nbsp;Germany&nbsp;wasn’t spared, with April registrations down 22% Y/Y.</li>
<li>Not quite ready for primetime?&nbsp;Stellantis CEO Carlos Tavares recently spoke at an industry event and&nbsp;expressed apprehension&nbsp;over the rapid growth of EV production, often driven by political considerations, without addressing the other parts of the EV infrastructure, such as charging, mining, and energy grids, which may give rise to problems of their own, suggesting more thought should be given to the execution of the EV transition.</li>
</ul>
<h2>WTR-CMI WEEKLY PERFORMANCE</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/275/517/original/image_84217254721653010732172.png?1653010735" class="editor-image img-responsive" data-smartkarma-image-id="275517"></figure>
<p>Source: YCharts; May 13 close</p>
<h2>Automotive &amp; Transportation</h2>
<p>Bad April results may not be the last.&nbsp;As major auto producing countries finish reporting their April new car sales results, early indications are that May may not show much of an improvement, even as Y/Y comps get slightly easier. Recently,&nbsp;Toyota announced temporary idling&nbsp;of several lines across its plants in Japan, citing COVID lockdowns and supply chain disruptions. The company lowered its production target for the month by approximately 7%. While some supply chain issues are getting resolved, particularly when it comes to European manufacturers, with wire harness producer&nbsp;Leoni getting back close to pre-war levels, semiconductor chip shortages continue to buffet the industry as well, with&nbsp;another 75,300 vehicles axed&nbsp;from global production estimates by AutoForecast Solutions. Consequently, we remain concerned over the performance of PPG, AXTA, FUL, AVNT, and other companies in our sector with significant exposure to the automotive and transportation industry, as weaker end customer volumes may not be fully offset by higher prices, especially now that the US dollar has rallied to multi-year highs against foreign currencies, adding FX risk to earnings and sales forecasts.</p>
<h2>Lithium &amp; EV Ecosystem</h2>
<p>China’s NEV growth hits a snag in April.&nbsp;While April NEV sales in the country were up 50% Y/Y, they&nbsp;were down more than 38% versus March&nbsp;and were the lowest monthly sales so far this year, even when compared with February, which was affected by Chinese Lunar New Year events. The unwinding of COVID lockdowns may allow the Y/Y growth pace to pick up again in May, but we may have to wait until June for the industry to return to high double-digit or<br>triple-digit Y/Y growth of NEVs, especially as vehicle prices are going up due to rapidly rising battery metal and other raw material costs.</p>
<p>Expanding European EV ecosystem.&nbsp;Privately held Green Lithium, a lithium processing company, has published plans to build the&nbsp;UK’s first lithium refinery&nbsp;in northern England. Construction is expected to begin in2023, with production targeted to start in 2024. Full production capacity of 50,000 mt of battery-grade lithium products is expected to be reached in 2026 and is intended to supply the European EV and battery market. Meanwhile, a year after buying land in Germany for the construction of a battery grade-lithium hydroxide processing plant, AMG Lithium GmbH, a subsidiary of the Dutch Advanced Metallurgical Group (AMG),&nbsp;started construction&nbsp;of its lithium hydroxide plant in Bitterfeld-Wolfen<br>(Saxony-Anhalt), with production expected in the fall of 2023 and initial annual production capacity of 20,000 mt, enough to supply 800,000 electric cars. The plant will be capable of expanding production to 100,000 mt over time, as demand warrants.</p>
<p>Rising costs drive consternation and innovation.&nbsp;We previously highlighted Stellantis CEO Carlos Tavares’ concerns over the hurdles the EV industry must clear in the near to mid-term; a somewhat more optimistic view was provided by a&nbsp;recent report analyzing the EV market&nbsp;published by Transportation &amp; Environment, which suggests we have sufficient critical metals infrastructure to meet the expected demand from the EV market at least through the next two to four years, by which time a slew of new mining, refining, converting, and battery production capacity is expected to be brought online. A more&nbsp;granular look at the various metals&nbsp;that go into EV batteries was provided by Davis Index, which highlighted recent geopolitical issues, including the war in Ukraine, and offered a less optimistic view, more in line with that of Mr. Tavares. Regardless of forecasts and assumptions around EV growth and possible projected raw material shortfalls, one thing is certain now: metal prices have skyrocketed over the last two years, which is driving technology decisions today, and may have implications for the long term. Thus,&nbsp;BMW is working to switch to a newer and cheaper battery cell technology&nbsp;that may allow it to cut its battery costs by 30%, while improving energy density of battery packs by at least low double-digit percent versus batteries currently used by Tesla. With higher lithium prices&nbsp;reducing the premium&nbsp;of nickel-cobalt-manganese, or NCM, batteries versus lithium-iron-phosphate, or LFP batteries, auto manufacturers may begin to reconsider sacrificing the performance of NCM packs in favor of lower priced LFP technology for entry level and bargain priced EVs. Meanwhile, research continues on&nbsp;commercializing sodium-ion batteries&nbsp;as an alternative to current lithium-ion technologies, given the obvious price and availability advantages of sodium versus lithium.</p>
<h2>Ag-Chem and Ag-Tech</h2>
<p>Weather takes center stage as US plantings fall behind schedule.&nbsp;The latest USDA report shows that&nbsp;plantings are off to their worst start in nine years, with only 22% the crop planted, which is 28% below the five-year average for this time of year. The news isn’t much better in soybeans, with plantings at 12% being half that of the five-year average. Not surprising,&nbsp;the USDA recently lowered its yield projections for corn, although the soybean outlook still remains robust, with higher planted acres still expected. Historically, it’s been difficult, if not impossible, to catch up with plantings after such a slow start, but even&nbsp;late plantings have a chance to produce higher-than-expected yields. However, record yields still used by the USDA in its projections for corn may not be achievable, suggesting another cut in USDA expectations may be coming. Globally, despite ongoing war,&nbsp;Ukrainian farmers are doing what they can&nbsp;to get their crop into the ground to help avert food shortages at home and have an opportunity to export to countries dependent on Ukraine for crops. Meanwhile, the country awaits the opportunity to export the wheat from its last harvest, which is currently being blocked by Russian blockades of Ukrainian ports.</p>
<h2>Recent WTR Publications</h2>
<p>Bio-ag market update and Marrone Bio Innovations-Bioceres Merger</p>
<p>Marrone Bio Innovations 1Q22 Results</p>
<p>Fireside Chat with Marrone Bio Innovations CEO – Kevin Helash</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;KeyBank raised its price target (PT) to $125 from $198 and reiterated its Underweight recommendation; JP Morgan raised its PT to $235 from $200 and maintained its Neutral rating; Morgan Stanley raised its PT to $135 from $80 and reiterated its Underweight rating; RBC raised its PT to $300 from $276 and reiterated its Outperform rating; Wells Fargo upgraded the stock to Overweight from Equal Weight and raised its PT to $285 from $215.</p>
<p>CTVA –&nbsp;Deutsche Bank raised its PT to $64 from $56 and reiterated its Buy recommendation.</p>
<p>EAF –&nbsp;RBC lowered its PT to $10 from $12 but reiterated its Buy recommendation.</p>
<p>NGVT –&nbsp;Wells Fargo raised its PT to $74 from $70 and maintained its Equal Weight recommendation.</p>
<p>VVV –&nbsp;CFRA lowered its PT to $34 from $40 and reiterated its Buy rating; Citigroup also lowered its PT to $35 from $40 and reiterated its Buy recommendation; JP Morgan upgraded the stock to Overweight from Neutral and established a $36 PT.</p>
<h2>DISCLOSURES</h2>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the Chemicals &amp; Materials Technology and BioEconomy sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;The market continued to correct, with both the S&amp;P 500 and Russell 2000 declining 2.4% and 2.5%, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks didn’t quite keep up the pace, losing 2.6% over the course of last week.
Winners and losers.&nbsp;Possibly driven by the prospects of boardroom actions, AVD led our index last week with a 4.1% gain. Overall, only eight of our 30 stocks saw their value increase last week. The declines were led by PLL, which lost 15.5%, along with other lithium stocks in our index, including ALB, LTHM, and LAC (down 5.6%, 5.9%, and 7.0%, respectively), which are beginning to trade like energy stocks in response to announced increases in Saudi Arabian oil production.
Patent fights and boardroom machinations (cont.).&nbsp;FMC continues its legal battles with unlicensed manufacturers of its leading insecticide active ingredient and announced that the Ningbo Intermediate People’s Court in Zhejiang Province, China,&nbsp;granted the company a pre-suit preliminary injunction&nbsp;restraining Zhejiang Yongtai Technology Co. Ltd. from infringing on the chlorantraniliprole (Rynaxypyr®) patent. Meanwhile, Cruiser Capital Advisors responded to the AVD board’s letter to the shareholders with one of its own, accompanied by a&nbsp;presentation filed with the SEC&nbsp;that advocates its position.
String of auto sales declines continued in April.&nbsp;If April new car registration declines in the US, UK, and France were bad, China’s COVID lockdown policies contributed to an even steeper&nbsp;48% drop in Y/Y registrations&nbsp;to the lowest April level in 10 years. The consequences of the invasion of Ukraine and the sanctions that followed were evident in&nbsp;Russia’s 79% Y/Y plunge&nbsp;in new car registrations last month. Even&nbsp;Germany&nbsp;wasn’t spared, with April registrations down 22% Y/Y.
Not quite ready for primetime?&nbsp;Stellantis CEO Carlos Tavares recently spoke at an industry event and&nbsp;expressed apprehension&nbsp;over the rapid growth of EV production, often driven by political considerations, without addressing the other parts of the EV infrastructure, such as charging, mining, and energy grids, which may give rise to problems of their own, suggesting more thought should be given to the execution of the EV transition.

WTR-CMI WEEKLY PERFORMANCE

Source: YCharts; May 13 close
Automotive &amp; Transportation
Bad April results may not be the last.&nbsp;As major auto producing countries finish reporting their April new car sales results, early indications are that May may not show much of an improvement, even as Y/Y comps get slightly easier. Recently,&nbsp;Toyota announced temporary idling&nbsp;of several lines across its plants in Japan, citing COVID lockdowns and supply chain disruptions. The company lowered its production target for the month by approximately 7%. While some supply chain issues are getting resolved, particularly when it comes to European manufacturers, with wire harness producer&nbsp;Leoni getting back close to pre-war levels, semiconductor chip shortages continue to buffet the industry as well, with&nbsp;another 75,300 vehicles axed&nbsp;from global production estimates by AutoForecast Solutions. Consequently, we remain concerned over the performance of PPG, AXTA, FUL, AVNT, and other companies in our sector with significant exposure to the automotive and transportation industry, as weaker end customer volumes may not be fully offset by higher prices, especially now that the US dollar has rallied to multi-year highs against foreign currencies, adding FX risk to earnings and sales forecasts.
Lithium &amp; EV Ecosystem
China’s NEV growth hits a snag in April.&nbsp;While April NEV sales in the country were up 50% Y/Y, they&nbsp;were down more than 38% versus March&nbsp;and were the lowest monthly sales so far this year, even when compared with February, which was affected by Chinese Lunar New Year events. The unwinding of COVID lockdowns may allow the Y/Y growth pace to pick up again in May, but we may have to wait until June for the industry to return to high double-digit or triple-digit Y/Y growth of NEVs, especially as vehicle prices are going up due to rapidly rising battery metal and other raw material costs.
Expanding European EV ecosystem.&nbsp;Privately held Green Lithium, a lithium processing company, has published plans to build the&nbsp;UK’s first lithium refinery&nbsp;in northern England. Construction is expected to begin in2023, with production targeted to start in 2024. Full production capacity of 50,000 mt of battery-grade lithium products is expected to be reached in 2026 and is intended to supply the European EV and battery market. Meanwhile, a year after buying land in Germany for the construction of a battery grade-lithium hydroxide processing plant, AMG Lithium GmbH, a subsidiary of the Dutch Advanced Metallurgical Group (AMG),&nbsp;started construction&nbsp;of its lithium hydroxide plant in Bitterfeld-Wolfen (Saxony-Anhalt), with production expected in the fall of 2023 and initial annual production capacity of 20,000 mt, enough to supply 800,000 electric cars. The plant will be capable of expanding production to 100,000 mt over time, as demand warrants.
Rising costs drive consternation and innovation.&nbsp;We previously highlighted Stellantis CEO Carlos Tavares’ concerns over the hurdles the EV industry must clear in the near to mid-term; a somewhat more optimistic view was provided by a&nbsp;recent report analyzing the EV market&nbsp;published by Transportation &amp; Environment, which suggests we have sufficient critical metals infrastructure to meet the expected demand from the EV market at least through the next two to four years, by which time a slew of new mining, refining, converting, and battery production capacity is expected to be brought online. A more&nbsp;granular look at the various metals&nbsp;that go into EV batteries was provided by Davis Index, which highlighted recent geopolitical issues, including the war in Ukraine, and offered a less optimistic view, more in line with that of Mr. Tavares. Regardless of forecasts and assumptions around EV growth and possible projected raw material shortfalls, one thing is certain now: metal prices have skyrocketed over the last two years, which is driving technology decisions today, and may have implications for the long term. Thus,&nbsp;BMW is working to switch to a newer and cheaper battery cell technology&nbsp;that may allow it to cut its battery costs by 30%, while improving energy density of battery packs by at least low double-digit percent versus batteries currently used by Tesla. With higher lithium prices&nbsp;reducing the premium&nbsp;of nickel-cobalt-manganese, or NCM, batteries versus lithium-iron-phosphate, or LFP batteries, auto manufacturers may begin to reconsider sacrificing the performance of NCM packs in favor of lower priced LFP technology for entry level and bargain priced EVs. Meanwhile, research continues on&nbsp;commercializing sodium-ion batteries&nbsp;as an alternative to current lithium-ion technologies, given the obvious price and availability advantages of sodium versus lithium.
Ag-Chem and Ag-Tech
Weather takes center stage as US plantings fall behind schedule.&nbsp;The latest USDA report shows that&nbsp;plantings are off to their worst start in nine years, with only 22% the crop planted, which is 28% below the five-year average for this time of year. The news isn’t much better in soybeans, with plantings at 12% being half that of the five-year average. Not surprising,&nbsp;the USDA recently lowered its yield projections for corn, although the soybean outlook still remains robust, with higher planted acres still expected. Historically, it’s been difficult, if not impossible, to catch up with plantings after such a slow start, but even&nbsp;late plantings have a chance to produce higher-than-expected yields. However, record yields still used by the USDA in its projections for corn may not be achievable, suggesting another cut in USDA expectations may be coming. Globally, despite ongoing war,&nbsp;Ukrainian farmers are doing what they can&nbsp;to get their crop into the ground to help avert food shortages at home and have an opportunity to export to countries dependent on Ukraine for crops. Meanwhile, the country awaits the opportunity to export the wheat from its last harvest, which is currently being blocked by Russian blockades of Ukrainian ports.
Recent WTR Publications
Bio-ag market update and Marrone Bio Innovations-Bioceres Merger
Marrone Bio Innovations 1Q22 Results
Fireside Chat with Marrone Bio Innovations CEO – Kevin Helash
Rating and Price Target Changes
ALB –&nbsp;KeyBank raised its price target (PT) to $125 from $198 and reiterated its Underweight recommendation; JP Morgan raised its PT to $235 from $200 and maintained its Neutral rating; Morgan Stanley raised its PT to $135 from $80 and reiterated its Underweight rating; RBC raised its PT to $300 from $276 and reiterated its Outperform rating; Wells Fargo upgraded the stock to Overweight from Equal Weight and raised its PT to $285 from $215.
CTVA –&nbsp;Deutsche Bank raised its PT to $64 from $56 and reiterated its Buy recommendation.
EAF –&nbsp;RBC lowered its PT to $10 from $12 but reiterated its Buy recommendation.
NGVT –&nbsp;Wells Fargo raised its PT to $74 from $70 and maintained its Equal Weight recommendation.
VVV –&nbsp;CFRA lowered its PT to $34 from $40 and reiterated its Buy rating; Citigroup also lowered its PT to $35 from $40 and reiterated its Buy recommendation; JP Morgan upgraded the stock to Overweight from Neutral and established a $36 PT.
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 May 15, 2022

United States

Materion Corporation, through its subsidiaries, produces and supplies high-performance engineered materials.  The Company provides beryllium, beryllium alloys and electronic products, as well as engineered material systems. Materion has manufacturing facilities, service and distribution centers, and research facilities in the United States and internationally.

Price Gauge
52-week Range	0.00 - 0.00
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Materion Corp (MTRN US)

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

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

Water Tower Research

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

KEY HIGHLIGHTS WTR-CMI last week. In what was another positive week for the stock market, both the Russell 2000 and S&P 500 appreciated 4.3%...

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

KEY HIGHLIGHTS WTR-CMI last week. In what was a week of recovery for the market, the S&P 500 and Russell 2000 advanced 2.5% and 3.6%,...

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

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

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Mat-Chem Notes for the Week Ended May 15, 2022

KEY HIGHLIGHTS WTR-CMI last week. The market continued to correct, with both the S&P 500 and Russell 2000 declining 2.4% and 2.5%,...

Water Tower Research

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