Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

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

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

Equity Research Firm

Thematic (Sector/Industry)

<h3>KEY HIGHLIGHTS</h3>
<ul>
<li>WTR-CMI last week.&nbsp;The market gave back last week’s gains, with the S&amp;P 500 and the Russell 2000 losing 3.4% and 5.1%, respectively. Our WTR-CMI index lost 4.7% of its value, with all but one company (KOP: +1%) posting price declines. Lithium stocks led our index downward on stalled lithium prices and slowing momentum in EV growth. LAC’s price may also have reacted to&nbsp;a judge’s ruling&nbsp;in the Thacker Pass case.</li>
<li>Another week, another deal in ag.&nbsp;FMC announced&nbsp;a strategic collaboration&nbsp;with privately held Micropep Technologies to co-develop bioherbicide solutions to control herbicide-resistant weeds for corn and soybeans, where resistance to glyphosate and other broad spectrum herbicides is growing.</li>
<li>WWR’s initial assessment of Coosa mine.&nbsp;The company has completed the initial assessment for the Coosa graphite deposit in Alabama and filed its S-K 1300 Technical Report Summary on&nbsp;Form 8-K&nbsp;with the SEC, showing 754,000 short tons (st) of graphite material indicated and 2,998,000 st inferred, based on 87% recovery and ~3% concentration of graphite in the deposit, with the economics of extracting vanadium still to be determined.</li>
<li>November divergence.&nbsp;China&nbsp;was the outlier in November, with new vehicle registrations declining 9.2%, compared with 31% growth&nbsp;in Germany, 23.5% growth&nbsp;in the UK, a 14.7% improvement&nbsp;in Italy, and 9.7% growth Y/Y&nbsp;in the US, demonstrating the impact of China’s zero-COVID lockdown measures on the country’s economy.</li>
<li>Mixed bag of market indicators.&nbsp;While the overall&nbsp;construction market in the US&nbsp;is likely to remain steady in 2023, thanks to expected increases in infrastructure spending, higher construction costs as well as growing economic uncertainty do not bode well for 2024-25.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/315/771/original/image_28204332101671053185783.png?1671053187" class="editor-image img-responsive" data-smartkarma-image-id="315771"></figure>
<div class="content-remarks">
<p>Source: Y-Charts as of December 9 close</p>
</div>
<h2>Ag-Tech &amp; Bio-Ag</h2>
<p>Who owns farmland?&nbsp;Purchasing of US farmland by foreign entities, whether private investors or companies, has been in the news lately, especially regarding security concerns raised by government-affiliated Chinese entities buying (or attempting to buy) farmland in the US that is located conspicuously close to sensitive military installations, including our army and air force bases. While the total&nbsp;amount of American farmland owned by foreign entities, including China, is relatively small, it has been on the rise, with Chinese ownership specifically, increasing from zero to 1% over the past decade alone.</p>
<p>Potash players taking differing approaches.&nbsp;Last week, we highlighted Nutrien’s (NYSE: NTR) concerns over the potential shortfall of potash fertilizer in the wake of the continuing conflict in Ukraine and therefore continued sanctions on major potash producing nations—Russia and Belarus. However, it does not appear all western potash producers are on the same page when it comes to dealing with current conditions of high price-driven demand destruction, which resulted in the 2022 crop season ending with higher-than-anticipated fertilizer inventories due to the drop-off in late season demand, as farmers reduced or skipped fertilizer applications due to skyrocketing costs. Mosaic (NYSE: MOS), for example, is temporarily&nbsp;cutting production&nbsp;at its potash mine, to work off higher channel inventories ahead of next season’s prebuying, possibly in the hopes of stabilizing, if not reversing, recent price declines of fertilizers.</p>
<h2>Automotive &amp; Transportation</h2>
<p>More NGOs join the call to get out of China.&nbsp;COVID-induced production disruptions and ongoing lockdown policies of Chinese government continue to wreak havoc with the automotive supply chain. That, combined with growing awareness of the oversized role China plays in supply and logistics of industry-critical parts and components, is leading to growing calls for industries, including the automotive industry, to domesticate their supply chains and reduce dependence on China. Most recently,&nbsp;UAW highlighted&nbsp;the fact that many of the products used by the auto industry are manufactured in the Xinjiang region of China, likely with forced labor, adding another moral imperative for relocating the supply chain out of China. Given UAW’s weight in Democrat politics, we hope the call resonates with federal lawmakers and leads to something similar to Canada’s recent efforts to disentangle its industry from China, at least in the area of EVs and electrification in general.</p>
<h2>Energy &amp; Battery Technology</h2>
<p>Critical materials industry investments continue apace.&nbsp;Sigma Lithium (NASDAQ: SGML) announced results of an&nbsp;economic study&nbsp;that increased its mineral reserves by 63% and tripled net present value (NPV) of its resource to $15.3 billion, as well as a successful round of debt financing that raised $100 million the company will use to develop its resource and build out its production infrastructure, potentially positioning the company as one of the largest integrated (mine to battery materials) lithium suppliers in the world. Meanwhile, in an effort to avoid confrontations similar to the ones being experienced by LAC in connection with its Nevada lithium mine, Arizona Lithium (OTC: AZFAF) has&nbsp;entered into an alliance&nbsp;with Navajo Nation, a Native American mining services firm, to help develop its flagship Big Sandy lithium project in Arizona, which may smooth the path toward development of the resource, helping to localize lithium production in the US. Growing efforts to reduce the EV industry’s dependence on China have resulted in the Canadian federal government’s recent&nbsp;unveiling of its Critical Minerals Strategy, which seeks to encourage and help fund development of mineral resources in the country, especially those critical to the ongoing energy transformation in an effort to create a North American hub for critical battery materials production as our northern neighbor seeks to keep up with the US government’s initiatives included in the Inflation Reduction Act.</p>
<p>It’s not just lithium.&nbsp;Speaking of investments to ensure adequate supply of battery materials required to meet expected demand from EV and renewable energy growth,&nbsp;BMW is investing in an American start-up Jetty Resources, whose proprietary technology allows for the extraction of copper from secondary sources, including waste materials, to extract copper while generating significantly less CO2 in the process, making for a more environmentally sustainable metal production. The industry’s growing awareness that not just lithium and cobalt, but other metals, like copper and nickel (not to mention graphite) are nearing an inflection point where battery demand will account for majority of metal use and the possibility of supply shortages if the EV-driven growth in demand continues at projected pace. Speaking of the nickel market, the recent Benchmark Mineral Intelligence Conference in LA saw&nbsp;nickel players comment&nbsp;on the difficulty the industry is encountering in developing sufficiently robust domestic (or at least non-Chinese and non-Indonesian) production capacity and supply chain. In this context, the efforts by TMC the metals company (NASDAQ: TMC) to develop what may turn out to be one of the largest, albeit unconventional, nickel resources in the world appear even more critical to the future of electrification, especially considering the lower CO2 impact TMC’s resource development is projected to have. The issues of&nbsp;emissions in the production of batteries&nbsp;and rational consumption of rare metals are gaining increased attention from the industry, government agencies, and investors, which may further benefit companies capable of providing metals whose prosecution is advantaged from the ESG perspective, which we see as a positive for TMC.</p>
<p>The best cure for high prices.&nbsp;2022 saw an unprecedented increase in demand and therefore the price of battery metals, particularly lithium, nickel, and cobalt. While customers (cell and battery manufacturers) had to grit their teeth and bear the burden of skyrocketing metal costs, market forces appear to be doing what market forces do—adjust demand to meet available supply at a given price. Consequently, as 2022 is coming to an end, we’ve seen the market react to the&nbsp;first ever increase in battery pack prices, driven primarily by lithium costs. As expert analysis predicted EVs reaching price parity with ICE vehicles when battery costs decline to $100/kWh, the increase in battery costs seen in 2022 has pushed off the timetable for that achievement from 2024 to 2026. Furthermore, higher lithium and therefore battery costs are making it more difficult for&nbsp;“entry level” EVs to gain a foothold in the market, which may slow EV sales in emerging economies, as well as raise barriers to entry for new EV consumers in developed regions. The results of these trends are the slowing growth of EV adoption, expected in 4Q22, and signs of inventory build in lithium materials for battery production,&nbsp;as flagged by China’s BYD. It is therefore not surprising that the lithium market has taken a bit of a break from its unrelenting upward march through 2022. While&nbsp;lithium prices are likely to stay elevated, at least through 2023-24, until additional capacity is brought online globally, the metal price may have reached a new plateau for the time being, which may take the wind out of the valuation levels of some of the lithium producers, particularly companies still in the development stage.</p>
<h2>Rating &amp; Price Target Changes</h2>
<p>CTVA –&nbsp;RBC raised its price target (PT) to $79 from $78 and reiterated its Outperform rating.</p>
<p>VVV –&nbsp;RBC initiated coverage of the stock with an Outperform rating and $39 PT.</p>
<h2>Recent Reports &amp; Future Events</h2>
<p>Westwater Resources, Inc. (WWR) – Fireside Chat: VP of Sales &amp; Marketing Jay Wago, December 13, 2022, at 11:30 am EST</p>
<p>TMC the metals company (TMC) – Management Series Report – Collecting Nodules and Scientific Data as Regulation Timeline Nears</p>
<p>TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need</p>
<p>Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS

WTR-CMI last week.&nbsp;The market gave back last week’s gains, with the S&amp;P 500 and the Russell 2000 losing 3.4% and 5.1%, respectively. Our WTR-CMI index lost 4.7% of its value, with all but one company (KOP: +1%) posting price declines. Lithium stocks led our index downward on stalled lithium prices and slowing momentum in EV growth. LAC’s price may also have reacted to&nbsp;a judge’s ruling&nbsp;in the Thacker Pass case.
Another week, another deal in ag.&nbsp;FMC announced&nbsp;a strategic collaboration&nbsp;with privately held Micropep Technologies to co-develop bioherbicide solutions to control herbicide-resistant weeds for corn and soybeans, where resistance to glyphosate and other broad spectrum herbicides is growing.
WWR’s initial assessment of Coosa mine.&nbsp;The company has completed the initial assessment for the Coosa graphite deposit in Alabama and filed its S-K 1300 Technical Report Summary on&nbsp;Form 8-K&nbsp;with the SEC, showing 754,000 short tons (st) of graphite material indicated and 2,998,000 st inferred, based on 87% recovery and ~3% concentration of graphite in the deposit, with the economics of extracting vanadium still to be determined.
November divergence.&nbsp;China&nbsp;was the outlier in November, with new vehicle registrations declining 9.2%, compared with 31% growth&nbsp;in Germany, 23.5% growth&nbsp;in the UK, a 14.7% improvement&nbsp;in Italy, and 9.7% growth Y/Y&nbsp;in the US, demonstrating the impact of China’s zero-COVID lockdown measures on the country’s economy.
Mixed bag of market indicators.&nbsp;While the overall&nbsp;construction market in the US&nbsp;is likely to remain steady in 2023, thanks to expected increases in infrastructure spending, higher construction costs as well as growing economic uncertainty do not bode well for 2024-25.

WTR-CMI WEEKLY PERFORMANCE


Source: Y-Charts as of December 9 close

Ag-Tech &amp; Bio-Ag
Who owns farmland?&nbsp;Purchasing of US farmland by foreign entities, whether private investors or companies, has been in the news lately, especially regarding security concerns raised by government-affiliated Chinese entities buying (or attempting to buy) farmland in the US that is located conspicuously close to sensitive military installations, including our army and air force bases. While the total&nbsp;amount of American farmland owned by foreign entities, including China, is relatively small, it has been on the rise, with Chinese ownership specifically, increasing from zero to 1% over the past decade alone.
Potash players taking differing approaches.&nbsp;Last week, we highlighted Nutrien’s (NYSE: NTR) concerns over the potential shortfall of potash fertilizer in the wake of the continuing conflict in Ukraine and therefore continued sanctions on major potash producing nations—Russia and Belarus. However, it does not appear all western potash producers are on the same page when it comes to dealing with current conditions of high price-driven demand destruction, which resulted in the 2022 crop season ending with higher-than-anticipated fertilizer inventories due to the drop-off in late season demand, as farmers reduced or skipped fertilizer applications due to skyrocketing costs. Mosaic (NYSE: MOS), for example, is temporarily&nbsp;cutting production&nbsp;at its potash mine, to work off higher channel inventories ahead of next season’s prebuying, possibly in the hopes of stabilizing, if not reversing, recent price declines of fertilizers.
Automotive &amp; Transportation
More NGOs join the call to get out of China.&nbsp;COVID-induced production disruptions and ongoing lockdown policies of Chinese government continue to wreak havoc with the automotive supply chain. That, combined with growing awareness of the oversized role China plays in supply and logistics of industry-critical parts and components, is leading to growing calls for industries, including the automotive industry, to domesticate their supply chains and reduce dependence on China. Most recently,&nbsp;UAW highlighted&nbsp;the fact that many of the products used by the auto industry are manufactured in the Xinjiang region of China, likely with forced labor, adding another moral imperative for relocating the supply chain out of China. Given UAW’s weight in Democrat politics, we hope the call resonates with federal lawmakers and leads to something similar to Canada’s recent efforts to disentangle its industry from China, at least in the area of EVs and electrification in general.
Energy &amp; Battery Technology
Critical materials industry investments continue apace.&nbsp;Sigma Lithium (NASDAQ: SGML) announced results of an&nbsp;economic study&nbsp;that increased its mineral reserves by 63% and tripled net present value (NPV) of its resource to $15.3 billion, as well as a successful round of debt financing that raised $100 million the company will use to develop its resource and build out its production infrastructure, potentially positioning the company as one of the largest integrated (mine to battery materials) lithium suppliers in the world. Meanwhile, in an effort to avoid confrontations similar to the ones being experienced by LAC in connection with its Nevada lithium mine, Arizona Lithium (OTC: AZFAF) has&nbsp;entered into an alliance&nbsp;with Navajo Nation, a Native American mining services firm, to help develop its flagship Big Sandy lithium project in Arizona, which may smooth the path toward development of the resource, helping to localize lithium production in the US. Growing efforts to reduce the EV industry’s dependence on China have resulted in the Canadian federal government’s recent&nbsp;unveiling of its Critical Minerals Strategy, which seeks to encourage and help fund development of mineral resources in the country, especially those critical to the ongoing energy transformation in an effort to create a North American hub for critical battery materials production as our northern neighbor seeks to keep up with the US government’s initiatives included in the Inflation Reduction Act.
It’s not just lithium.&nbsp;Speaking of investments to ensure adequate supply of battery materials required to meet expected demand from EV and renewable energy growth,&nbsp;BMW is investing in an American start-up Jetty Resources, whose proprietary technology allows for the extraction of copper from secondary sources, including waste materials, to extract copper while generating significantly less CO2 in the process, making for a more environmentally sustainable metal production. The industry’s growing awareness that not just lithium and cobalt, but other metals, like copper and nickel (not to mention graphite) are nearing an inflection point where battery demand will account for majority of metal use and the possibility of supply shortages if the EV-driven growth in demand continues at projected pace. Speaking of the nickel market, the recent Benchmark Mineral Intelligence Conference in LA saw&nbsp;nickel players comment&nbsp;on the difficulty the industry is encountering in developing sufficiently robust domestic (or at least non-Chinese and non-Indonesian) production capacity and supply chain. In this context, the efforts by TMC the metals company (NASDAQ: TMC) to develop what may turn out to be one of the largest, albeit unconventional, nickel resources in the world appear even more critical to the future of electrification, especially considering the lower CO2 impact TMC’s resource development is projected to have. The issues of&nbsp;emissions in the production of batteries&nbsp;and rational consumption of rare metals are gaining increased attention from the industry, government agencies, and investors, which may further benefit companies capable of providing metals whose prosecution is advantaged from the ESG perspective, which we see as a positive for TMC.
The best cure for high prices.&nbsp;2022 saw an unprecedented increase in demand and therefore the price of battery metals, particularly lithium, nickel, and cobalt. While customers (cell and battery manufacturers) had to grit their teeth and bear the burden of skyrocketing metal costs, market forces appear to be doing what market forces do—adjust demand to meet available supply at a given price. Consequently, as 2022 is coming to an end, we’ve seen the market react to the&nbsp;first ever increase in battery pack prices, driven primarily by lithium costs. As expert analysis predicted EVs reaching price parity with ICE vehicles when battery costs decline to $100/kWh, the increase in battery costs seen in 2022 has pushed off the timetable for that achievement from 2024 to 2026. Furthermore, higher lithium and therefore battery costs are making it more difficult for&nbsp;“entry level” EVs to gain a foothold in the market, which may slow EV sales in emerging economies, as well as raise barriers to entry for new EV consumers in developed regions. The results of these trends are the slowing growth of EV adoption, expected in 4Q22, and signs of inventory build in lithium materials for battery production,&nbsp;as flagged by China’s BYD. It is therefore not surprising that the lithium market has taken a bit of a break from its unrelenting upward march through 2022. While&nbsp;lithium prices are likely to stay elevated, at least through 2023-24, until additional capacity is brought online globally, the metal price may have reached a new plateau for the time being, which may take the wind out of the valuation levels of some of the lithium producers, particularly companies still in the development stage.
Rating &amp; Price Target Changes
CTVA –&nbsp;RBC raised its price target (PT) to $79 from $78 and reiterated its Outperform rating.
VVV –&nbsp;RBC initiated coverage of the stock with an Outperform rating and $39 PT.
Recent Reports &amp; Future Events
Westwater Resources, Inc. (WWR) – Fireside Chat: VP of Sales &amp; Marketing Jay Wago, December 13, 2022, at 11:30 am EST
TMC the metals company (TMC) – Management Series Report – Collecting Nodules and Scientific Data as Regulation Timeline Nears
TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need
Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look
DISCLOSURES

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

Mat-Chem Notes For the Week Ended December 9, 2022

<h3>KEY HIGHLIGHTS</h3>
<ul>
<li>WTR-CMI last week.&nbsp;The market rebounded last week, with both the S&amp;P 500 (up 2.0%) and the Russell 2000 (up 1.6%) ending the week higher. Our WTR-CMI index outperformed the broader market by appreciating 2.9% during the week, led by a 27.3% gain by EAF, as the stock recovered from the prior weeks’ sell-off and benefited from the restart of its Mexican plant. Lithium stocks continued to underperform on concerns of a slower uptake of EVs given escalating costs and growing economic uncertainty, with LTHM, LAC, and ALB losing 2-4% of their value last week.</li>
<li>Herbicide optionality.&nbsp;Although EU member countries failed to agree on a one-year extension of&nbsp;marketing authorization for glyphosate—the workhouse of broad spectrum herbicides the world over—the College of Commissioners could now approve the rules of extension on its own to bridge the time to mid-2023 when the European Food Safety Authority’s (EFSA) reassessment of the active substance is expected to come out. Meanwhile,&nbsp;CTVA announced&nbsp;the launch of a new post-emergent broad spectrum herbicide formulation for corn that includes three non-glyphosate ingredients, as the ag industry is preparing for the future without glyphosate.</li>
<li>Europe’s commercial vehicle sales fail to recover.&nbsp;While the passenger vehicle market in Europe may have stabilized, with modest growth in the last two months,&nbsp;commercial vehicle registrations&nbsp;continued to decline in October and are down 16.8% YTD.</li>
<li>Canada’s EV sales lag.&nbsp;Despite an ambitious goal of 60% of new vehicle sales being EVs by 2030, the&nbsp;country is trailing other nations&nbsp;in EV adoption, and would need to see the EV sales pace pick up from ~100,000 annually in 2022 to 1 million by 2030, a 10-fold increase over eight years. To come even close, the country would need to invest in charging infrastructure and higher consumer rebates.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/313/140/original/image_82077716821669845010899.png?1669845013" class="editor-image img-responsive" data-smartkarma-image-id="313140"></figure>
<div class="content-remarks">
<p>Source: Y-Charts as of November 25 close</p>
</div>
<h2>Ag-Tech and Bio-Ag</h2>
<p>Acceptance of biologics continues to accelerate.&nbsp;Record-high agricultural input costs, especially those of the energy-dependent fertilizer sector, have been a source of concern for farmers the past two years. With the war in Ukraine continuing to limit some fertilizer availability due to anti-Russian and Belorussian sanctions and the high cost and limited availability of European energy due to the curtailment of Russian oil and gas imports, 2023 isn’t expected to offer much in the way of cost relief for the stressed farmer. However, a positive byproduct of this trend is farmers’ willingness to explore all options when it comes to reducing their input costs, while maximizing their fields’ yields. One way to accomplish that is through the use of biologics, such as bio-based soil conditioners, inoculants, and pesticides, which can result in&nbsp;lower use of fertilizers&nbsp;and other chemical-based crop inputs. Another area where biologics are making strong inroads is in seed treatment applications. We’ve previously written about BIOX’s ability, especially after merging with Marrone Bio Innovations, to offer farmers 100% biologic-based seed treatment options. Another private company, US based Indigo, recently commercialized a&nbsp;bio-based fungicide&nbsp;for use in seed treatment applications. We see growing acceptance of biological crop inputs by markets outside organic and produce farming, including those in row crops and cereals, as a sustainable driver of growth for bio-innovator companies such as BIOX and BHIL, as well as biotech divisions of ag-chem majors, such as FMC, CTVA, and AVD.</p>
<h2>Automotive &amp; Transportation</h2>
<p>Semiconductor shortage and COVID lockdowns continue to crimp auto production.&nbsp;Toyota, the world’s largest automaker,&nbsp;reduced its production plans for December&nbsp;and reduced its FY22 (Mar-23) annual production goal by half a million units, as semiconductor shortages and other supply chain issues stubbornly persist. Similarly, UK’s Jaguar-Land Rover&nbsp;announced reduced output&nbsp;at its UK factories through March 2023, likewise citing chip shortages as the reason. In China, repeated, severe, and often arbitrary COVID-related shutdowns, which are sparking significant unrest in the country, are also affecting companies’ abilities to operate in the region. VW recently&nbsp;lowered its annual sales target&nbsp;in China by 14% from 3.85 million units to 3.3 million, citing China’s zero-COVID policy for the expected shortfall.</p>
<p>With semiconductor and other supply-chain issues not expected to be resolved until late 2023 and with the spreading civil unrest in China and potential for severe government actions against its citizens resulting in further production disruptions and logistical snarls, the automotive industry, including the burgeoning EV sector, may experience slower-than-expected recovery/growth over the next six to nine months, suggesting continuing volume pressures on Tier-1 automotive suppliers, including automotive coatings manufacturers such as PPG and AXTA, as well as material suppliers such as FUL, AVNT, HXL, and others. Lower auto build rates and civil unrest may also constrain demand for steel, which would be a negative for EAF and MTX.</p>
<h2>Energy &amp; Battery Technology</h2>
<p>Welcome to the real world.&nbsp;We’ve repeatedly highlighted in our publications our concern with the growing influence of China as a hub for production of everything EV and renewable energy related, with the country controlling 60-100% of production of everything from graphite and lithium to battery components to finished batteries essential to EV and energy storage industries. It seems that geopolitical and supply chain realities exposed by the COVID pandemic and Russia’s invasion of Ukraine have finally woken up Western governments to these facts.</p>
<p>In our previous issues, we talked about the Canadian government’s efforts to remove Chinese influence from its domestic energy, battery, and materials industry. More recently, in Germany, the Association of German Chambers of Industry and Commerce is asking the government to develop new policies that would enable the country’s economy and its industries to&nbsp;lower their dependence of China. Already, Germany’s foreign ministry is considering&nbsp;tightening rules around disclosure&nbsp;of information and performance of stress tests for companies in various industries with exposure to China, including the automotive sector. As every action procures a reaction, the initiative may result in even greater difficulty for Germany’s auto OEMs in penetrating the Chinese EV market—the world’s largest at this moment—where Germany’s brands are already&nbsp;struggling to gain share. We believe even more can and needs to be done to reduce China’s control over the world’s ability to transition to new energy platforms, whether in transportation, or energy production.</p>
<p>A recent&nbsp;report from a US investment bank&nbsp;claims the US and EU can end their dependence on China for materials critical to this transition by 2030, based on estimates of required investments and government efforts to direct public funds toward this effort, such as the recently enacted Inflation Reduction Act in the US. While we find this goal not only laudable, but imperative, we are somewhat skeptical of the timetable, as funding is not the only limiting factor in the equation. As we repeatedly highlighted, achieving such goals would appear to necessitate a material revision of existing rules and regulations around mining and processing of metals and recycling end-of-life batteries. Unfortunately, from declaring lithium a carcinogen (as is being considered in the EU), to denying building permits at state and local levels, to sometimes frivolous activist groups’ lawsuits, to trying to delay development of new unconventional battery metal resources, to failing to develop an effective energy policy that would lead to lower energy (and thus production) costs, federal and state governments in the US and Europe seem to be moving in the opposite direction.</p>
<h2>Chemicals &amp; Materials Technology</h2>
<p>We have often maintained that the chemicals and materials industry is not only at the forefront of the efforts to improve the sustainability of manufacturing, lowering its carbon footprint and reliance on petrochemical raw materials, but producing products that enable their customers to do the same. While the plastics industry has been facing significant pressure in the court of public opinion when it comes to the industry’s impact on the environment, it is also the industry that is making the greatest strides in both improving its&nbsp;<a href="https://www.plasticstoday.com/automotive-and-mobility/polyplastics-signals-sustainability-goals?ADTRK=InformaMarkets&amp;utm_source=eloqua&amp;utm_medium=email&amp;utm_campaign=15_NL_PT_Automotive_Edit_Sub_20221123&amp;sp_cid=13872&amp;utm_content=15_NL_PT_Automotive_Edit_Sub_20221123&amp;sp_aid=25259&amp;sp_rid=25509727&amp;sp_eh=8c4df0147173401d7475f6b9df5d9c368c8605c08aa4346c2916fde1dbfaee68" target="_blank" rel="noopener">own sustainability </a>characteristics&nbsp;and providing solutions to improve and thereby accelerate sustainability in other industries, including the rapidly developing&nbsp;EV and charging infrastructure sectors.</p>
<p>We believe companies such as AVNT, LOOP, and FUL, among others, stand to benefit from these trends and opportunities and should be considered by investors looking to participate in the sustainability and energy transformation megatrends currently underway.</p>
<h2>Rating and Price Target Changes</h2>
<p>EAF –&nbsp;BMO raised its price target from $5 to $6 and maintained its Market Perform rating.</p>
<p>Recent Reports and Future Events</p>
<p>Westwater Resources, Inc. (WWR) – Fireside Chat: VP of Sales &amp; Marketing Jay Wago, December 13, 2022, at 11:30 am EST</p>
<p>TMC the metals company (TMC) – Management Series Report – Collecting Nodules and Scientific Data as Regulation Timeline Nears</p>
<p>TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need</p>
<p>Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS

WTR-CMI last week.&nbsp;The market rebounded last week, with both the S&amp;P 500 (up 2.0%) and the Russell 2000 (up 1.6%) ending the week higher. Our WTR-CMI index outperformed the broader market by appreciating 2.9% during the week, led by a 27.3% gain by EAF, as the stock recovered from the prior weeks’ sell-off and benefited from the restart of its Mexican plant. Lithium stocks continued to underperform on concerns of a slower uptake of EVs given escalating costs and growing economic uncertainty, with LTHM, LAC, and ALB losing 2-4% of their value last week.
Herbicide optionality.&nbsp;Although EU member countries failed to agree on a one-year extension of&nbsp;marketing authorization for glyphosate—the workhouse of broad spectrum herbicides the world over—the College of Commissioners could now approve the rules of extension on its own to bridge the time to mid-2023 when the European Food Safety Authority’s (EFSA) reassessment of the active substance is expected to come out. Meanwhile,&nbsp;CTVA announced&nbsp;the launch of a new post-emergent broad spectrum herbicide formulation for corn that includes three non-glyphosate ingredients, as the ag industry is preparing for the future without glyphosate.
Europe’s commercial vehicle sales fail to recover.&nbsp;While the passenger vehicle market in Europe may have stabilized, with modest growth in the last two months,&nbsp;commercial vehicle registrations&nbsp;continued to decline in October and are down 16.8% YTD.
Canada’s EV sales lag.&nbsp;Despite an ambitious goal of 60% of new vehicle sales being EVs by 2030, the&nbsp;country is trailing other nations&nbsp;in EV adoption, and would need to see the EV sales pace pick up from ~100,000 annually in 2022 to 1 million by 2030, a 10-fold increase over eight years. To come even close, the country would need to invest in charging infrastructure and higher consumer rebates.

WTR-CMI WEEKLY PERFORMANCE


Source: Y-Charts as of November 25 close

Ag-Tech and Bio-Ag
Acceptance of biologics continues to accelerate.&nbsp;Record-high agricultural input costs, especially those of the energy-dependent fertilizer sector, have been a source of concern for farmers the past two years. With the war in Ukraine continuing to limit some fertilizer availability due to anti-Russian and Belorussian sanctions and the high cost and limited availability of European energy due to the curtailment of Russian oil and gas imports, 2023 isn’t expected to offer much in the way of cost relief for the stressed farmer. However, a positive byproduct of this trend is farmers’ willingness to explore all options when it comes to reducing their input costs, while maximizing their fields’ yields. One way to accomplish that is through the use of biologics, such as bio-based soil conditioners, inoculants, and pesticides, which can result in&nbsp;lower use of fertilizers&nbsp;and other chemical-based crop inputs. Another area where biologics are making strong inroads is in seed treatment applications. We’ve previously written about BIOX’s ability, especially after merging with Marrone Bio Innovations, to offer farmers 100% biologic-based seed treatment options. Another private company, US based Indigo, recently commercialized a&nbsp;bio-based fungicide&nbsp;for use in seed treatment applications. We see growing acceptance of biological crop inputs by markets outside organic and produce farming, including those in row crops and cereals, as a sustainable driver of growth for bio-innovator companies such as BIOX and BHIL, as well as biotech divisions of ag-chem majors, such as FMC, CTVA, and AVD.
Automotive &amp; Transportation
Semiconductor shortage and COVID lockdowns continue to crimp auto production.&nbsp;Toyota, the world’s largest automaker,&nbsp;reduced its production plans for December&nbsp;and reduced its FY22 (Mar-23) annual production goal by half a million units, as semiconductor shortages and other supply chain issues stubbornly persist. Similarly, UK’s Jaguar-Land Rover&nbsp;announced reduced output&nbsp;at its UK factories through March 2023, likewise citing chip shortages as the reason. In China, repeated, severe, and often arbitrary COVID-related shutdowns, which are sparking significant unrest in the country, are also affecting companies’ abilities to operate in the region. VW recently&nbsp;lowered its annual sales target&nbsp;in China by 14% from 3.85 million units to 3.3 million, citing China’s zero-COVID policy for the expected shortfall.
With semiconductor and other supply-chain issues not expected to be resolved until late 2023 and with the spreading civil unrest in China and potential for severe government actions against its citizens resulting in further production disruptions and logistical snarls, the automotive industry, including the burgeoning EV sector, may experience slower-than-expected recovery/growth over the next six to nine months, suggesting continuing volume pressures on Tier-1 automotive suppliers, including automotive coatings manufacturers such as PPG and AXTA, as well as material suppliers such as FUL, AVNT, HXL, and others. Lower auto build rates and civil unrest may also constrain demand for steel, which would be a negative for EAF and MTX.
Energy &amp; Battery Technology
Welcome to the real world.&nbsp;We’ve repeatedly highlighted in our publications our concern with the growing influence of China as a hub for production of everything EV and renewable energy related, with the country controlling 60-100% of production of everything from graphite and lithium to battery components to finished batteries essential to EV and energy storage industries. It seems that geopolitical and supply chain realities exposed by the COVID pandemic and Russia’s invasion of Ukraine have finally woken up Western governments to these facts.
In our previous issues, we talked about the Canadian government’s efforts to remove Chinese influence from its domestic energy, battery, and materials industry. More recently, in Germany, the Association of German Chambers of Industry and Commerce is asking the government to develop new policies that would enable the country’s economy and its industries to&nbsp;lower their dependence of China. Already, Germany’s foreign ministry is considering&nbsp;tightening rules around disclosure&nbsp;of information and performance of stress tests for companies in various industries with exposure to China, including the automotive sector. As every action procures a reaction, the initiative may result in even greater difficulty for Germany’s auto OEMs in penetrating the Chinese EV market—the world’s largest at this moment—where Germany’s brands are already&nbsp;struggling to gain share. We believe even more can and needs to be done to reduce China’s control over the world’s ability to transition to new energy platforms, whether in transportation, or energy production.
A recent&nbsp;report from a US investment bank&nbsp;claims the US and EU can end their dependence on China for materials critical to this transition by 2030, based on estimates of required investments and government efforts to direct public funds toward this effort, such as the recently enacted Inflation Reduction Act in the US. While we find this goal not only laudable, but imperative, we are somewhat skeptical of the timetable, as funding is not the only limiting factor in the equation. As we repeatedly highlighted, achieving such goals would appear to necessitate a material revision of existing rules and regulations around mining and processing of metals and recycling end-of-life batteries. Unfortunately, from declaring lithium a carcinogen (as is being considered in the EU), to denying building permits at state and local levels, to sometimes frivolous activist groups’ lawsuits, to trying to delay development of new unconventional battery metal resources, to failing to develop an effective energy policy that would lead to lower energy (and thus production) costs, federal and state governments in the US and Europe seem to be moving in the opposite direction.
Chemicals &amp; Materials Technology
We have often maintained that the chemicals and materials industry is not only at the forefront of the efforts to improve the sustainability of manufacturing, lowering its carbon footprint and reliance on petrochemical raw materials, but producing products that enable their customers to do the same. While the plastics industry has been facing significant pressure in the court of public opinion when it comes to the industry’s impact on the environment, it is also the industry that is making the greatest strides in both improving its&nbsp;own sustainability characteristics&nbsp;and providing solutions to improve and thereby accelerate sustainability in other industries, including the rapidly developing&nbsp;EV and charging infrastructure sectors.
We believe companies such as AVNT, LOOP, and FUL, among others, stand to benefit from these trends and opportunities and should be considered by investors looking to participate in the sustainability and energy transformation megatrends currently underway.
Rating and Price Target Changes
EAF –&nbsp;BMO raised its price target from $5 to $6 and maintained its Market Perform rating.
Recent Reports and Future Events
Westwater Resources, Inc. (WWR) – Fireside Chat: VP of Sales &amp; Marketing Jay Wago, December 13, 2022, at 11:30 am EST
TMC the metals company (TMC) – Management Series Report – Collecting Nodules and Scientific Data as Regulation Timeline Nears
TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need
Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look
DISCLOSURES

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

Mat-Chem Notes For the Week Ended November 25, 2022

<h3>KEY HIGHLIGHTS</h3>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;Reversing the prior week’s trend, the stock market pulled back last week following the release of disappointing inflation data, with the Russell 2000 and the S&amp;P 500 losing 4.5% and 4.8% of their value, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market by declining 7.2% for the week.&nbsp;EMN’s preannouncement&nbsp;of lower 3Q22 and 2022 expectations drove the stock down nearly 15% and eight of the 30 stocks in our index posted double-digit declines. With all stocks in our WTR-CMI index losing value last week, PKE, AVD, and CTVA delivered relative outperformance by declining less than 2%.</li>
<li>Even ag-chem majors are retrenching.&nbsp;While the overall tone of&nbsp;CTVA’s Investor Day&nbsp;held last week was positive, highlighted by the rollout of a robust R&amp;D pipeline and an announcement of additional $2 billion in share repurchases (on top of existing $1.5 billion authorization), management also laid out plans for&nbsp;coping with slowing economic growth and high inflation expectations&nbsp;by exiting 35 countries and trimming its workforce by 5%.</li>
<li>Tale of two regions.&nbsp;While US passenger vehicle sales in August edged up Y/Y and new&nbsp;car registrations in the EU&nbsp;grew by 4.4% last month,&nbsp;Y/Y growth of passenger vehicles in China was 36% in August&nbsp;following the end of a two-month lockdown of Shanghai and a reduction in the gasoline tax at the end of June. Although the remaining four months of 2022 will feature easy Y/Y comps, given the depressed state of the global auto industry at the end of 2021, slowing economic growth and high energy prices may keep the recovery muted, with questions remaining with respect to 2023. PPG and AXTA may therefore continue to underperform, given their large exposure to the automotive and transportation markets.</li>
<li>CMP stepping up its lithium game.&nbsp;Having previously previewed its ambitions of becoming a lithium supplier to the EV battery industry using its existing Salt Lake resources,&nbsp;CMP picked EnergySource Minerals&nbsp;as its direct lithium extraction (DLE) technology provider and announced a $252 million&nbsp;strategic investment&nbsp;by Koch Minerals &amp; Trading, LLC (KM&amp;T) to help finance Phase 1 of its lithium project.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/221/original/image_26154726621663790447378.png?1663790451" class="editor-image img-responsive" data-smartkarma-image-id="299221"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>September USDA report acknowledges reality.&nbsp;We recently highlighted the disconnect between the August USDA Crop Production Report and the boots-on-the-ground crop tour that implied much lower commodity grain expectations. Last week, the USDA released its&nbsp;September report, which reflected the crop tour’s findings and lowered its outlook for soybean and corn production by lowering the three main components:&nbsp;planted acre, harvested acres, and yield per acre. Weather pressures and challenges securing sufficient and timely quantities of fertilizers and pesticides may have been behind the reduction in productivity expectations for US farmers reflected in the report. Lower expected Brazilian crop and what appears to be lower-than-anticipated US production are likely to result in stable, if not higher, commodity crop prices, which would go a long way in helping US farmers deal with still-elevated input costs in the 2022-23 season. Also mitigating lower production is&nbsp;lower demand from industrial end markets, such as ethanol and biofuels, which are slowing due to the overall slowdown in the US economy and miles driven.</p>
<p>Farmers remain cautious.&nbsp;Creighton University’s Rural Mainstreet Index&nbsp;(RMI) reading for September improved somewhat from August’s reading of 44 to 46.3, marking the fifth straight month of readings under 50, with 50 being a growth-neutral outlook, signaling that US farmers are bracing for another difficult year and a downturn in economic activity. Supply chain disruptions and inflationary pressures for everything from inputs to fuel to equipment to land values continue to weigh on farmers’ minds. Farmers and bankers are now also bracing for escalating interest rates, even higher farm input costs, and drought. Higher expected crop values as mentioned above may help mitigate some of the cost pressures farmers will be facing, but high energy and natural gas costs constraining fertilizer and pesticide production and leading to their higher costs and still-snarled logistics may result in even greater scarcity of needed inputs, suggesting ag-chem companies such as CTVA, FMC, and AVD, as well as CF and MOS may continue to enjoy strong demand. It may also provide opportunities for companies offering different technologies, such as bio-based pesticides, seed treatment, and soil conditioning to expand their geographic and crop reach, as farmers look for every advantage and avenue to facilitate their production. This would be a positive for emerging bio-ag companies such as BIX and BHIL.</p>
<h2>Battery and Energy Technology</h2>
<p>EV growth spurs demand and drives higher metal prices.&nbsp;As EV growth continues to accelerate, supply of metals required to build EV batteries is barely keeping pace, driving metal prices higher as a result,&nbsp;with lithium carbonate prices in China&nbsp;setting a new record at just over $71/kg. Nor is lithium an exception. Brazilian mining company&nbsp;Vale expects nickel demand&nbsp;to surge 44% by 2030 from current levels, with most new supply coming from Indonesia, Canada, and Australia. The company also expects there to be a structural deficit of the metal even when factoring in current announced production and mining expansions. An emerging player with the potential to become the second-largest nickel supplier in the world in the mid-term and the largest in the longer term is a Canadian late-stage development company&nbsp;The Metals Company&nbsp;(NASDAQ: TMC), which is getting ready to commercialize undersea collection and processing of polymetallic nodules found in ocean depths between Mexico and Hawaii.</p>
<p>Working at cross purposes.&nbsp;We recently wrote about the disconnect between national governments’ efforts to expand and domesticate the sourcing and production of materials critical in enabling the EV and energy storage transformation on the one hand and local government agencies and NGOs doing their best to push “not in my back yard” agenda when it comes to mines, processing plants, and other facilities needed to support green energy goals. We previously highlighted the issues PLL is having in securing the permits needed to begin mining and processing lithium in North Carolina. Another development-stage lithium player running into similar NGO obstacles is LAC, which is facing strong opposition to its&nbsp;Nevada mine development from environmental groups and other NGOs. While Tesla CEO thinks mining is “relatively easy” compared with lithium refining competencies and is exploring&nbsp;Tesla getting into the lithium processing business, the fact remains that additional sources of lithium, whether by direct lithium extraction from brine à la CMP and LAC, spodumene mines, or expansion of brine extraction in the Andes, are sorely needed to decouple our dependence on China and other geopolitically sensitive neighborhoods. That means governments will need to rethink their approach to incentivizing domestic development of mine and processing plant resources.</p>
<h2>Chemicals and Materials News</h2>
<p>N.I.M.B.Y.&nbsp;Everyone wants a more sustainable world. Everyone wants less plastic and other pollution. But it seems nobody wants plants and facilities that can deliver on those wants in their neighborhood—Not in My Back Yard syndrome—at least not in developed countries with a strong NGO ecosystem. The problem goes beyond permitting new mineral and metal mines, processing plants, or refineries. Even scrap plastic sorting facilities are frowned upon. Just ask PureCycle Technologies’ (NASDAQ: PCT) CEO Dustin Olson, who has received a&nbsp;letter signed by 50 different NGOs&nbsp;requesting the company abandon its plans for a new plastic sorting facility in Florida.</p>
<h2>Rating and Price Target Changes</h2>
<p>ASH –&nbsp;Credit Suisse initiated coverage of the stock with an Outperform rating and $210 price target (PT).</p>
<p>CTVA –&nbsp;KeyBanc raised its PT to $72 from $64 and reiterated its Overweight rating; BMO raised its PT to $72 from $66 and reiterated its Outperform rating; JP Morgan raised its PT to $65 from $63 and reiterated its Outperform rating; Jefferies raised its PT to $77 from $70 and reiterated its Buy recommendation; Deutsche Bank raised its PT to $75 from $68 and reiterated its Buy recommendation.</p>
<p>EMN –&nbsp;Jefferies lowered its PT to $94 from $97 and maintained its Hold rating; Tudor Pickering lowered its PT to $98 from $105 and maintained its Hold rating; Stifel Nicolaus lowered its PT to $112 from $134 and reiterated its Buy recommendation; CFRA lowered its PT to $110 rom $115 and reiterated its Buy rating; Wells Fargo downgraded the stock to Equal Weight from Overweight and lowered its PT to $95 from $110; KeyBanc lowered its PT to $111 from $125 and reiterated its Overweight rating; Citigroup lowered its PT to $93 from $102 and maintained its Neutral rating; RBC lowered its PT to $82 from $97 and maintained its Sector Perform rating; Deutsche Bank lowered its PT to $95 from $115 and reiterated its Buy recommendation.</p>
<p>LTHM –&nbsp;Vertical Research downgraded the stock to Hold from Buy, despite raising its PT to $35 from $33.</p>
<p>PPG –&nbsp;Wells Fargo lowered its PT to $130 from $135 and maintained its Equal Weight rating.</p>
<p>SHW –&nbsp;Evercore ISI lowered its PT to $260 from $285 and reiterated its Outperform rating.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)</p>
<p>Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)</p>
<p>Initiation of Coverage – Westwater Resources (NYSE: WWR)</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;Reversing the prior week’s trend, the stock market pulled back last week following the release of disappointing inflation data, with the Russell 2000 and the S&amp;P 500 losing 4.5% and 4.8% of their value, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market by declining 7.2% for the week.&nbsp;EMN’s preannouncement&nbsp;of lower 3Q22 and 2022 expectations drove the stock down nearly 15% and eight of the 30 stocks in our index posted double-digit declines. With all stocks in our WTR-CMI index losing value last week, PKE, AVD, and CTVA delivered relative outperformance by declining less than 2%.
Even ag-chem majors are retrenching.&nbsp;While the overall tone of&nbsp;CTVA’s Investor Day&nbsp;held last week was positive, highlighted by the rollout of a robust R&amp;D pipeline and an announcement of additional $2 billion in share repurchases (on top of existing $1.5 billion authorization), management also laid out plans for&nbsp;coping with slowing economic growth and high inflation expectations&nbsp;by exiting 35 countries and trimming its workforce by 5%.
Tale of two regions.&nbsp;While US passenger vehicle sales in August edged up Y/Y and new&nbsp;car registrations in the EU&nbsp;grew by 4.4% last month,&nbsp;Y/Y growth of passenger vehicles in China was 36% in August&nbsp;following the end of a two-month lockdown of Shanghai and a reduction in the gasoline tax at the end of June. Although the remaining four months of 2022 will feature easy Y/Y comps, given the depressed state of the global auto industry at the end of 2021, slowing economic growth and high energy prices may keep the recovery muted, with questions remaining with respect to 2023. PPG and AXTA may therefore continue to underperform, given their large exposure to the automotive and transportation markets.
CMP stepping up its lithium game.&nbsp;Having previously previewed its ambitions of becoming a lithium supplier to the EV battery industry using its existing Salt Lake resources,&nbsp;CMP picked EnergySource Minerals&nbsp;as its direct lithium extraction (DLE) technology provider and announced a $252 million&nbsp;strategic investment&nbsp;by Koch Minerals &amp; Trading, LLC (KM&amp;T) to help finance Phase 1 of its lithium project.

WTR-CMI WEEKLY PERFORMANCE

Ag-Tech and Bio-Ag
September USDA report acknowledges reality.&nbsp;We recently highlighted the disconnect between the August USDA Crop Production Report and the boots-on-the-ground crop tour that implied much lower commodity grain expectations. Last week, the USDA released its&nbsp;September report, which reflected the crop tour’s findings and lowered its outlook for soybean and corn production by lowering the three main components:&nbsp;planted acre, harvested acres, and yield per acre. Weather pressures and challenges securing sufficient and timely quantities of fertilizers and pesticides may have been behind the reduction in productivity expectations for US farmers reflected in the report. Lower expected Brazilian crop and what appears to be lower-than-anticipated US production are likely to result in stable, if not higher, commodity crop prices, which would go a long way in helping US farmers deal with still-elevated input costs in the 2022-23 season. Also mitigating lower production is&nbsp;lower demand from industrial end markets, such as ethanol and biofuels, which are slowing due to the overall slowdown in the US economy and miles driven.
Farmers remain cautious.&nbsp;Creighton University’s Rural Mainstreet Index&nbsp;(RMI) reading for September improved somewhat from August’s reading of 44 to 46.3, marking the fifth straight month of readings under 50, with 50 being a growth-neutral outlook, signaling that US farmers are bracing for another difficult year and a downturn in economic activity. Supply chain disruptions and inflationary pressures for everything from inputs to fuel to equipment to land values continue to weigh on farmers’ minds. Farmers and bankers are now also bracing for escalating interest rates, even higher farm input costs, and drought. Higher expected crop values as mentioned above may help mitigate some of the cost pressures farmers will be facing, but high energy and natural gas costs constraining fertilizer and pesticide production and leading to their higher costs and still-snarled logistics may result in even greater scarcity of needed inputs, suggesting ag-chem companies such as CTVA, FMC, and AVD, as well as CF and MOS may continue to enjoy strong demand. It may also provide opportunities for companies offering different technologies, such as bio-based pesticides, seed treatment, and soil conditioning to expand their geographic and crop reach, as farmers look for every advantage and avenue to facilitate their production. This would be a positive for emerging bio-ag companies such as BIX and BHIL.
Battery and Energy Technology
EV growth spurs demand and drives higher metal prices.&nbsp;As EV growth continues to accelerate, supply of metals required to build EV batteries is barely keeping pace, driving metal prices higher as a result,&nbsp;with lithium carbonate prices in China&nbsp;setting a new record at just over $71/kg. Nor is lithium an exception. Brazilian mining company&nbsp;Vale expects nickel demand&nbsp;to surge 44% by 2030 from current levels, with most new supply coming from Indonesia, Canada, and Australia. The company also expects there to be a structural deficit of the metal even when factoring in current announced production and mining expansions. An emerging player with the potential to become the second-largest nickel supplier in the world in the mid-term and the largest in the longer term is a Canadian late-stage development company&nbsp;The Metals Company&nbsp;(NASDAQ: TMC), which is getting ready to commercialize undersea collection and processing of polymetallic nodules found in ocean depths between Mexico and Hawaii.
Working at cross purposes.&nbsp;We recently wrote about the disconnect between national governments’ efforts to expand and domesticate the sourcing and production of materials critical in enabling the EV and energy storage transformation on the one hand and local government agencies and NGOs doing their best to push “not in my back yard” agenda when it comes to mines, processing plants, and other facilities needed to support green energy goals. We previously highlighted the issues PLL is having in securing the permits needed to begin mining and processing lithium in North Carolina. Another development-stage lithium player running into similar NGO obstacles is LAC, which is facing strong opposition to its&nbsp;Nevada mine development from environmental groups and other NGOs. While Tesla CEO thinks mining is “relatively easy” compared with lithium refining competencies and is exploring&nbsp;Tesla getting into the lithium processing business, the fact remains that additional sources of lithium, whether by direct lithium extraction from brine à la CMP and LAC, spodumene mines, or expansion of brine extraction in the Andes, are sorely needed to decouple our dependence on China and other geopolitically sensitive neighborhoods. That means governments will need to rethink their approach to incentivizing domestic development of mine and processing plant resources.
Chemicals and Materials News
N.I.M.B.Y.&nbsp;Everyone wants a more sustainable world. Everyone wants less plastic and other pollution. But it seems nobody wants plants and facilities that can deliver on those wants in their neighborhood—Not in My Back Yard syndrome—at least not in developed countries with a strong NGO ecosystem. The problem goes beyond permitting new mineral and metal mines, processing plants, or refineries. Even scrap plastic sorting facilities are frowned upon. Just ask PureCycle Technologies’ (NASDAQ: PCT) CEO Dustin Olson, who has received a&nbsp;letter signed by 50 different NGOs&nbsp;requesting the company abandon its plans for a new plastic sorting facility in Florida.
Rating and Price Target Changes
ASH –&nbsp;Credit Suisse initiated coverage of the stock with an Outperform rating and $210 price target (PT).
CTVA –&nbsp;KeyBanc raised its PT to $72 from $64 and reiterated its Overweight rating; BMO raised its PT to $72 from $66 and reiterated its Outperform rating; JP Morgan raised its PT to $65 from $63 and reiterated its Outperform rating; Jefferies raised its PT to $77 from $70 and reiterated its Buy recommendation; Deutsche Bank raised its PT to $75 from $68 and reiterated its Buy recommendation.
EMN –&nbsp;Jefferies lowered its PT to $94 from $97 and maintained its Hold rating; Tudor Pickering lowered its PT to $98 from $105 and maintained its Hold rating; Stifel Nicolaus lowered its PT to $112 from $134 and reiterated its Buy recommendation; CFRA lowered its PT to $110 rom $115 and reiterated its Buy rating; Wells Fargo downgraded the stock to Equal Weight from Overweight and lowered its PT to $95 from $110; KeyBanc lowered its PT to $111 from $125 and reiterated its Overweight rating; Citigroup lowered its PT to $93 from $102 and maintained its Neutral rating; RBC lowered its PT to $82 from $97 and maintained its Sector Perform rating; Deutsche Bank lowered its PT to $95 from $115 and reiterated its Buy recommendation.
LTHM –&nbsp;Vertical Research downgraded the stock to Hold from Buy, despite raising its PT to $35 from $33.
PPG –&nbsp;Wells Fargo lowered its PT to $130 from $135 and maintained its Equal Weight rating.
SHW –&nbsp;Evercore ISI lowered its PT to $260 from $285 and reiterated its Outperform rating.
Recent WTR Publications and Upcoming Events
Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)
Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)
Initiation of Coverage – Westwater Resources (NYSE: WWR)
DISCLOSURES

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

Mat-Chem Notes for the Week Ended September 18, 2022

<h3>KEY HIGHLIGHTS</h3>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;In another down week for the market, the S&amp;P 500 retreated 3.3%, while the Russell 2000 lost 4.7% of its value. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market, declining 5.5% for the week. All the stocks in our index finished the week in the red, with large cap coating names—AXTA, SHW, and PPG—posting the lowest declines, along with CTVA, which may have benefited from its&nbsp;announcement of a joint development of a new soybean seed with BASF. Prior week’s leader ALB was the worst performer last week, losing 9.8% of its value, as investors may have been disappointed with the&nbsp;company’s decision to keep the Catalysts business.</li>
<li>Damn the torpedoes, part 2.&nbsp;Going full-speed ahead with the development of its Ghana and Quebec mine reserves, while awaiting permitting for its NC mine,&nbsp;PLL announced plans to construct&nbsp;the country’s largest lithium hydroxide production plant in Tennessee, with production targeted for 2025.</li>
<li>US farmers appear to survive 2022 rollercoaster.&nbsp;Despite record high fertilizer, seed, and pesticide costs, not to mention supply disruptions, weather, and fuel costs,&nbsp;the USDA forecasts that US farmers will enjoy record cash incomes&nbsp;in 2022, although net farm income is expected to decline 3.3% from 2021, despite high crop prices due to aforementioned cost headwinds. With input costs continuing to go up (diesel moving north of $5/gal average again) and a slightly dented pocketbook heading into the 2022-23 season, US farmers’ ability to withstand another year of similar shocks remains under question.</li>
<li>Auto sales finally begin to recover.&nbsp;New car registrations in&nbsp;France&nbsp;and&nbsp;the US&nbsp;rose 4% Y/Y in August, albeit coming against increasingly easy year-ago comps. Still, the news is encouraging for Tier 1 auto suppliers such as PPG and AXTA in our index.</li>
<li>Builder confidence sinks.&nbsp;August was the eighth straight month of US&nbsp;builders’ confidence declining, with the August reading of 49 falling below the neutral outlook level for the first time since May 2020. We see this as a broad negative for our sector, especially for SHW, RPM, NGVT, and FULL, for whom the building &amp; construction industry represents a major end- market.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/296/883/original/image_18510131561662594923949.png?1662594926" class="editor-image img-responsive" data-smartkarma-image-id="296883"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>LATAM markets take center stage.&nbsp;With everything but the shouting over in the North American ag market for the 2021-22 season, attention is shifting to LATAM’s 2022-23 ag market forecasts. According to the Brazilian National Supply Company (CONAB), both&nbsp;soybean and corn planted acres are expected to grow in Brazil&nbsp;in 2022-23 compared with 2021-22, with more than 100 million acres of soybean being planted in the country for the first time. Still, while acres and yields are expected to grow, farms’ operating margins are forecast to decline versus this year, due primarily to higher input costs that are more than offsetting strong commodity prices and favorable currency exchange rates.</p>
<p>Higher planted acres expected in the region as well as higher use of fertilizers and pesticides are expected to benefit ag input companies. As recent research indicated,&nbsp;large multinationals are outperforming their local peers&nbsp;in this regard when it comes to LATAM markets in general, and Brazil, the region’s largest, in particular. We see this as a positive for companies like CTVA and FMC, given their strong positions in the region. Coming off a solid North American and European season, it appears ag majors are well positioned to continue their positive growth trajectory as sales shift to LATAM and we see current stock prices for both FMS and CTV as attractive entry points for investors looking to benefit from strong demand and pricing dynamics in the ag-input industry.</p>
<p>Ag majors aren’t the only ones likely to benefit from solid market conditions in LATAM. According to the Brazilian Ministry of Agriculture, Livestock and Supply (MAPA),&nbsp;there were 92 biological or low-impact pesticides approved in 2021, down slightly from the 95 approved in 2020. However, continuing expansion of bio-based pesticides, whose review and approvals are given priority by the agency, is a positive for both farmers, who will have more alternatives and solutions should synthetic chemical inputs’ cost and availability remain an issue in 2022-23, and for emerging bio-ag players, such as BIOX and BHIL, among others, who are rapidly developing bio-based alternatives to traditional synthetic pesticides.</p>
<h2>Battery Materials &amp; Energy Transformation</h2>
<p>Government regulations working at cross purposes to government intentions when it comes to electrification.&nbsp;Even as realization spreads that virtually everywhere one looks, there is a pending shortage of battery-critical materials essential for the electrification revolution to realize its full potential and growing concerns of overreliance on China for such materials already, ramping up local supply of these materials remains problematic. One consistent obstacle is government regulations around mining—the key element in domesticating the battery supply chain and reducing reliance on China and other less-than-friendly regimes. Sweden, home to many materials that could be mined to supply the burgeoning EV battery demand in EU,&nbsp;has been called out recently&nbsp;for its slow regulatory process when it comes to approving new mines in the country. In the US, there is an&nbsp;industry push to shorten and streamline&nbsp;the US mine permit review process. As companies who are looking to develop domestic supply of everything from lithium, to graphite, to rare earths and more prosaic metals such as nickel and copper, continue to bleed red ink due to permitting delays of their major projects, government regulations continue to erect barriers and raise the cost of developing such projects, which appear contrary to many governments’ stated goals and deadlines for sufficiently reducing, if not outright eliminating, dependence on fossil fuels as the basis for the economy. As the saying goes, something’s gotta give.</p>
<p>More investments and intentions announced.&nbsp;Toyota, long viewed as a laggard in EV transition race, announced it will invest close to&nbsp;$5.6 billion into making more EV batteries in the US and Japan, with the goal of raising its production capacity by 40 GWh. The company announced that $2.5 billion of that will go toward its investments into the&nbsp;North Carolina battery plant&nbsp;that will supply batteries for both hybrid as well as fully electric vehicles. Initial production is expected in 2025.</p>
<p>Meanwhile, American Manganese Inc. (OTC: AMYZF) announced that its RecycLiCo Battery Materials arm, in partnership with Kemetco Research Inc., has successfully run a bench test whereby&nbsp;the patented process recovered more than 99% of the lithium&nbsp;contained in lithium-iron-phosphate (LFP) battery cathode materials, extending the process ability, previously demonstrated for nickel-rich, manganese-rich and cobalt-rich cathode chemistries. As we highlighted in our previous issue, work continues on other, non-battery-based energy alternatives, such as hydrogen fuel cells. Recently, German&nbsp;Bosch announced plans to invest $200 million&nbsp;in its US capacity to produce said fuel cells at its South Carolina plant.</p>
<h2>Automotive &amp; Transportation</h2>
<p>We’re not out of the woods yet.&nbsp;Although new car sales comps are beginning to turn positive, as we mentioned above, we note that August improvements (and we expect the remainder of the year to follow suit) came against record low production levels seen in 2H21 and the global industry remains materially below 2019 production levels. Many issues that have plagued the industry over the last three years remain. Thus,&nbsp;Volvo will temporarily close its plant in the Chinese city&nbsp;of Chengdu due to local coronavirus restrictions.&nbsp;Stellantis halted its Sevel van-making plant&nbsp;in central Italy due to a shortage in supplies of parts.&nbsp;Toyota announced that its global output sank&nbsp;for the fourth straight month in July, as a shortage of semiconductors and supply chain disruptions caused by COVID lockdowns in China hurt production. With the world possibly entering a recession, big ticket items such as new cars may continue to see an uneven recovery in demand, even off the 2021-22 lows. While Y/Y growth in new vehicle registrations is encouraging, ongoing issues with semiconductor and other parts supplies, logistical snags, and on-again-off-again production in China as rolling COVID lockdowns continue, the industry still seems some way off from regaining its footing.</p>
<h2>Chemicals and Materials Technology in the News</h2>
<p>Architectural coatings market growth intact.&nbsp;A report by&nbsp;Research and Markets forecasts that global demand for architectural coatings&nbsp;will continue to grow at above GDP rates, driven by residential construction and remodeling, as well as commercial and infrastructure projects. The global market for architectural coatings estimated at $64.2 billion in 2022 is projected to grow at a 4.9% CAGR through 2026, reaching $79.5 billion by 2026. While this is a positive for PPG, Masco (NYSE: MAS), which supplies Behr and Kilz brand paints to Home Depot (NYSE: HD), and Berkshire Hathaway’s Benjamin Moore paint, it is particularly impactful for SHW, which dominates the paint market in the US and is one of the leading global suppliers of architectural coatings. Furthermore, with the Do It For Me&nbsp;(DIFM) trend growing once more in the US&nbsp;in the wake of COVID lockdowns, SHW may benefit disproportionately, given its extensive company-owned contractor paint stores across the country and in Canada.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)</p>
<p>Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)</p>
<p>Fireside Chat with Management of Loop Industries (NASDAQ: LOOP)</p>
<p>Fireside Chat with Management of Westwater Resources (NYSE: WWR)</p>
<p>Initiation of Coverage – Westwater Resources (NYSE: WWR)</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;In another down week for the market, the S&amp;P 500 retreated 3.3%, while the Russell 2000 lost 4.7% of its value. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market, declining 5.5% for the week. All the stocks in our index finished the week in the red, with large cap coating names—AXTA, SHW, and PPG—posting the lowest declines, along with CTVA, which may have benefited from its&nbsp;announcement of a joint development of a new soybean seed with BASF. Prior week’s leader ALB was the worst performer last week, losing 9.8% of its value, as investors may have been disappointed with the&nbsp;company’s decision to keep the Catalysts business.
Damn the torpedoes, part 2.&nbsp;Going full-speed ahead with the development of its Ghana and Quebec mine reserves, while awaiting permitting for its NC mine,&nbsp;PLL announced plans to construct&nbsp;the country’s largest lithium hydroxide production plant in Tennessee, with production targeted for 2025.
US farmers appear to survive 2022 rollercoaster.&nbsp;Despite record high fertilizer, seed, and pesticide costs, not to mention supply disruptions, weather, and fuel costs,&nbsp;the USDA forecasts that US farmers will enjoy record cash incomes&nbsp;in 2022, although net farm income is expected to decline 3.3% from 2021, despite high crop prices due to aforementioned cost headwinds. With input costs continuing to go up (diesel moving north of $5/gal average again) and a slightly dented pocketbook heading into the 2022-23 season, US farmers’ ability to withstand another year of similar shocks remains under question.
Auto sales finally begin to recover.&nbsp;New car registrations in&nbsp;France&nbsp;and&nbsp;the US&nbsp;rose 4% Y/Y in August, albeit coming against increasingly easy year-ago comps. Still, the news is encouraging for Tier 1 auto suppliers such as PPG and AXTA in our index.
Builder confidence sinks.&nbsp;August was the eighth straight month of US&nbsp;builders’ confidence declining, with the August reading of 49 falling below the neutral outlook level for the first time since May 2020. We see this as a broad negative for our sector, especially for SHW, RPM, NGVT, and FULL, for whom the building &amp; construction industry represents a major end- market.

WTR-CMI WEEKLY PERFORMANCE

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

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

Mat-Chem Notes for the Week Ended September 4 2022

KEY HIGHLIGHTS


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

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; August 5 close

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

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

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

United States

Minerals Technologies Inc. is a resource- and technology-based organization that develops and produces performance-enhancing minerals, mineral-based, and synthetic mineral products.  The Company offers its products to the paper, steel, polymer, and other manufacturing industries on a worldwide basis.

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Minerals Technologies (MTX US)

Mat-Chem Notes For the Week Ended December 9, 2022

KEY HIGHLIGHTS WTR-CMI last week. The market gave back last week’s gains, with the S&P 500 and the Russell 2000 losing 3.4% and 5.1%,...

Water Tower Research

Mat-Chem Notes For the Week Ended November 25, 2022

KEY HIGHLIGHTS WTR-CMI last week. The market rebounded last week, with both the S&P 500 (up 2.0%) and the Russell 2000 (up 1.6%) ending the...

Water Tower Research

Mat-Chem Notes for the Week Ended September 18, 2022

KEY HIGHLIGHTS WTR-CMI last week. Reversing the prior week’s trend, the stock market pulled back last week following the release of disappointing...

Water Tower Research

Mat-Chem Notes for the Week Ended September 4 2022

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

Water Tower Research

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

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