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

KEY HIGHLIGHTS


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

WTR-CMI WEEKLY PERFORMANCE

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

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

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

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

KEY HIGHLIGHTS


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

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; July 8 close

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

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

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

<h2>KEY HIGHLIGHTS</h2>
<ul style="list-style-type: none;">
<li>&nbsp;</li>
</ul>
<ul>
<li>WTR-CMI last week.&nbsp;After a dead cat bounce the previous week, last week saw the market resume its sell-off, with the S&amp;P 500 and Russell 2000 each losing 2.2% of their value for the week. Our WTR-CMI index of 30 chemicals and materials technology companies delivered a slightly weaker result (2.5%), dragged down by the volatile lithium sector, as PLL, ALB, LTHM, and LAC all lost 8% to 14% of their value for the week. A stronger aerospace outlook contributed to PKE’s 3.2% appreciation and improved investor sentiment following a proxy fight likely drove AVD’s 2.8% appreciation.</li>
<li>Ag-chem players step on bio-based pedal.&nbsp;FMC announced the creation of a new identity for its plant health business, called&nbsp;Biologicals by FMC&nbsp;and announced the&nbsp;acquisition of BioPhero ApS, a Danish pheromone research and production company, to further boost its biologicals portfolio of products for $200 million, with the deal expected to close by the end of 3Q22. Meanwhile,&nbsp;CTVA, BASF, and MS Technologies signed an agreement&nbsp;to bring an industry-first soybean trait stack to market in the US and Canada. As part of the agreement, CTVA and MS Technologies have licensed the Enlist E3 soybean trait to BASF for development with the NRS trait in BASF germplasm.</li>
<li>NA lithium production plans expand.&nbsp;Lithium producer Sayona Mining and its partner PLL approved the restart of their spodumene plant in Canada at a cost of C$98 million ($76.19 million). Operations at the&nbsp;North American Lithium (NAL) project&nbsp;located near Val-d’Or, Quebec are expected to commence in 1H23. Meanwhile,&nbsp;ALB announced its intentions to build a processing plant&nbsp;with 100,000 mt of annual capacity in the US, possibly using its mothballed mine in North Carolina as a source of spodumene for the plant to process, possibly as early as 2027.</li>
<li>Specialty segments looking to grow.&nbsp;The global&nbsp;protective coatings market&nbsp;is projected to grow at 3.4% CAGR to $16.7 billion by 2030 from $12.2 billion in 2021. While not spectacular, this steady growth should be a positive for SHW, PPG, AXTA, and especially RPM and may help mitigate the continuing doldrums in auto/transportation coatings and&nbsp;softening construction markets. Also, demand for&nbsp;plastics in medical applications&nbsp;is expected to grow at a 7.8% CAGR through 2032, which is a positive for AVNT.</li>
</ul>
<h2>WTR-CMI WEEKLY PERFORMANCE</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/285/191/original/image_71701074321657248484378.png?1657248487" class="editor-image img-responsive" data-smartkarma-image-id="285191"></figure>
<p>Source: YCharts; July 1 close</p>
<h2>Automotive &amp; Transportation Market</h2>
<p>Automotive doldrums continue.&nbsp;As June new passenger car registration data dribble in,&nbsp;France is already looking at a 14% Y/Y decline&nbsp;in registrations for the month, pointing to continuing struggles for the sector. Meanwhile,&nbsp;Toyota cut its July production plans&nbsp;by 50,000 units globally on COVID-19 lockdowns and semiconductor shortages, while Stellantis announced temporary production halts&nbsp;in Italy&nbsp;and&nbsp;France&nbsp;due in large part to ongoing semiconductor shortages. Not surprising then that&nbsp;AlixPartners expects&nbsp;the chip shortage and other supply chain issues to affect the industry through 2024 and is looking for 2022 new vehicle production to decline from 2021 levels globally. Cox Automotive also recently&nbsp;lowered is outlook for the US market&nbsp;to 14.4 million units, down from 15.3 million. Given this backdrop, we continue to remain cautious on PPG and AXTA, two of the top three coatings suppliers to the automotive industry, as well as AVNT and FUL—a significant amount of whose sales also go into the automotive and transportation markets.</p>
<h2>EVs &amp; Battery Ecosystem</h2>
<p>Car companies see battery supply to be the bottleneck in EU’s plans to move off ICEs.&nbsp;The region’s goal of phasing out internal combustion engines (ICEs) by 2040 may be difficult to obtain, not due to lack of automotive production capacity, but by limited battery production capacity for electric vehicles (EVs). Both&nbsp;VW&nbsp;and&nbsp;Stellantis&nbsp;managements voiced their concerns over the speed with which battery manufacturing is expanding compared with the forecasted needs of the automotive sector. The rising prices of EVs, driven by double- and triple-digit increases in the cost of critical materials, such as lithium for the EV batteries, pose yet another concern for the market as it pivots away from ICEs.</p>
<p>Efforts to head off material shortages continue.&nbsp;To secure the needed critical battery materials, automotive companies continue to partner with raw material suppliers in an effort to mitigate the expected market tightness that is expected to worsen in the next three to five years. Recently,&nbsp;Stellantis announced an investment in Vulcan Energy Resources&nbsp;(OTC: VULNF), a German-Australian lithium producer. The €50 million investment represents an 8% stake in the company, making Stellantis its second-largest shareholder. Vulcan and Stellantis have also extended their binding off-take agreement for lithium hydroxide by five to 10 years. Similarly, South Korean battery maker&nbsp;LG Energy Solutions announced&nbsp;a non-binding deal for battery-grade lithium supply with Compass Minerals (NYSE: CMP), under which LG would receive as much as 40% of lithium carbonate and lithium hydroxide that CMP produces for seven years, starting in 2025. Meanwhile, Brazilian lithium development company&nbsp;Sigma Lithium (NASDAQ: SGML) announced positive results&nbsp;of its drilling program and the company remains on track to begin producing early next year at an annual rate of 37,000 mt of lithium carbonate equivalent (LCE), as it wraps up engineering for a second phase that would take output to about 72,000 mt in 2024. Given the implied environmental benefit of moving from ICEs to battery-powered vehicles, efforts to achieve circular economy status when it comes to the end of live EV batteries is gaining steam, as&nbsp;Toyota recently announced&nbsp;collaboration with battery recycling company&nbsp;Redwood Materials&nbsp;as it works to provide a more sustainable battery supply chain for its EV push.</p>
<h2>Ag-Chem and Ag-Tech</h2>
<p>Pressure mounts as weather impact and input shortages intensify.&nbsp;Supply issues and higher costs are top of mind for US farmers,&nbsp;according to a recent survey. Agrichemical companies blame the COVID-19 pandemic, transportation delays, a lack of workers, and extreme weather for shortages of key inputs such as herbicides and insecticides. Fertilizer and some seeds are also in short supply globally. It is unclear if the situation will improve for the 2022-23 planting season. Meantime,&nbsp;weather continues to be the wild card&nbsp;in predicting ultimate yields for major crops in the US,&nbsp;with small reductions in soybean and corn conditions&nbsp;already being noted.</p>
<p>Wheat supply concerns add to global food security issues.&nbsp;Lack of rain in&nbsp;winter wheat growing regions of US&nbsp;and high humidity in other parts of the country are fueling concerns over global food security issues, even as the war in Ukraine continues to affect the supply outlook from that region. Ukrainian farmers, often unable to find fuel for their combines and tractors needed to bring in the harvest, thanks to Russia’s air and rocket campaign aimed at refineries, seaports, and many other parts of the country’s infrastructure, have resorted to&nbsp;destroying their harvesting equipment&nbsp;to prevent Russian forces from confiscating the wheat currently ripening in Ukrainian fields. With the hostilities likely to continue and its aftereffects likely to be felt long after armed conflict bogs down, the 2023 outlook is not much better.</p>
<p>Government regulators aren’t making life easier either.&nbsp;The European Commission wants to&nbsp;cut the use of chemical pesticides in half by 2030, as part of its latest plan on sustainability and biodiversity. While the plans will need approval from the European Parliament and European Council before they can become law, at least some countries’ governments are expressing concerns that such a plan being implemented at a time when food scarcity is already a real danger may be tone-deaf at best. However, moves in this direction are likely to continue, in our opinion, which should be a positive for companies such as BIOX, which specializes in bio-based alternatives to chemical pesticides, as well as established ag-chem players like FMC and CTVA. In a more targeted move, The Brazilian National Health Surveillance Agency (Anvisa)&nbsp;suspended the import, production, distribution, and commercialization of the fungicide carbendazim—one of the most used fungicides in Brazil in crops such as soybeans, corn, oranges, and apples. Europe and the US have already banned the product on suspicion of causing cancer and fetal malformation. However, its ban in Brazil, LATAM’s largest ag producing region that’s still reliant on older, but cheaper ag-chem products for its crop production, may lead to temporary declines in yields and acres in the country, until alternative products are imported in sufficient quantities and at a sufficiently low price to allow Brazilian farmers to make a profit growing their crops.</p>
<p>…Or are they?&nbsp;Brazilian government’s Ministry of Agriculture, Livestock, and Supply recently&nbsp;defined the criteria for prioritizing the registration of agrochemicals and related issues. It is hoped that the more transparent and streamlined process will allow newer novel products and technologies that address the country’s most pressing pest needs will be allowed to proceed through the government’s registration process in a more rational and predictive fashion possibly shortening the time and expense of new product registrations, provided they address what the Ministry sees as the farm industry’s greatest needs at the moment. Meantime, while regulatory requirements are a contributing factor to farmers’ increasing adoption of sustainable practices,&nbsp;consumers are seen as the No.1 driver of this transition, which is a positive for bio-ag innovators, such as BIOX and other companies looking to change the way farmers produce and harvest their crops, so as to minimize the impact on the environment.</p>
<h2>Rating and Price Target Changes</h2>
<p>ALB –&nbsp;Credit Suisse initiated coverage of the stock with Underperform rating and $185 price target (PT); Vertical Research lowered its PT to $268 from $286 and maintained its Hold rating.</p>
<p>AVNT –&nbsp;Jefferies lowered its PT to $51 from $67 and reiterated its Buy rating.</p>
<p>AXTA&nbsp;–&nbsp;Vertical Research lowered its PT to $28 from $32 and maintained its Hold rating.</p>
<p>CTVA&nbsp;–&nbsp;Bank of America raised its PT to $57 from $51 and reiterated its Outperform rating; Vertical Research lowered its PT to $55 from $59 and maintained its Hold rating.</p>
<p>EAF&nbsp;–&nbsp;BMO lowered its PT to $9 from $10 and maintained its Market Perform rating.</p>
<p>ECL&nbsp;–&nbsp;Morgan Stanley lowered its PT to $181 from $210 and maintained its Equal Weight rating; Vertical Research lowered its PT to $169 from $185 and maintained its Hold rating; Mizuho Securities lowered its PT to $183 from $198 and maintained its Neutral rating.</p>
<p>EMN&nbsp;–&nbsp;Wells Fargo lowered its PT to $115 from $125 and reiterated its Outperform rating; Vertical Research lowered its PT to $117 from $136 and reiterated its Buy rating; Berenberg Bank also lowered its PT to $130 from $150 while reiterating its Buy rating.</p>
<p>FMC&nbsp;–&nbsp;Bank of America upgraded the stock to Buy from Underperform; Vertical Research lowered its PT to $116 from $126 and maintained its Hold rating.</p>
<p>FUL&nbsp;–&nbsp;JP Morgan downgraded the stock to Underperform from Neutral and set a $52 PT; Deutsche Bank also lowered its PT to $72 from $85 but reiterated its Buy recommendation.</p>
<p>LTHM&nbsp;–&nbsp;Vertical Research lowered its PT to $31 from $33 and reiterated its Buy recommendation.</p>
<p>PPG –&nbsp;Vertical Research upgraded the stock to Buy from Hold, despite lowering its PT to $139 from $154.</p>
<p>RPM&nbsp;–&nbsp;Credit Suisse initiated coverage with an Outperform rating and $95 PT; Vertical Research lowered its PT to $83 from $99 and maintained its Hold rating.</p>
<p>SHW&nbsp;–&nbsp;Evercore ISI lowered its PT to $280 from $305 and reiterated its Outperform rating; Vertical Research lowered its PT to $254 from $284 and maintained its Hold rating.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Marrone Bio Innovations CEO Kevin Helash</p>
<p>Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates</p>
<p>Initiation of Coverage – Westwater Resources, Inc.</p>
<h2>DISCLOSURES</h2>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the Chemicals &amp; Materials Technology and BioEconomy sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS

&nbsp;


WTR-CMI last week.&nbsp;After a dead cat bounce the previous week, last week saw the market resume its sell-off, with the S&amp;P 500 and Russell 2000 each losing 2.2% of their value for the week. Our WTR-CMI index of 30 chemicals and materials technology companies delivered a slightly weaker result (2.5%), dragged down by the volatile lithium sector, as PLL, ALB, LTHM, and LAC all lost 8% to 14% of their value for the week. A stronger aerospace outlook contributed to PKE’s 3.2% appreciation and improved investor sentiment following a proxy fight likely drove AVD’s 2.8% appreciation.
Ag-chem players step on bio-based pedal.&nbsp;FMC announced the creation of a new identity for its plant health business, called&nbsp;Biologicals by FMC&nbsp;and announced the&nbsp;acquisition of BioPhero ApS, a Danish pheromone research and production company, to further boost its biologicals portfolio of products for $200 million, with the deal expected to close by the end of 3Q22. Meanwhile,&nbsp;CTVA, BASF, and MS Technologies signed an agreement&nbsp;to bring an industry-first soybean trait stack to market in the US and Canada. As part of the agreement, CTVA and MS Technologies have licensed the Enlist E3 soybean trait to BASF for development with the NRS trait in BASF germplasm.
NA lithium production plans expand.&nbsp;Lithium producer Sayona Mining and its partner PLL approved the restart of their spodumene plant in Canada at a cost of C$98 million ($76.19 million). Operations at the&nbsp;North American Lithium (NAL) project&nbsp;located near Val-d’Or, Quebec are expected to commence in 1H23. Meanwhile,&nbsp;ALB announced its intentions to build a processing plant&nbsp;with 100,000 mt of annual capacity in the US, possibly using its mothballed mine in North Carolina as a source of spodumene for the plant to process, possibly as early as 2027.
Specialty segments looking to grow.&nbsp;The global&nbsp;protective coatings market&nbsp;is projected to grow at 3.4% CAGR to $16.7 billion by 2030 from $12.2 billion in 2021. While not spectacular, this steady growth should be a positive for SHW, PPG, AXTA, and especially RPM and may help mitigate the continuing doldrums in auto/transportation coatings and&nbsp;softening construction markets. Also, demand for&nbsp;plastics in medical applications&nbsp;is expected to grow at a 7.8% CAGR through 2032, which is a positive for AVNT.

WTR-CMI WEEKLY PERFORMANCE

Source: YCharts; July 1 close
Automotive &amp; Transportation Market
Automotive doldrums continue.&nbsp;As June new passenger car registration data dribble in,&nbsp;France is already looking at a 14% Y/Y decline&nbsp;in registrations for the month, pointing to continuing struggles for the sector. Meanwhile,&nbsp;Toyota cut its July production plans&nbsp;by 50,000 units globally on COVID-19 lockdowns and semiconductor shortages, while Stellantis announced temporary production halts&nbsp;in Italy&nbsp;and&nbsp;France&nbsp;due in large part to ongoing semiconductor shortages. Not surprising then that&nbsp;AlixPartners expects&nbsp;the chip shortage and other supply chain issues to affect the industry through 2024 and is looking for 2022 new vehicle production to decline from 2021 levels globally. Cox Automotive also recently&nbsp;lowered is outlook for the US market&nbsp;to 14.4 million units, down from 15.3 million. Given this backdrop, we continue to remain cautious on PPG and AXTA, two of the top three coatings suppliers to the automotive industry, as well as AVNT and FUL—a significant amount of whose sales also go into the automotive and transportation markets.
EVs &amp; Battery Ecosystem
Car companies see battery supply to be the bottleneck in EU’s plans to move off ICEs.&nbsp;The region’s goal of phasing out internal combustion engines (ICEs) by 2040 may be difficult to obtain, not due to lack of automotive production capacity, but by limited battery production capacity for electric vehicles (EVs). Both&nbsp;VW&nbsp;and&nbsp;Stellantis&nbsp;managements voiced their concerns over the speed with which battery manufacturing is expanding compared with the forecasted needs of the automotive sector. The rising prices of EVs, driven by double- and triple-digit increases in the cost of critical materials, such as lithium for the EV batteries, pose yet another concern for the market as it pivots away from ICEs.
Efforts to head off material shortages continue.&nbsp;To secure the needed critical battery materials, automotive companies continue to partner with raw material suppliers in an effort to mitigate the expected market tightness that is expected to worsen in the next three to five years. Recently,&nbsp;Stellantis announced an investment in Vulcan Energy Resources&nbsp;(OTC: VULNF), a German-Australian lithium producer. The €50 million investment represents an 8% stake in the company, making Stellantis its second-largest shareholder. Vulcan and Stellantis have also extended their binding off-take agreement for lithium hydroxide by five to 10 years. Similarly, South Korean battery maker&nbsp;LG Energy Solutions announced&nbsp;a non-binding deal for battery-grade lithium supply with Compass Minerals (NYSE: CMP), under which LG would receive as much as 40% of lithium carbonate and lithium hydroxide that CMP produces for seven years, starting in 2025. Meanwhile, Brazilian lithium development company&nbsp;Sigma Lithium (NASDAQ: SGML) announced positive results&nbsp;of its drilling program and the company remains on track to begin producing early next year at an annual rate of 37,000 mt of lithium carbonate equivalent (LCE), as it wraps up engineering for a second phase that would take output to about 72,000 mt in 2024. Given the implied environmental benefit of moving from ICEs to battery-powered vehicles, efforts to achieve circular economy status when it comes to the end of live EV batteries is gaining steam, as&nbsp;Toyota recently announced&nbsp;collaboration with battery recycling company&nbsp;Redwood Materials&nbsp;as it works to provide a more sustainable battery supply chain for its EV push.
Ag-Chem and Ag-Tech
Pressure mounts as weather impact and input shortages intensify.&nbsp;Supply issues and higher costs are top of mind for US farmers,&nbsp;according to a recent survey. Agrichemical companies blame the COVID-19 pandemic, transportation delays, a lack of workers, and extreme weather for shortages of key inputs such as herbicides and insecticides. Fertilizer and some seeds are also in short supply globally. It is unclear if the situation will improve for the 2022-23 planting season. Meantime,&nbsp;weather continues to be the wild card&nbsp;in predicting ultimate yields for major crops in the US,&nbsp;with small reductions in soybean and corn conditions&nbsp;already being noted.
Wheat supply concerns add to global food security issues.&nbsp;Lack of rain in&nbsp;winter wheat growing regions of US&nbsp;and high humidity in other parts of the country are fueling concerns over global food security issues, even as the war in Ukraine continues to affect the supply outlook from that region. Ukrainian farmers, often unable to find fuel for their combines and tractors needed to bring in the harvest, thanks to Russia’s air and rocket campaign aimed at refineries, seaports, and many other parts of the country’s infrastructure, have resorted to&nbsp;destroying their harvesting equipment&nbsp;to prevent Russian forces from confiscating the wheat currently ripening in Ukrainian fields. With the hostilities likely to continue and its aftereffects likely to be felt long after armed conflict bogs down, the 2023 outlook is not much better.
Government regulators aren’t making life easier either.&nbsp;The European Commission wants to&nbsp;cut the use of chemical pesticides in half by 2030, as part of its latest plan on sustainability and biodiversity. While the plans will need approval from the European Parliament and European Council before they can become law, at least some countries’ governments are expressing concerns that such a plan being implemented at a time when food scarcity is already a real danger may be tone-deaf at best. However, moves in this direction are likely to continue, in our opinion, which should be a positive for companies such as BIOX, which specializes in bio-based alternatives to chemical pesticides, as well as established ag-chem players like FMC and CTVA. In a more targeted move, The Brazilian National Health Surveillance Agency (Anvisa)&nbsp;suspended the import, production, distribution, and commercialization of the fungicide carbendazim—one of the most used fungicides in Brazil in crops such as soybeans, corn, oranges, and apples. Europe and the US have already banned the product on suspicion of causing cancer and fetal malformation. However, its ban in Brazil, LATAM’s largest ag producing region that’s still reliant on older, but cheaper ag-chem products for its crop production, may lead to temporary declines in yields and acres in the country, until alternative products are imported in sufficient quantities and at a sufficiently low price to allow Brazilian farmers to make a profit growing their crops.
…Or are they?&nbsp;Brazilian government’s Ministry of Agriculture, Livestock, and Supply recently&nbsp;defined the criteria for prioritizing the registration of agrochemicals and related issues. It is hoped that the more transparent and streamlined process will allow newer novel products and technologies that address the country’s most pressing pest needs will be allowed to proceed through the government’s registration process in a more rational and predictive fashion possibly shortening the time and expense of new product registrations, provided they address what the Ministry sees as the farm industry’s greatest needs at the moment. Meantime, while regulatory requirements are a contributing factor to farmers’ increasing adoption of sustainable practices,&nbsp;consumers are seen as the No.1 driver of this transition, which is a positive for bio-ag innovators, such as BIOX and other companies looking to change the way farmers produce and harvest their crops, so as to minimize the impact on the environment.
Rating and Price Target Changes
ALB –&nbsp;Credit Suisse initiated coverage of the stock with Underperform rating and $185 price target (PT); Vertical Research lowered its PT to $268 from $286 and maintained its Hold rating.
AVNT –&nbsp;Jefferies lowered its PT to $51 from $67 and reiterated its Buy rating.
AXTA&nbsp;–&nbsp;Vertical Research lowered its PT to $28 from $32 and maintained its Hold rating.
CTVA&nbsp;–&nbsp;Bank of America raised its PT to $57 from $51 and reiterated its Outperform rating; Vertical Research lowered its PT to $55 from $59 and maintained its Hold rating.
EAF&nbsp;–&nbsp;BMO lowered its PT to $9 from $10 and maintained its Market Perform rating.
ECL&nbsp;–&nbsp;Morgan Stanley lowered its PT to $181 from $210 and maintained its Equal Weight rating; Vertical Research lowered its PT to $169 from $185 and maintained its Hold rating; Mizuho Securities lowered its PT to $183 from $198 and maintained its Neutral rating.
EMN&nbsp;–&nbsp;Wells Fargo lowered its PT to $115 from $125 and reiterated its Outperform rating; Vertical Research lowered its PT to $117 from $136 and reiterated its Buy rating; Berenberg Bank also lowered its PT to $130 from $150 while reiterating its Buy rating.
FMC&nbsp;–&nbsp;Bank of America upgraded the stock to Buy from Underperform; Vertical Research lowered its PT to $116 from $126 and maintained its Hold rating.
FUL&nbsp;–&nbsp;JP Morgan downgraded the stock to Underperform from Neutral and set a $52 PT; Deutsche Bank also lowered its PT to $72 from $85 but reiterated its Buy recommendation.
LTHM&nbsp;–&nbsp;Vertical Research lowered its PT to $31 from $33 and reiterated its Buy recommendation.
PPG –&nbsp;Vertical Research upgraded the stock to Buy from Hold, despite lowering its PT to $139 from $154.
RPM&nbsp;–&nbsp;Credit Suisse initiated coverage with an Outperform rating and $95 PT; Vertical Research lowered its PT to $83 from $99 and maintained its Hold rating.
SHW&nbsp;–&nbsp;Evercore ISI lowered its PT to $280 from $305 and reiterated its Outperform rating; Vertical Research lowered its PT to $254 from $284 and maintained its Hold rating.
Recent WTR Publications and Upcoming Events
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates
Initiation of Coverage – Westwater Resources, Inc.
DISCLOSURES

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

Mat-Chem Notes for the Week Ended July 3, 2022

<h3>KEY HIGHLIGHTS</h3>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;The sell-off continued last week, with the S&amp;P 500 losing 5.8% and the broader Russell 2000 Index giving up 7.5%. Our WTR-CMI index of 30 chemicals and materials technology companies underperformed the broader market by declining 9.9%, with all the stocks in the index posting W/W losses. ECVT (down 2.1%) and PKE (down 2.3%) outperformed relative to other names, as the raw material cost pressure they are experiencing is more moderate compared with companies heavily reliant on pet-chem-based inputs. PPG also outperformed by declining 5.1%, likely bolstered by its recent investor day. KOP, CMP, and LTHM were the worst performers, as concerns over construction markets grew and investors became more concerned over the impact on inflation on economic growth, including consumers’ ability to purchase more expensive EVs, especially as several manufacturers had to raise prices to offset higher metal and graphite costs.</li>
<li>Farmer concerns grow.&nbsp;The&nbsp;Rural Mainstreet Index (RMI) from Creighton University&nbsp;reading for June dropped to 49.8 from May’s 57.7, with 50 being a growth-neutral reading, implying US farmers’ growing concerns over the economy, the impact of rising intertest rates, and ongoing supply chain bottlenecks. Nearly 93% of rural banks surveyed now put the likelihood of a recession at more than 50%.</li>
<li>Efforts to domesticate lithium supply continue.&nbsp;Cypress Development Corp. (OTC: CYDVF), an advanced lithium development company focused on commercializing lithium projects in Nevada, provided an update on the ongoing&nbsp;feasibility study&nbsp;for the company’s Clayton Valley lithium project in Nevada, as well as&nbsp;progress on its pilot plant operations, which have delivered samples to two laboratories in Canada for further testing.</li>
<li>Coatings markets growing above GDP rates.&nbsp;According to a recent report, the&nbsp;waterborne coatings market&nbsp;is expected to grow at a 3.5% CAGR over the next five years, while&nbsp;the low volatile organic compounds (VOC) segment&nbsp;of the coatings industry is expected to post an even faster 6.2% CAGR through 2026, driven by tighter emission regulations and consumers’ growing awareness of VOC’s health and environmental impact. Over the mid-term, this should be a positive for SHW, PPG, AXTA, and RPM.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/282/497/original/image_22915513821656025927561.png?1656025930" class="editor-image img-responsive" data-smartkarma-image-id="282497"></figure>
<p>Source: YCharts; June 19 close</p>
<h2>Automotive &amp; Transportation Market</h2>
<p>Automotive doldrums continue.&nbsp;ASEA’s May report on new car registrations in the EU&nbsp;showed an 11.2% drop in May, the 11th&nbsp;straight month of Y/Y declines, bringing the YTD decline to 13.7%. We expect June numbers to continue to comp negatively versus the year-ago period, with 2H22 comps easing, which may allow the European market to finally break what would be a year-long string of declines. However, we caution that while comps will get easier in July and beyond, higher auto prices, higher interest rates, and souring consumer sentiment, exacerbated by the continuing war in Ukraine, may constrain whatever recovery may take place. Meanwhile, on a more positive note,&nbsp;auto production lost to semiconductor chip shortages&nbsp;appears to be slowing down, with less than 28,000 added to the tally of losses last week, mostly in APAC region outside of China. Nonetheless, 2.26 million vehicles have already been removed from production expectations for 2022.</p>
<h2>EVs &amp; Battery Ecosystem</h2>
<p>As EV growth continues, solutions are sought to combat high battery metal prices.&nbsp;While China’s overall new vehicle sales continue to decline, the&nbsp;NEV segment is still posting strong Y/Y growth, with May sales of new energy vehicles (NEVs) rising 111.5% and YTD sales increasing 117.4%. However, both investors’ and consumers’ concerns are shifting from availability of materials for EV batteries to the costs of said materials, at least in the near to mid-term. Consequently, it is not surprising to see ongoing efforts to find and develop alternate battery chemistries, or whole new technologies to address both concerns. One company leading these efforts is Michigan-based privately held battery start-up Our Next Energy (ONE), which&nbsp;will supply an early prototype of its Gemini “Dual-Chemistry” battery to BMW&nbsp;(whose investment arm was part of the latest funding round of ONE) for testing under real world conditions. The testing is expected to start by the end of 2022 and will focus on proving ONE’s claim of doubling the typical lithium battery range, while also prolonging battery life, all while using cheaper and more plentiful iron and manganese to reduce the need for higher-cost cobalt and nickel in battery cathodes. Meanwhile, Alsym Energy, a Massachusetts-based start-up, is working on battery chemistry and a design that would further reduce, if not&nbsp;eliminate lithium and cobalt from EV battery cathodes, making them both safer and about 50% cheaper versus current designs. And in Europe, work continues on developing solid-state batteries for the EV market, with a consortium of Spanish companies launching the&nbsp;Basquevolt initiative, with the Basque government researching, developing, and producing solid-state batteries, with pilot plant operations targeted to begin in 2025 and ramp up to a 10 GWh annual production rate by 2027.</p>
<h2>Ag-Chem and Ag-Tech</h2>
<p>With planting progress on track, weather concerns rise.&nbsp;Better conditions allowed US farmers to essentially catch up to five-year averages when it comes to&nbsp;corn and soybean plantings. However, while current crop conditions are rated mostly good to excellent, recent scorching weather across the farm belt regions may raise the possibility of less than optimal yields and we will watch these developments over the next several weeks. One thing to keep in mind is the lessons from Brazil, where drought conditions led to angst over yield expectations. However,&nbsp;the country’s second corn crop, also known as safrinha, is now expected to be up 45% Y/Y, driven by higher planted acreage and higher yield expectations versus the drought affected 2021-22 second crop season. This may help alleviate the production shortfall experienced during the first crop period earlier in the year. The news could not come at a better time, as the world is getting increasingly pessimistic regarding&nbsp;the impact of the Russian invasion of Ukraine on the global food market, not just in 2022-23, but also longer term.</p>
<p>Doing their part to ensure adequate supply.&nbsp;Against this backdrop of food security concerns, crop input companies are stepping up efforts to ensure their products are made available and at an affordable price to help offset expected declines in Russian, Belorussian, and Ukrainian supply. Nutrien (NYSE: NTR) followed up its recent announcement of production capacity expansion with even more aggressive plans to&nbsp;ramp up production of phosphate and nitrogen fertilizers, both through brownfield expansions and new capacity addition projects expected to come online through 2025 and 2027, respectively.</p>
<h2>In Other News</h2>
<p>Expanding markets served to cushion expected declines.&nbsp;One company in our WTR-CMI index—Valvoline (NYSE: VVV)—has been fielding questions and fighting investor perception of a sun-setting business for several years now, as EVs continue to grow their share of annual car sales and investors grow concerned over the company’s ability to continue to deliver superior growth in what many are seeing as a sun-setting market (lube oil for ICE passenger vehicles). However, the company is not taking these expectations lying down. Earlier, VVV announced its intentions to monetize its bulk and industrial lubes business and concentrate on growing its company-owned and franchised Valvoline Instant Oil Change (VIOC) network. More recently, the company announced that it has opened its first&nbsp;company-owned heavy-duty fleet service center&nbsp;to provide the same high-touch customer service as it currently does through its VIOC network to service to Class 5-8 vehicles that can weigh more than 30,000 pounds. We believe this move will significantly expand VVV’s addressable market in the near to mid-term, while providing a longer tail over the long term, which may ease investor concerns over the stock’s valuation levels.</p>
<p>M&amp;A deal flow continues.&nbsp;The chemicals and materials technology industry has been characterized by considerable M&amp;A activity over the last two to three decades and despite, or perhaps because of the slowing economic outlook and inflationary pressures, portfolio optimization efforts are continuing. Recently,&nbsp;PPG announced&nbsp;that it has completed the divestiture of Eberle Design, Inc. (EDI) to Vance Street Capital. Terms of the transaction were not disclosed. Meanwhile, global chemical and plastic distributor Brenntag (OTC: BNTGY) recently&nbsp;announced that it has entered a partnership&nbsp;with Saudi Al-Azzaz Chemicals Co. via a 75/25 joint venture. Looking to expand its geographic footprint and keep up with the M&amp;A-driven growth of SHW and PPG, AkzoNobel (OTC: AKZOY) recently&nbsp;announced that it reached an agreement&nbsp;with Kansai Paint to acquire the latter’s paints &amp; coatings business in Africa, which generates approximately $300 million in annual sales, with completion expected in 2023, subject to regulatory approvals.</p>
<h2>Rating and Price Target Changes</h2>
<p>EMN –&nbsp;Jefferies downgraded the stock to Hold from Buy and reduced its price target (PT) to $87 from $150.</p>
<p>FMC –&nbsp;CFRA upgraded the stock to Hold from Sell, maintaining its $126 PT.</p>
<p>SHW –&nbsp;UBS lowered its PT to $265 from $279 and maintained its Neutral rating.</p>
<p>VVV –&nbsp;Jefferies lowered its PT to $40 from $44 and reiterated its Buy rating.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Marrone Bio Innovations CEO Kevin Helash</p>
<p>Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates</p>
<h2>DISCLOSURES</h2>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the Chemicals &amp; Materials Technology and BioEconomy sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;The sell-off continued last week, with the S&amp;P 500 losing 5.8% and the broader Russell 2000 Index giving up 7.5%. Our WTR-CMI index of 30 chemicals and materials technology companies underperformed the broader market by declining 9.9%, with all the stocks in the index posting W/W losses. ECVT (down 2.1%) and PKE (down 2.3%) outperformed relative to other names, as the raw material cost pressure they are experiencing is more moderate compared with companies heavily reliant on pet-chem-based inputs. PPG also outperformed by declining 5.1%, likely bolstered by its recent investor day. KOP, CMP, and LTHM were the worst performers, as concerns over construction markets grew and investors became more concerned over the impact on inflation on economic growth, including consumers’ ability to purchase more expensive EVs, especially as several manufacturers had to raise prices to offset higher metal and graphite costs.
Farmer concerns grow.&nbsp;The&nbsp;Rural Mainstreet Index (RMI) from Creighton University&nbsp;reading for June dropped to 49.8 from May’s 57.7, with 50 being a growth-neutral reading, implying US farmers’ growing concerns over the economy, the impact of rising intertest rates, and ongoing supply chain bottlenecks. Nearly 93% of rural banks surveyed now put the likelihood of a recession at more than 50%.
Efforts to domesticate lithium supply continue.&nbsp;Cypress Development Corp. (OTC: CYDVF), an advanced lithium development company focused on commercializing lithium projects in Nevada, provided an update on the ongoing&nbsp;feasibility study&nbsp;for the company’s Clayton Valley lithium project in Nevada, as well as&nbsp;progress on its pilot plant operations, which have delivered samples to two laboratories in Canada for further testing.
Coatings markets growing above GDP rates.&nbsp;According to a recent report, the&nbsp;waterborne coatings market&nbsp;is expected to grow at a 3.5% CAGR over the next five years, while&nbsp;the low volatile organic compounds (VOC) segment&nbsp;of the coatings industry is expected to post an even faster 6.2% CAGR through 2026, driven by tighter emission regulations and consumers’ growing awareness of VOC’s health and environmental impact. Over the mid-term, this should be a positive for SHW, PPG, AXTA, and RPM.

WTR-CMI WEEKLY PERFORMANCE

Source: YCharts; June 19 close
Automotive &amp; Transportation Market
Automotive doldrums continue.&nbsp;ASEA’s May report on new car registrations in the EU&nbsp;showed an 11.2% drop in May, the 11th&nbsp;straight month of Y/Y declines, bringing the YTD decline to 13.7%. We expect June numbers to continue to comp negatively versus the year-ago period, with 2H22 comps easing, which may allow the European market to finally break what would be a year-long string of declines. However, we caution that while comps will get easier in July and beyond, higher auto prices, higher interest rates, and souring consumer sentiment, exacerbated by the continuing war in Ukraine, may constrain whatever recovery may take place. Meanwhile, on a more positive note,&nbsp;auto production lost to semiconductor chip shortages&nbsp;appears to be slowing down, with less than 28,000 added to the tally of losses last week, mostly in APAC region outside of China. Nonetheless, 2.26 million vehicles have already been removed from production expectations for 2022.
EVs &amp; Battery Ecosystem
As EV growth continues, solutions are sought to combat high battery metal prices.&nbsp;While China’s overall new vehicle sales continue to decline, the&nbsp;NEV segment is still posting strong Y/Y growth, with May sales of new energy vehicles (NEVs) rising 111.5% and YTD sales increasing 117.4%. However, both investors’ and consumers’ concerns are shifting from availability of materials for EV batteries to the costs of said materials, at least in the near to mid-term. Consequently, it is not surprising to see ongoing efforts to find and develop alternate battery chemistries, or whole new technologies to address both concerns. One company leading these efforts is Michigan-based privately held battery start-up Our Next Energy (ONE), which&nbsp;will supply an early prototype of its Gemini “Dual-Chemistry” battery to BMW&nbsp;(whose investment arm was part of the latest funding round of ONE) for testing under real world conditions. The testing is expected to start by the end of 2022 and will focus on proving ONE’s claim of doubling the typical lithium battery range, while also prolonging battery life, all while using cheaper and more plentiful iron and manganese to reduce the need for higher-cost cobalt and nickel in battery cathodes. Meanwhile, Alsym Energy, a Massachusetts-based start-up, is working on battery chemistry and a design that would further reduce, if not&nbsp;eliminate lithium and cobalt from EV battery cathodes, making them both safer and about 50% cheaper versus current designs. And in Europe, work continues on developing solid-state batteries for the EV market, with a consortium of Spanish companies launching the&nbsp;Basquevolt initiative, with the Basque government researching, developing, and producing solid-state batteries, with pilot plant operations targeted to begin in 2025 and ramp up to a 10 GWh annual production rate by 2027.
Ag-Chem and Ag-Tech
With planting progress on track, weather concerns rise.&nbsp;Better conditions allowed US farmers to essentially catch up to five-year averages when it comes to&nbsp;corn and soybean plantings. However, while current crop conditions are rated mostly good to excellent, recent scorching weather across the farm belt regions may raise the possibility of less than optimal yields and we will watch these developments over the next several weeks. One thing to keep in mind is the lessons from Brazil, where drought conditions led to angst over yield expectations. However,&nbsp;the country’s second corn crop, also known as safrinha, is now expected to be up 45% Y/Y, driven by higher planted acreage and higher yield expectations versus the drought affected 2021-22 second crop season. This may help alleviate the production shortfall experienced during the first crop period earlier in the year. The news could not come at a better time, as the world is getting increasingly pessimistic regarding&nbsp;the impact of the Russian invasion of Ukraine on the global food market, not just in 2022-23, but also longer term.
Doing their part to ensure adequate supply.&nbsp;Against this backdrop of food security concerns, crop input companies are stepping up efforts to ensure their products are made available and at an affordable price to help offset expected declines in Russian, Belorussian, and Ukrainian supply. Nutrien (NYSE: NTR) followed up its recent announcement of production capacity expansion with even more aggressive plans to&nbsp;ramp up production of phosphate and nitrogen fertilizers, both through brownfield expansions and new capacity addition projects expected to come online through 2025 and 2027, respectively.
In Other News
Expanding markets served to cushion expected declines.&nbsp;One company in our WTR-CMI index—Valvoline (NYSE: VVV)—has been fielding questions and fighting investor perception of a sun-setting business for several years now, as EVs continue to grow their share of annual car sales and investors grow concerned over the company’s ability to continue to deliver superior growth in what many are seeing as a sun-setting market (lube oil for ICE passenger vehicles). However, the company is not taking these expectations lying down. Earlier, VVV announced its intentions to monetize its bulk and industrial lubes business and concentrate on growing its company-owned and franchised Valvoline Instant Oil Change (VIOC) network. More recently, the company announced that it has opened its first&nbsp;company-owned heavy-duty fleet service center&nbsp;to provide the same high-touch customer service as it currently does through its VIOC network to service to Class 5-8 vehicles that can weigh more than 30,000 pounds. We believe this move will significantly expand VVV’s addressable market in the near to mid-term, while providing a longer tail over the long term, which may ease investor concerns over the stock’s valuation levels.
M&amp;A deal flow continues.&nbsp;The chemicals and materials technology industry has been characterized by considerable M&amp;A activity over the last two to three decades and despite, or perhaps because of the slowing economic outlook and inflationary pressures, portfolio optimization efforts are continuing. Recently,&nbsp;PPG announced&nbsp;that it has completed the divestiture of Eberle Design, Inc. (EDI) to Vance Street Capital. Terms of the transaction were not disclosed. Meanwhile, global chemical and plastic distributor Brenntag (OTC: BNTGY) recently&nbsp;announced that it has entered a partnership&nbsp;with Saudi Al-Azzaz Chemicals Co. via a 75/25 joint venture. Looking to expand its geographic footprint and keep up with the M&amp;A-driven growth of SHW and PPG, AkzoNobel (OTC: AKZOY) recently&nbsp;announced that it reached an agreement&nbsp;with Kansai Paint to acquire the latter’s paints &amp; coatings business in Africa, which generates approximately $300 million in annual sales, with completion expected in 2023, subject to regulatory approvals.
Rating and Price Target Changes
EMN –&nbsp;Jefferies downgraded the stock to Hold from Buy and reduced its price target (PT) to $87 from $150.
FMC –&nbsp;CFRA upgraded the stock to Hold from Sell, maintaining its $126 PT.
SHW –&nbsp;UBS lowered its PT to $265 from $279 and maintained its Neutral rating.
VVV –&nbsp;Jefferies lowered its PT to $40 from $44 and reiterated its Buy rating.
Recent WTR Publications and Upcoming Events
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
Management Series Report – Westwater Resources Executive Chairman Terence Cryan and CAO Steven Cates
DISCLOSURES

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

Mat-Chem Notes for the Week Ended June 19, 2022

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;For the second week in a row, the market posted positive gains for the week, with the Russell 2000 leading with a 2.4% improvement, double the 1.2% appreciation of the S&amp;P 500. Our WTR-CMI index nearly kept pace with the large cap index by appreciating 0.9% last week.
Winners and losers.&nbsp;KOP and KWR led the stocks in our index with a 7.6% and 7.5% improvement, respectively. VVV also had a good week with a 5.2% appreciation, likely driven by the news that the company bought out its 50% JV partner in&nbsp;VCA Solutions, as well as reports that&nbsp;Saudi Aramco approached VVV&nbsp;about buying its industrial and fleet lube oil business. While lithium stocks were the top performers the prior week, with&nbsp;LAC announcing a collaboration agreement&nbsp;with Arena Minerals,&nbsp;PLL announcing positive results&nbsp;from a feasibility study of its Canadian spodumene property,&nbsp;LTHM announcing a collaboration&nbsp;with Lilium N.V. (NASDAQ: LILM), and&nbsp;ALB raising its 2022 guidance&nbsp;for the second time, last week saw these stocks at the bottom of the list as investors took profit and concerns over a lithium pricing peak were annunciated by a bulge bracket bank.
Another month of pain for the auto industry and its suppliers.&nbsp;After an ugly April, early May data on new car sales offer little hope of an improvement before 2H22. New car sales in&nbsp;France declined 10% Y/Y,&nbsp;Chinese sales&nbsp;look to be down 19% Y/Y, and companies still reporting monthly&nbsp;US sales&nbsp;indicate the domestic market in May was down 31% Y/Y. We therefore remain cautious on PPG and AXTA, given their high exposure to the automotive industry.
Organic food popularity continues to grow.&nbsp;Organic food sales&nbsp;grew 6% Y/Y in 2021&nbsp;and are expected to continue to grow at above-market rates. With organic farming being the first and still most important market for bio-based ag input products, the trend is especially beneficial to MBII and BIOX, as well as other ag-chem companies focused on bio-based alternatives.
End of a saga.&nbsp;Cruiser Capital was the winner of the proxy fight with AVD management, as&nbsp;all three of its board member nominees won shareholder approval. Cruiser, an activist shareholder focused on unlocking value, may now influence AVD’s future direction and strategy.

WTR-CMI WEEKLY PERFORMANCE

Automotive &amp; Transportation Market
Commercial vehicle market’s struggles continue.&nbsp;The European&nbsp;ACEA released its new commercial vehicle sales&nbsp;data for April, which showed a 27% Y/Y decline (20% reduction YTD) in monthly sales of commercial vehicles in the region, going against tough post-pandemic bounce in demand in 2021. While comps should get easier in June, May results may continue to see double-digit declines in sales (and by extension, production) of commercial vehicles. Furthermore, with Europe struggling with the economic impact of Russian sanctions, demand may not improve in 2H22 as we previously hoped, suggesting that negative monthly comps may continue through the summer months, and it may be 4Q22 before markets stabilize and demand turns positive.
Passenger vehicle markets decline.&nbsp;Although the Chinese government&nbsp;lifted the lockdown mandate in Shanghai&nbsp;earlier this month and cut taxes on new vehicle purchases in half to 5% through the end of 2022, the moves aren’t likely to reverse the multi-month trend of Y/Y sales declines of new passenger vehicles in the country in the short term. While the tax cut may spur a buying spree in 2H22, as a similar move did in 2015, it’s likely to come at the expense of future growth by pulling forward demand into 2022 and resulting in slower growth in 2023, as the tax regime returns to normal levels. But with the continuation of the zero tolerance policy when it comes to COVID cases, the Chinese economy may remain sluggish, suggesting the world’s largest automotive market is not out of the woods yet.
June starts off on a low note.&nbsp;Meanwhile,&nbsp;Toyota blamed parts shortages&nbsp;due to the Shanghai lockdowns for its reduction in June production targets to 850,000 vehicles worldwide, down from 950,000 expected previously. The company hopes to maintain that rate of production through August, but unless Shanghai ramps up its production activities rapidly in June, summer targets may be subject to further reductions. Similarly,&nbsp;Stellantis announced&nbsp;that its Jeep production plant in Southern Italy will stop production for a week due to semiconductor chip shortages, as that problem continues to persist in global markets, placing a limit on the speed of production recovery in the automotive industry in 2022. Consequently, 2Q22 may continue to see Y/Y declines in automotive and transportation markets affecting key suppliers to the industry, which in our sector include companies like PPG and AXTA, the two leading automotive coatings companies, as well as other suppliers, such as FUL (adhesives &amp; sealants), AVNT (specialty plastics and composites), and HXL (composites), among others.
Lithium &amp; EV Ecosystem
Domestic EV supply chain continues to evolve.&nbsp;Stellantis announced plans,&nbsp;in conjunction with its partner, Samsung SDI, to invest $2.5 billion in a new EV battery plant in Indiana, with production slated for 2025. To ensure adequate supply of lithium for the battery plant,&nbsp;Stellantis also announced an agreement&nbsp;with Controlled Thermal Resources Ltd. (CTR) to supply the company with up to 25,000 metric tons per year of lithium hydroxide over the 10-year term of the agreement. Meanwhile, even as the EV industry looks at a potential shortage of batteries needed to fully meet consumer demand by 2024-25,&nbsp;Panasonic is looking to triple the size of its battery business in North America&nbsp;by 2029 to try to meet the expected market demand in the region, as consumers here are expected to show a greater appetite for EVs, given the exorbitant gasoline prices in the wake of misguided federal policies and repercussions of Russian sanctions.
EV game is not for the faint of heart.&nbsp;The EV battery industry may be entering an early consolidation phase, as the UK’s&nbsp;Britishvolt said it will buy German battery cell developer and manufacturer EAS&nbsp;from Bulgaria’s Monbat for €36 million ($38.6 million) to help it scale up its own production of EV batteries. Meanwhile, another British company, Johnson Matthey, is getting out of the EV battery business by&nbsp;selling its related operations&nbsp;to EV Metals Group (European operations) and Nano One Materials (North American operations). Pooling resources and technological know-how may result in faster investments in battery production around the world, as well as accelerate improvements in battery technologies that can potentially close the industry’s lithium and other critical materials supply gap&nbsp;looming just over the horizon. One answer to the lithium and other battery materials expected shortage is to ramp up lithium battery recycling capacity. To that end,&nbsp;BMW’s Brilliance Automotive (BBA) joint venture has established a closed cycle recycling operation in China&nbsp;for the reuse of the raw materials nickel, lithium, and cobalt from high-voltage batteries. Although still in in the pilot stage, end-of-life battery recycling will be an essential part of the EV battery supply chain, driven by both critical material scarcity and environmental concerns, as recycling batteries reduces CO2&nbsp;emissions by up to 70% compared with mining, processing, and converting virgin materials for the battery industry.
African countries getting into the EV act.&nbsp;Not content to be relegated to a raw material supplier for critical metals such as cobalt and copper, The Democratic Republic of Congo and Zambia concluded a&nbsp;cooperation agreement&nbsp;to help develop a battery and electric materials industry in the region, rather than continue supplying the more developed parts of the world with the critical metals, losing out on the value creation that accompanies the processing of these metals into higher-value products for the battery and electrical components industries. It remains to be seen how successful these efforts are and what, if any, role China will play in developing the required infrastructure, but we are encouraged to see countries with primary metal deposits attempting to improve their economies by developing downstream capabilities, rather than exporting raw metals with economic benefits accruing to other regions.
Ag-Chem and Ag-Tech
Best cure for high prices is high prices (part 1).&nbsp;Sky-high fertilizer prices may have resulted in demand destruction, as farmers look for alternatives, like manure, minimize per ace use, and look for other ways to reduce their input costs. As a result, CF Industries (NYSE: CF) led a&nbsp;recent 30% price drop&nbsp;for nitrogen (ammonia) fertilizers. While the price reduction isn’t likely to positively affect farmers’ costs in the current season, it may begin a trend of input prices returning to more reasonable levels, which would set up US farmers for better incomes in 2023, provided commodity prices remain elevated, which appears likely given the disruptions to the global crop markets caused by Russia’s invasion of Ukraine and resulting disruptions not just to shipments of stored grains, but to this year’s plantings and therefore next year’s crop supplies.
US plantings finally catching up to five-year averages.&nbsp;Over the past two weeks, US farmers were able to take advantage of drier and warmer weather to&nbsp;almost catch up with their plantings of corn and soybeans, which now stand at just 1% below five-year averages. However, it may be too soon to declare victory, as soybean emergence stands at only 39% at the end of May 2022, compared with 59% last year and the five-year average of 43%. Finally, only 73% of the US spring wheat crop is in the ground. Normally 92% of it is planted by late May. We have yet to find out how much acreage was actually planted in the US compared with the USDA’s estimates and how much more acreage will be left fallow or planted with cover crops awaiting a better year next year (hopefully). Bottom line, we believe even with superior yields, US and LATAM harvests may fall short of meeting the global need for row crops and cereals, given the continuing war in Ukraine and disrupted supply chain as a result. This suggests commodity crop prices will remain elevated into the 2022-23 planting season, allowing US farmers to absorb the inflation seen in ag inputs from seeds to ag-chemicals to fertilizers. In turn, this should be a positive for ag-chem companies such as FMC, AVD, and CTVA, as well as bio-based crop protection companies such as MBII and BIOX.
In Other News
Bio-based inputs find applications beyond ag markets.&nbsp;The global market for&nbsp;bio-adhesives, or those products that use intermediates such as starch or gelatin, reached nearly $2.2 billion in 2021. Looking forward, IMARC Group expects the market to reach $4.81 billion by 2027, expanding at a CAGR of 13.9% from 2022-2027. Yet another industry being affected by improved performance of&nbsp;bio-based alternatives is plastics, specifically bio-based polyethylene and polypropylene made from renewable resources such as sugar cane, non-edible plants, and biogenic fats and oils. These and other similar developments highlight the chemical industry’s leading role in helping the global economy reach government-set mandates for carbon emission, minimized environmental impact of plastics and enable zero emissions and circular economy trends.
In the world of paints &amp; coatings.&nbsp;Chinese chloride-based TiO2&nbsp;historically has been a poor cousin to sulfate-based production in Europe and North America, which results in higher purity pigment that can be used in more demanding applications. However, most of TiO2&nbsp;capacity expansions to serve the paints &amp; coatings industry (TiO2’s primary end-market) have occurred in China. As the Chinese housing market stalled,&nbsp;more of this volume found a home in export markets. As chloride-based technology improves and the performance gap between chloride and sulfate processes narrows, price differences between the two sources are narrowing as well. Should China’s construction market recover, higher domestic demand may result in less export volumes, which has the potential to drive up TiO2&nbsp;prices and put further pressure on paints &amp; coatings companies’ margins, even as volume growth remains elusive and consumer tolerance of higher prices erodes. We therefore remain cautious on SHW, PPG, AXTA, and RPM for the time being. Speaking of PPG,&nbsp;a recent story&nbsp;suggests the company may be looking at joining forces with AXTA, something that’s been rumored on and off for the past two years. While we believe antitrust issues related to automotive OEM and collision repair coatings may make the combination difficult (we believe SHW to be a more natural acquirer of AXTA, given its lack of sizable transportation coatings business), a merger and subsequent divestitures of some of the businesses could be a solution PPG may be willing to entertain.
Best cure for high prices is high prices (part 2).&nbsp;Subdued demand and full warehouses are resulting in&nbsp;commodity resin prices, such as those of polyethylene and polypropylene, to decline recently for the first time in several months. While it remains to be seen if the trend can hold, given rising oil and natural gas prices, the reduction in spot and contract prices may be a positive for large commodity plastic consumers, such as AVNT, as well companies that utilize plastic packaging in their products (everyone from ECL to MBII), which may see their margins improve ahead of expectations over the next one to two quarters.
Recent WTR Publications and Upcoming Events
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
Westwater Resources (NYSE: WWR) Fireside Chat – June 9
Rating and Price Target Changes
ALB –&nbsp;KeyBank raised its price target (PT) to $217 from $215 and reiterated its Underweight rating; Wells Fargo raised its PT to $320 from $285 and reiterated its Outperform rating; RBC raised its PT to $314 from $300 and reiterated its Outperform rating; Deutsche Bank raised its PT to $320 from $290 and reiterated its Buy recommendation; Berenberg Bank raised its PT to $260 from $250 and reiterated its Buy rating; UBS downgraded the stock to Neutral from Buy and reduced its PT to $260 from $300.
CMP –&nbsp;Deutsche Bank lowered its PT to $55 from $73 but reiterated its Buy recommendation.
CTVA –&nbsp;Deutsche Bank raised its PT to $72 from $64 and reiterated its Buy rating; Barclays initiated coverage with an Overweight recommendation and $71 PT.
ECL –&nbsp;Argus lowered its PT to $200 from $230 but reiterated its Buy recommendation; UBS on the other hand upgraded the stock to Buy from Neutral and raised its PT to $205 from $186; Credit Suisse upgraded the stock to Outperform from Neutral and raised its PT to $195 from $180.
EMN –&nbsp;Credit Suisse initiated coverage with Outperform and $130 PT.
FMC –&nbsp;Credit Suisse initiated coverage with Underperform and $109 PT.
PLL –&nbsp;Cowen initiated coverage with Outperform and $90 PT.
PPG –&nbsp;Credit Suisse initiated coverage with Underperform and $115 PT.
SHW –&nbsp;Credit Suisse initiated coverage with Underperform and $245 PT; Evercore ISI raised its PT to $310 from $290 and reiterated its Outperform rating.
DISCLOSURES

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

Mat-Chem Notes for the Week Ended June 5, 2022

United States

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

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
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Ppg Industries (PPG US)

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

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

Water Tower Research

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

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

Water Tower Research

Mat-Chem Notes for the Week Ended July 3, 2022

KEY HIGHLIGHTS WTR-CMI last week. After a dead cat bounce the previous week, last week saw the market resume its sell-off, with the S&P...

Water Tower Research

Mat-Chem Notes for the Week Ended June 19, 2022

KEY HIGHLIGHTS WTR-CMI last week. The sell-off continued last week, with the S&P 500 losing 5.8% and the broader Russell 2000 Index giving up...

Water Tower Research

Mat-Chem Notes for the Week Ended June 5, 2022

KEY HIGHLIGHTS WTR-CMI last week. For the second week in a row, the market posted positive gains for the week, with the Russell 2000 leading with...

Water Tower Research

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