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Mat-Chem Notes

WTR-CMI last week. While the large-cap S&P 500 managed to post a modest improvement for the week, both the Russell 2000 and WTR-CMI declined, with only four of the 30 stocks in our index posting a positive return for the week. Our specialty chemicals and materials index also trails the broader market indexes on a Y/Y and YTD basis, with disappointing 1Q23 results and 2023 guidance reflecting the stubbornly high input costs and worsening economic outlook suggesting the potential for another round of customer inventory destocking ahead of an expected slowdown. ECVT was the worst performer last week, as the market digested the announcement of a 14-million share secondary offering. Planting progress suggests strong yields come fall. US planting of soybeans and corn is proceeding well ahead of average pace, as farmers are increasingly planting early, given the dry spring weather, and are nearing the end of the process in most grain belt states. The early planting, full time to mature, and early flowering as a result, suggest yield expectations may increase as the summer progresses (and El Nino doesn't play dirty tricks), which would lead to abundant new crop looking for a market that may have shrunk, given Chinese penchant for purchasing non-US grain. Potential lower commodity prices can in turn make things difficult for ag-chem companies in 2024, which is one reason these stocks have been down 10-20% YTD and 15-30% Y/Y. ALB takes advantage of IRA to supply Ford. ALB announced an agreement with Ford Motor Co. (NYSE: F) to supply the latter with 100,000 metric tons (mt) of lithium hydroxide over a five-year term through 2030. The OEM is looking to shore up its EV supply chain with materials produced in the US or sourced from a foreign country with an FTA with the US, as required under the IRA to take advantage of tax credits and consumer rebate eligibility. The increased focus on IRA compliant sources of critical metals and batteries should be a positive for WWR, TMC, NMG, and other emerging metal and material producers in FTA countries, and especially in the US and Canada. Lomiko upgrades its reserve estimates. Another such early-stage critical metal developer is Canada's Lomiko (TSXV: LMR; US-OTC: LMRMF), a company looking to develop a graphite mine in Southern Quebec. The results on the 2022 drill program allowed the company to increase its indicated reserves by 195% compared with 2021 estimates. Continued positive drilling results and progress on concentrate plant may attract strategic investors and offtake agreement partners eager for a North American source of graphite.