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Mat-Chem Notes

WTR-CMI last week. Last week saw the market retrench, with the S&P 500 losing 1.3%, while our WTR-CMI index of 30 chemicals and materials technology stocks managed to modestly outperform the broader Russell 2000 index (-3.6%) by declining 3.4%. Only one stock in our index, SXT, managed a positive gain for the week, appreciating 3%. FMC was the worst performer in our index, losing 12.3% of its value on a short seller’s report that the company felt obliged to address. Ag-tech portfolio shuffles continue. Privately held DLF, a global seed company, completed the acquisition of CTVA’s alfalfa seed breeding program, which was announced last month. The transaction expands DLF’s seed offering into alfalfa, while allowing CTVA to focus its R&D and marketing efforts on other promising opportunities in seeds and biologics. Laying claim to more real estate. ALB announced that it is in talks to acquire Liontown Resources, Ltd. (ASX: LTR-AU) for $4.3 billion in a bid to expand its mineral resources in Australia at a time when its Chilean operations are under scrutiny due to that government’s revised attitude toward private mining of country’s resources. The diversification away from Chile and into a geography historically favorably disposed toward mining activities, ALB may be in a better position to meet the coming lithium demand wave and position more of its materials as an IRA-compliant source for battery manufacturing and EV production. Henkel’s 1H23 improved despite negative volumes. The largest global manufacturer of adhesives and sealants delivered a solid 1H23 and raised its outlook for 2023 on still-strong pricing and less onerous RM costs that helped offset the weakening demand environment. The results underscore the chemicals and materials technology companies’ ability to handle demand, or inventory-driven volume declines, while still delivering solid profit growth, with price-RM relationships being a more meaningful factor in profit and FCF generation. The German company’s results may bode well for its smaller US competitor, FUL, as well as other chemicals technology companies that may benefit from easier RM comps and still higher Y/Y prices, such as PPG, RPM, AVNT, and SHW. Weakening sales pace in China. Chinese new car registrations grew a very modest 2% Y/Y in August, indicating Chinese consumers are growing increasingly cautious in a slowing economic environment. Although August sales in Germany and the US grew at a significantly stronger pace, off weak year-ago comps, the flattening of automotive growth in China is a troubling signal.