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



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

Source: YCharts; August 5 close

WTR-CMI last week. Our WTR-CMI index of 30 chemicals and materials technology stocks couldn’t keep up with the broader market last week, slipping 0.4% versus the prior week, while the S&P 500 posted a 0.4% appreciation and the Russell 2000 rallied 1.9% for the week. Strong 2Q22 results and a strong outlook drove KWR stock up 15.3% and contributed to MTRN’s 8.6% appreciation, with LAC’s 7.7% improvement rounding out the top performers for the week. ECVT’s larger secondary offering priced at $8.75 resulted in a 12.9% pullback for the stock, while VVV declined 11% despite announcing the sale of its Global Products business to Aramco, as investors remained concerned about margin pressures and longer-term prospects for a company still largely focused on ICE vehicle maintenance. EAF’s (9.6%) weekly performance also came courtesy of the outlook it provided on its 2Q22 earnings call, which highlighted slowing steel production and elevated costs.

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