The coming global water shortage.
It dwarfs all other potential global shortages. Peak oil? A piker compared to no water. Push comes to shove and we will find replacements for oil. Water? Drink or die. The biology is that simple.
In my December 2008 book The Jubak Picks I wrote that “Water–perhaps even more than oil–is at the center of the current environmental crisis.”
“There’s the global shortage of water that’s clean enough to drink and clean enough to use in industrial processes. The World Bank reports that 80 countries now have water shortages that threaten health and economies. The dimensions of the problem get even larger when you include water-short regions of otherwise water wealthy countries. For example, the United States has, on average, enough water, but the cities of the Southwest, California, and Florida all face severe water shortages.
“A growing population–especially a population that insists on moving to water short areas such as Florida–is part of the problem. More people equals a demand for more water. But that’s only part of the problem. Since 1900, water use has grown six times while global population has increased by only two times. As economies grow and as living standards go up, the per capita demand for water climbs. We also insist on fouling the planet’s limited supplies of fresh water. According to the World Bank about 95% of the world’s cities still dump raw sewage into their waters.”
It’s not hard to see the crisis coming. What’s hard—and frustrating to investors—is that there’s aren’t very many ways to invest in water.
In my book I suggested water pump and pump stocks such as Flowserve (FLS). Last summer I wrote about irrigation stocks such as India’s Jain Irrigation Systems. See my post https://jubakpicks.com/2009/08/28/is-there-profit-in-water-by-the-drop/ ) Good company but horrendously difficult to buy without an account in India. (It’s 500219 on the Bombay Stock Exchange.)
But I’ve got a new suggestion–one brought to my attention by a recent newsstory on Bloomberg–for where to look for water stocks–Singapore–and three specific stocks for you to look at.
The island nation that gets three times as much rain as London has become a world leader in water recycling and purification.
For Singapore, water technology, is a necessity. The densely-settled and heavily industrialized city-nation depends for survival on water imports from Malaysia. That’s not exactly a comfortable dependence. Singapore was expelled from the Federal of Malaya in 1965 and the two countries have been friendly and often not so friendly rivals since then. In 1965 the country set self-sufficiency in water as a national goal. Singapore isn’t there yet. But the country is set to open the newest of five water recycling plants. That will enable Singapore to recycle 30% of its water, the most of any major city in the world.
And all the expertise that Singapore has gained working on its own water needs makes for a pretty nifty export industry in a thirsty world.
Especially since the Singapore government, always on the lookout for a chance to grab a piece of a new global industry has decided to back its companies with research money–$240 million from the government to lure companies like General Electric (GE) to open research lobs in the country—and with financing so they can offer the kind of low cost loans and necessary to lock up deals these days. In the last three years Singapore’s water companies have signed 100 projects worth $5.6 billion.
Who are these companies?
I wrote about one of them not so long ago—Keppel Corporation (KPELY.PK)—in a post about Asian stocks that paid unexpectedly high dividends. (See that post here https://jubakpicks.com/2010/04/13/asian-stocks-beat-u-s-equities-on-dividends-who-knew/ )
Keppel’s biggest business is building offshore oil rigs but its infrastructure business includes a fast-growing cooling systems business with contracts in China, the Middle East and the United Kingdom. A wholly-owned subsidiary Keppel Integrated Engineering is targeting what it calls the green infrastructure business with assets that include two wastes to energy incinerator plants and a water processing plant. Next year the company will open a $1.1 billion water recycling plant in Qatar.
Another is Hyflux (HYFXY.PK), a maker of membranes for filtration plans that built its first water desalination plant in 2005. In 2008 the company beat out General Electric for a $468 million contract to build the world’s largest filter-based desalination plant in Algeria. The company has done business in China since 1994 and entered the Indian market in 2006. Revenue climbed by 301% from 2005 to 2008.
A third Singapore water play is Sembcorp Industries (SMBDT.PK). The partially state-owned company is building a $1.7 billion water desalination plant in the United Arab Emirates and another $1 billion combination power/desalination plant in Oman. The company operates a similar combo plant in Vietnam.
And as is typical of many Singapore companies Sembcorp has its finger in many pies. One, that makes a pretty good business on its own, is developing, marketing, and managing industrial parks in Vietnam, Indonesia, and China.
Full disclosure: I don’t own shares of any company mentioned in this story in my personal account.
I think that technology is still moving in this area, even if it’s not been commercialized yet. This piece from the Economist is about solar-assisted (the old-fashioned kind) desalination.
http://mmadan.wordpress.com/2009/10/30/the-economist-desalination-breakthrough/
WVR this may help.
http://www.wou.edu/las/physci/ch412/hydrolysis.htm
The ocean is the best reason to think the water shortage will eventually go away. Also, I thought there was a company using Nanotechnology who was solving the inefficiencies of the filtration systems.
Any one have a name on that company?
Also, yes there are salts in sea water, but why is it so difficult to separate it from water? Anyone know? Anyone know on what order of magnitude the bond of the salts to water is?
Jim, it seems that you’ve written about water stocks for years — many of them long ago ran up. I could find very little data about these Indonesian stocks – can you/anyone recommend free sites that provide financials for these?
Student of J – the charts on DGW, an IPO from June ’09, looks bad – suggest you wait for a clear upturn before buying more (no need to catch a falling knife…)
Is it about time to take DGW off the watch list? It’s down 38% since first mentioned and down 10.5% since I bought a little. 🙂 I was thinking about doubling down at this level.
Jim,
I notice that Keppel did not issue a dividend for the first quarter, Do you think this will be reinstated?
If not do you think the stock will continue to fall lower?
A great pure water play right now would be Tri-Tech Holdings (TRIT). They design and construct water, wastewater, tailgas, torent forecasting, groundwater monitors, and recently awarded a landfill project. All of these are major priorities for China, especially for the inner and more rural areas they mainly have clients. They just completed a 30 million dollar follow on offering at $14 a share, and this was after their US IPO back in September raising 11.5 million at $6.75 a share. TRIT ended 2009 with over $7 million in cash, so with approximately $37 million of cash on hand (market cap of $75 million) this is a cheap stock at $14 a share. Management stated that it plans to make acquisitions so that TRIT can start becoming the prime contractor on jobs, and not just a subcontractor.
I bought some shares of QKLS- QKL stores. It is a chinese stock. A supermarket co. with 34 stores and 2 department stores.Planning to open 20 new stores this yr. Is it going to be the china walmart or china Kroger? I think supermarket is a fairly new concept in china, imported from the west. Does anyone have any insight or info on this co. I would appreciate it.
What’s up with BRF it was up 2% today? I thought with inflation Brazil might be going down. Anyone know?
Jim,
Great topic, water consumption in a growing world. Water as a commodity has interested me for a while, kind of “flows” under the radar!! Other than individual stocks, nationally, US or internationally, Singapore, do u have any input on water ETF’s like PHO which is moving higher lately and invests in the US and other countries.
Thanks.
Jim,
you’ve mentioned before DGW, the Chinese water company that makes large scale and consumer scale water purifiers. It’s stock seems to jump about, but is overall down somewhat since you last mentioned it. Any reason you prefer the Singapore companies over this one? Is the exposure to China too risky?
Thanks
The problem with investing in water plays is that it’s so “political.” Governments will fight back if citizens lack affordable water and water providers are seen to be profiting excessively. Regulated utilities will remain so, with screws tightening. Nationalization of precious resources will always be a threat. So we are left with only the providers of critical technology parts. Pumps, filters, etc…
Jim:
Welcome on board. I have been watching Singapore for sometime and I do have some money invested in Singapore. So far it’s pretty good. I have very good impression about that country as investment. In fact, I was disappointment you did not add Singapore to your list of potentially high growth emerging countries in one of your past postings. Thanks for this posting, because I am looking for more surprises from the off beaten path.
seaturtlelady:
You asked me what I bought recently. You know I got ridiculed on GS, so I decided to withhold any particular names. So, please don’t ask the names., but I’ll give you as close hint as I can.
There are still a lot of good investment out there, if you look beyond the beaten path. I would not call them bargain, but reasonable. After all, the market went up 70% or 80%.
I’d like to buy some GDX or GG, but the price is beyond my level, so I bought a major silver miner which I have been watching for quite sometime. It’s price seems moves up & down with GG and yet more reasonably priced than GDX. I also bought a major Mexican company (not Carlos Sims’ phone co.) which is consumer driven, also pays very good dividend. Despite the drug violence, Mexico is expected to have around 5% growth and I wanted to have some presence in Mexico too. Jim mentioned Cemx in his book, but it’s too risky for my appetite. So I found this one. I also got a foothold in coal mining at reasonable price (not the one recently exploded). I also got a tech company that pays high dividend. (You may remember I asked on this blog if anyone knows a tech company that also pays good dividend couple months ago, none answered. But I found it myself and bought it during a drip. It was my goal to find couple of tech stocks with BOTH growth potential and relatively high dividend.) I also finally got a foothold in central and east Europe! Not through Central Euro Distribution, but another major consumer company operates there but has link to US. I have been looking to get a foot into C & E Euro for long time. BTW, I bought Singapore during the earlier correction. I bought quite numbers of stocks early this year outside the beaten path, they are all doing well. (I also missed several great small stocks. You know, sometimes you just want to take it easy.) All these ideas came form my own macro view of the world economy which I did not learn from FOX. (You may know that some people thinks I got brain-washed by FOX, though I do get a lot of great hints from Jim.
Jim
YOur readers might ‘Google’ the words PUB Singapore and Newater to get a view of their public project that reclaims fresh water from wastewater. But the real leader in this technology is San Diego and elsewhere in CA who have been at it four years. Singapore has jumped on this from necessity as you mentioned.
GE is pretty late to the game of water treating. Desalination and reclaiming wastewater have been around for decades. Ask anyone in the Middle East. It’s old technology and really nothing proprietary or unique about it. I know folks that have worked in this area for 30+ years and cannot see anyone who has a real advantage that changes the game in that space. E.g. Dow Filmtec membranes have been a standard for many years.
Hi Jim,
This is a very intriguing idea to me, and seems like it could make for a good long-term play. Typically when you write articles such as this, you provide some sort of ranking of the various plays. Can you do that here and rank these 1-3 based on your expectations?
Thanks!!