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The Era of Peak Water Is Here
The global water services industry is set to double to $1 trillion in annual revenues by 2020 as companies address the growing problem of water scarcity, according to a new BofA Merrill Lynch Global Research report called “A Blue Revolution – global water” based on the collective views of 35 analysts, covering 60 companies from 18 countries. The report is the latest thematic megatrend piece from BofA Merrill Lynch Global Research following previous reports on obesity, energy efficiency, safety and security and a previous report on water.
Water is on course to be scarcer than oil by 2030, with demand outstripping water supply by 40 percent. Close to half of the world’s population will be living in water-stressed areas. Insufficient freshwater, uneven distribution and climate change are factors limiting the supply of water, while demand is growing in homes, businesses and farms around the world. Unless more sustainable water management practices are adopted, 45 percent of projected 2050 global GDP at 2000 prices could be at risk – equal to $63 trillion.
BofA Merrill Lynch Global Research has identified the companies it believes are in the strongest position to benefit from the global dynamics of water supply and demand. The report highlights how Asia and South America are poised for the strongest growth. With public finances under pressure, the private sector will have to provide more funding. The report estimates that 30 percent of global investment will come from private sources by 2016, compared with only 16 percent today.
The report outlines three themes of addressing water scarcity, explaining the challenges in each area and the potential solutions that companies are developing. The themes are: Water Treatment, Water Management, and Water Infrastructure and Supply. It identifies companies that have the greatest exposure to the megatrend of scarcity.
“By addressing the issue of water scarcity, companies can reduce the likelihood of social unrest and trans-boundary disputes,” said Sarbjit Nahal, equity strategist at BofA Merrill Lynch Global Research. “Together with our sector analysts, we are setting out in this report the 60 global stocks covered by BofA Merrill Lynch Global Research that are best-positioned to lead in addressing more sustainable water use and to more closely match supply with demand.”
Water treatment – emerging market growth driving demand
Rising water scarcity and growing demand from agriculture, housing and industry will increase demand for water treatment. The report details how agriculture accounts for 70 percent of water use and demand is rising as diets change. As industries across emerging markets expand, their demand for water rises. Municipal and residential water use is also growing on the back of urbanization. Wastewater reuse stands at only 2.41 percent of all water withdrawals globally.
The report outlines opportunities in areas such as producing drinking water, irrigation, or returning water to the natural environment. It focuses on sectors with heavy volumes and environmental constraints (such as utilities, oil and gas, and mining), those with strict water constraints (food and beverage, cosmetics) and variable effluents (petrochemicals, energy, and breweries). The report highlights how desalination could emerge as a $25 billion industry by 2025.
Water management – smarter irrigation is key
Against the backdrop of growing water scarcity, fragmented water management and conflicting interests of stakeholders are too expensive and unsustainable in the long term. There is growing recognition that the water crisis is as much a consequence of weak policies and poor management as natural scarcity. Effective water management enables users to cut their use of water. It also mitigates the risks associated with water shortage and reduces the need for capex-intensive solutions.
With up to 60 percent of water used in agriculture wasted, smarter irrigation is essential. Household water management has huge potential – if all U.S. households installed water-saving features, the dollar-volume savings would be more than $4 billion per year. Companies involved in areas such as drought-resistant seeds and crops and smart metering are poised to benefit from appetite for water management.
Water infrastructure and supply – growing role of private finance
The report highlights the global need for water infrastructure. Developed markets need to replace crumbling and incomplete infrastructure while emerging markets need to build infrastructure for the first time. Annual water investment needs are estimated to rise to more than $770 billion for the OECD and BRICs by 2015. With public funding increasingly under financial pressure, we believe the private sector will need to play an increasingly important role.
Water infrastructure is currently a $360 billion-plus market and is registering growth of up to 6 percent in some segments. Scope for growth is especially strong in Latin America and Asia. Companies involved in engineering, construction and consulting, pipes, pumps and valves and sewage treatment will benefit.
BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global Research franchise covers more than 3,300 stocks and 1,060 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named Top Global Research Firm of 2011 by Institutional Investor magazine; No. 1 in the 2012 Institutional Investor All-Asia survey for the second consecutive year; No. 2 in the 2012 Institutional Investor All-China, All-Europe, All-Japan and All-Latin America surveys; and No. 3 in the 2012 Institutional Investor All-America survey. The group was also named No. 2 in the 2012 Institutional Investor All-America Fixed Income survey, as well as in the inaugural Institutional Investor Emerging Markets Equity and Fixed Income survey, covering Emerging Europe, Middle East and Africa.
Additionally, BofA Merrill Lynch Global Research was named the No. 1 Global Broker by Financial Times/StarMine, as well as ranked No. 1 in the U.S. and Europe and No. 2 in Asia. The group was also named No. 1 in Asia and No. 2 in the U.S. in the Wall Street Journal Best on the Street 2012 Analysts Surveys. The group was also the winner of the Emerging Markets magazine’s EM Research Global Award for 2010 and 2011.
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