Water is the new gold, a big commodity bet

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By Paul B. Farrell | MarketWatch – Tue, Jul 24, 2012 12:03 AM EDT

SAN LUIS OBISPO, Calif. (MarketWatch) — “Is water the gold of the 21st century?” asks Fortune. Answer: Yes, water is the New Gold for investors this century.

In 2010 global water generated over a half trillion dollars of revenue. Global world population will explode from 7 billion today to 10 billion by 2050, predicts the United Nations. And over one billion  “lack access to clean drinking water.”

Climate and weather patterns are changing natural water patterns. And industrial pollution is making water a scarce commodity. So the good news is that huge “opportunities exist for businesses that can figure out how to keep the pipes flowing.”
Yes, it’s a hot market. So, expand your vision for a minute. How many bottles of water do you drink a week? How much did you use for a shower? When you flushed a toilet? Wash your car? Cooking? Lattes? And my guess is your city water bill’s gone up in recent years.

So ask yourself: What happens in the next 40 years when another three billion people come into the world? Imagine adding 75 million people every year, six million a month, 200,000 every day, all demanding more and more water to drink, to shower, to cook, to everything. All guzzling down the New Gold that’s getting ever scarcer.

Population, the explosive driver in the demand for ever-scarcer water

Now here’s the real scary stuff, the investor’s basic multiplier. In the 12 short years leading up to 2011 the world added a billion people. China’s population is now 1.3 billion. Plus they’ll add another  100 million in the next generation, while India adds 600 million according to United Nations experts.

China’s already planning as many as 500 new cities to house all their new folks. Imagine, 500 new cities each housing 100,000 or more people, and that’s just for half of China’s projected growth to 2050, all demanding more water. The numbers are overwhelming.

Today Americans use 150 gallons a day, compared with 23 gallons in China. But they’re catching up, just check out any panoramic travel photos of China’s beautiful megacities, Shanghai, Beiiing, Guangzhou. And read about skyrocketing sales of Ferraris, Cartier watches, Gucci handbags and luxury goods in China. China has its own version of the American Dream!

Seriously, just a few decades ago China was an emerging country, a bit backward, not a global economic threat. But change is happening at light speed. Soon their GDP will overtake ours.

India expects their water demand to double in one decade while Fortune says “expanding populations will also swell demand for agricultural water some 42% by 2030,” in two decades.

China’s mining “new gold,” for agriculture, industry, economic leadership

You probably “think individuals consume the most water,” says Fortune. Not so. Agriculture accounts for 71%, and industry another 16% for a total 86% of all water use in the world. It even takes 71 gallons to produce a single cup of coffee, forcing Starbucks to “cut its in-store water usage by 25% by 2015 with, for example, espresso machines that dispense less water.”

Here’s Fortune’s summary of the global market for all water users: Total worldwide revenues of $508 billion in 2010 … the bottled water market generated $58 billion of that total and growing fast … industry needs $28 billion for water equipment and services to all kinds of businesses … another $10 billion covers agricultural irrigation … another $15 billion in retail products like filters and various heating and cooling systems … $170 billion is used for waste water, sewage systems, waste-water treatment and water recycling systems … and $226 billion for water utilities, treatment plants and distribution systems. Read our Weekend Investor column on food and water investments to weather the drought.

New Gold hidden in steaks, auto tires, chickens, designer jeans

So humans consuming lots of bottled water are not the world’s biggest guzzlers. It’s our lifestyle and consumer habits that accelerate the impact of population growth. Everything we eat, wear and use has a big water-use price tag, says Fortune:

“Consider the impact on the water supply when more people in developing nations begin living Western lifestyles. In India alone, water usage is expected to rise by nearly 100% over the next 20 years. Expanding populations will also swell demand for agricultural water some 42% by 2030.”

What we must do is grow more crops “with less water by applying genetically modified seeds, drip irrigation, and other technologies.”

In short, New Gold is costly to purify and the cost will keep going up. So the price of the New Gold will appreciate in the future for investors betting on this key commodity.

Consider this data: It takes 70 gallons of water to produce 50 cents worth of milk, says Danielle Commisso in Carnegie Mellon Today. In Fortune we learn those designer jeans your daughter just bought require 2,906 gallons of water, mostly from growing cotton … a pound of that juicy prime steak you had for dinner required 1,857 gallons … while a pound of that finger-licking-good chicken for lunch used 467 gallons … a pound of rice pilaf is a little less at 407 gallons … how about that bowl of shredded wheat you had for breakfast? A pound needed 160 gallons … and a pound of steel needs a mere 31 gallons … so why does a car requires 104,000 gallons you ask? Most of it from the rubber.

Add it all up and you got mega-opportunities the next generation, in a world adding a staggering 200,000 people each and ever day.

Long-range solutions do exist for coming global water shortages

“The good news is that long-term solutions” do exist for today’s global water problems: “20% of Singapore’s drinking water comes from processed sewage” thanks to innovative superfine filters. China’s constructing a 1,816-mile “aqueduct to move water from rivers in the south to the parched northeast.” And global water companies like Veolia and Suez, in France, and ITT are “partnering with municipalities to manage water.”

“Beating the Coming Water Shortage” was the challenge headlining Fortune’s feature. To get the message across it also highlighted several examples where government and industry are cooperating to “beat the water shortage” problem:

In America a desalination project is underway, at a cost of $700 million, to supply 8% of San Diego County’s drinking water by 2014, a county growing at a rate of almost 17% a decade. The Tampa Bay Water Utility is spending $210 million for Veolia to build a treatment plant to provide 120 million gallons a day for 2.4 million people who had been using well water.

Get your feet wet in wet stocks and watery ETFs

Where can you invest is the New Gold? Easy: Check out the two French giants, the $17 billion Veolia Environment (VE) , a global leader in environmental services. And the $8 billion French company GDF Suez Energy North America, which has customers in 12 states. The $3.4 billion ITT is a competitor in water treatment technology arena. And $1.6 billion Siemens is a new player, in “services and water-purification membranes.”

Water bottlers duking it out for consumer and investor dollars are Coke (KO) , Pepsi (PEP) and Danone. Coke’s “goal is to safely return to nature and communities an amount of water equal to what we use in our beverages and their production.” That’s a partial response to negative press following the 2010 publication of “Coke Machine: The Dirty Truth Behind the World’s Favorite Soft Drink.”

And if all this is new to you, but you want get your toes wet investing in the New Gold, try some water-based ETFs. The Wall Street Journal’s Liam Pleven wrote about four water-based ETFs: PowerShares Water Resources (PHO) is the “largest of the water ETFs, with $852 million in assets.” Other ETFs include: PowerShares Global Water (PIO) ; Guggenheim S&P Global Water Index (CGW) ; and First Trust ISE Water Index (FIW) . But in comparison to Veolia and Suez, these ETFs are a mere drop-in-the-bucket.

So yes, water is the 21st century’s New Gold. And, yes, growing shortages guarantee price appreciation for this ever-scarcer commodity. But still, something doesn’t feel right. Yes, Fortune presents a solid, upbeat picture. But in the end something was missing. Because this does not reveal a serious long-term strategy.

The fact is, no nation on Earth has a long-term plan to reverse the real problem, that’s not the “coming water shortage.” The real problem is our suicidal growth rate adding water users on a planet that’s incapable of feeding 10 billion.