U.S. Stimulus Causing Rebound in Water Project Spending

There’s a rebound occurring in water project spending over the next 12 months – largely driven by the U.S. government’s economic stimulus program.

These are the results of a July ChangeWave survey of 101 respondents working for companies in the water industry.

Top Winners and Losers

Water Infrastructure Repair and Replacement remains the top water industry sector – with 71% of industry respondents saying it will attract the Most Spending over the next two years and only 8% the Least Spending (Net Difference Score = +63).

Wastewater Treatment (+27) is also seen as a winner.

On the downside, Desalination (-29) and Water Metering (-23) are expected to attract the least spending.

Which Companies Will Benefit Most? Water industry respondents were also asked a series of questions about best positioned companies within specific water sectors. Here are companies seen as having the most momentum:

• Veolia, an environmental services company, operates a water division that provides water and wastewater services for municipalities and industrial clients. Respondent PLS40326 cites Veolia’s “proven presence and performance worldwide,” while POT05073 adds they’re “best positioned for expansion.”

• Tetra Tech provides resource management and sustainable infrastructure services to government agencies and commercial customers. As WAT1273 puts it, "Tetra Tech seems to be maintaining a good backlog and is involved in managing public water systems for municipalities. Budget cuts at these municipalities will lead to increased business for Tetra Tech, as many of their services are contracted out."

Overall Industry Trends – Water Spending Set To Increase

Better than two-thirds of respondents (68%) report spending on water projects will increase over the next 12 months – double ChangeWave’s previous survey in October 2008. Just 6% say spending will decrease – a considerable 22-pt improvement.

At the country level, respondents project the U.S. (43%) will experience the biggest increase in spending over the next 12 months – surpassing China (38%) in this regard.

As respondent EEP05829 sees it, the U.S. will enjoy the biggest spending increases because of “stimulus funds…and because there is a real need to get infrastructure repaired, rehabbed, and replaced.”

PLS40326 believes that demand in China is “…inelastic and money must be spent," while KEN96574 points out that China has to “…meet its drinking water needs because of demographic shifts and to control pollution.”

A Closer Look at U.S. Water Project Spending. Regarding the U.S., 80% of respondents see Federal spending increasing over the next 12 months – triple the amount from October 2008. State governments (48%) are also set to make big gains comparatively – local governments (37%) less so.

The reason for the surge in U.S. government spending: The economic stimulus program, of course – which includes an estimated $6 Billion allocated to water projects.

Note that when we asked respondents about the impact the U.S. stimulus program will have over the next year, 30% said it will cause a Significant Increase in water project spending and 61% a Slight Increase.

Andy Golub co-wrote this article.

Comments

[john s. gordon:]

water-supply maintenance & bridge maintenance - two public-safety sectors that have been neglected since 1981 so that we can build more & more weapons that kill people.
we have lots of 80 yr old cast-iron water pipes that are failing weekly (daily?)
> jack

Sep 25 08:48 AM

[Mad Hedge F...:]

tfv If you think that the upcoming energy shortage is going to be bad, it will pale in comparison to the next water crisis, so investment in fresh water infrastructure is going to be a recurring long term investment theme. (See my earlier efforts to get you into the water space by clicking here). One theory about the endless wars in the Middle East since 1918 is that they have really been over water rights. Although Earth is often referred to as the water planet, only 2.5% is fresh, and three quarters of that is locked up in ice at the North and South poles. In places like China, with a quarter of the world’s population, up to 90% of the fresh water is already polluted, some irretrievably so. Some 18% of the world population lacks access to potable water, and demand is expected to rise by 40% in the next 20 years. Aquifers in the US, which took nature millennia to create, are approaching exhaustion. While membrane osmosis technologies exist to convert sea water into fresh, they use ten times more energy than current treatment processes, a real problem if you don’t have any, and will easily double the end cost to consumers. While it may take 16 pounds of grain to produce a pound of beef, it takes a staggering 2,416 gallons of water to do the same. The UN says that $11 billion a year is needed for water infrastructure investment, and $15 billion of the US stimulus package will be similarly spent. It says a lot that when I went to the UC Berkeley School of Engineering to research this piece, most of the experts in the field had already been retained by major hedge funds! At the top of the shopping list to participate here should be the Claymore S&P Global Water Index ETF (CGW), which has appreciated by 50% since I first brought it up. You can also visit the PowerShares Water Resource Portfolio (PHO), the First Trust ISE Water Index Fund (FIW), or the individual stocks Veolia Environment (VE), Tetra-Tech (TTEK), and Pentair (PNR). Who has the world’s greatest per capita water resources? Siberia, which could become a major exporter to China in the decades to come.

Sep 25 12:21 PM

[GimliJan:]

Thanks to Paul Carton and the Mad Hedge Fund for this information about water investments. I agree that "water" is the next huge investment opportunity over the next 20 years and more. Oh...in the news today is the report about finding water on the moon. Could be billions of gallons! Anybody setup a Lunar ETF for Commodities and Water yet? ;-)

Sep 25 12:36 PM

[secmaven:]

We will have water aplenty as long as it keep raining.

Sep 30 08:11 PM