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Water Futures – What comes next?

December, 2020

There is nothing more worrisome than the most essential element of our lives getting listed on the stock market- water. Until now, the question of water shortage has been disconcerting, but the public hasn’t taken a serious call to action to preserve it, much like climate change- a lot of talk but little action. In this case too, we aren’t helping the scarcity issue, but softening the financial blow that we are to witness sooner or later. According to research, in another four to five years, approximately two-thirds of the world's population will face water shortage. It’s time that we erase ‘Water is Priceless’ from our book of phrases, because with the recent development in the water markets, price certainty is definitely up for grabs.

Addressing the hot potato in the market- water stocks. Even though water has been traded in the past, this particular news has caught the most attention because ‘water futures’ is the first of its kind. In this case, price certainty is what the beneficiary is buying by investing in the futures market for water. The development took place earlier last week when water as a commodity got listed on the Chicago Mercantile Exchange linked to the Nasdaq Veles California Water Index. CME Group Inc.’s January 2021 contract, tied to California’s $1.1 billion spot water market, last traded Monday at 496 index points, that is equal to $496 per acre-foot. As California, the world’s fifth largest economy and the biggest US agriculture market, suffered an eight-year long drought spanning December 2011 to March 2019, it plagued the region with unmanageable water emergencies. Be it Californian farmers, public water agencies, utilities, institutional investors- different groups are eyeing the water markets and are keen to be the early water future adopters to potentially capitalise on the recent development.

How this will be of huge significance to farmers in California is interesting- farmers can track the current price of water as well as the price developments in previous dry years now that there exists a futures market for water, and hedge against higher prices in the month they will require the additional water for their yield. More local indexes are expected to come up as water becomes scarcer and calls for urgent action in other regions.

Concerted efforts in this field are taking place, for instance water desalination projects, which segregate salt and minerals from sea water, in order to avoid an unmanageable water crisis in the near future. The industry is expanding at a CAGRA of 9.0%, however, it is still at a stage of infancy and requires heavy research and advancement. The Reverse Osmosis (RO) segment dominates the global water desalination market constituting more than half the share in 2019. Lucrative opportunities are expected to emerge in the Asia-Pacific region where demand for desalinated water will shoot up amid ongoing drought like conditions. Availability of seawater in abundance in countries like India, Australia and Japan is highly likely to drive growth in the industry in the coming years.

With water being traded on the Wall Street, it has officially joined the league of gold and oil, which leaves us to wonder, what comes next?

  • Written By Siyona Baweja

Siyona, a proud employee, has been with TSB since July 2020. Siyona likes to keep life simple, her interests are eating, sleeping and good quality coffee