Global Investing

There’s cash in that trash

April 9, 2013

There’s cash in that trash.

Analysts at Bank of America/Merrill Lynch are expounding opportunities to profit from the burgeoning waste disposal industry, which it estimates at $1 trillion at present but says could double within the next decade. They have compiled a list of more than 80 companies which may benefit most from the push for recycling waste, generating energy from biomass and building facilities to process or reduce waste. It’s an industry that is likely to grow exponentially as incomes rise, especially in emerging economies, BofA/ML says in a note:

We believe that the global dynamics of waste volumes mean that waste management offers numerous opportunities for those with exposure to the value chain. We see opportunities across waste management, industrial treatment, waste-to-energy, wastewater & sewage,…recycling, and sustainable packaging among other areas.

There is no denying there is a problem. Around 11.2 billion tonnes of solid waste are produced by the world’s six billion people every day and 70 percent of this goes to landfill. In some emerging economies, over 90 percent is landfilled.  And the waste mountain is growing. By 2050, the earth’s population will reach 9 billion, while global per capita GDP is projected to quadruple. So waste production will double by 2025 and again from 2025 to 2050, United Nations agencies estimate.

And in emerging markets, challenges and opportunities are both enormous, BofA/ML says. Just Brazil for instance needs investments of $180 billion in this sector. For one, recycling is less widespread. Second, as countries grow richer they produce more rubbish. Third, all big emerging countries have multi-billion dollar plans to improve waste disposal.

Lets look at some of the opportunities BofA/ML has identified:

– Disposal and recycling of municipal solid waste (rubbish, in common parlance) is currently worth $400 billion but over the next decade,  $87 billion in investments are expected in this sector.

– Waste-to-energy (energy recovery from waste): One ton of rubbish can create 500-750 kilowatts of power. This market is worth $7.4 billion in 2013 and  could grow to $81 billion by 2022.

– Sustainable packaging: Accounts for a third of solid waste in developed countries. Worth almost $109 billion in 2011, the market is expected to grow to $178-212 billion by 2015-18.

– e-waste (discarded electrical or electronic devices):  Recycling/reuse of e-waste components was worth $13.9 billion in 2012 but could grow to between $25 and 44.3 billion by 2017-20. One example of how lucrative this can be – -recycling one million mobile phones can recover 24 kg of gold, 250 kg of silver and more than 9,000 kg of copper.

Wastewater and sewage treatment:  The biggest investments are needed in the developing world but in the United States alone, infrastructure of $1 trillion could be needed over the next 25 years, BofA says, citing research from the American Waterworks Association.

To profit from all this clearly needs a long-term commitment. Companies highlighted by BofA/ML range from sewage treatment firms Copasa in Brazil and Severn Trent in Britain;  waste-to-energy firms China Everbright and UK’s Pennon and sustainable packaging producers U.S. Rock-Tenn and Hong Kong’s Lee & Manpaper. The analysts add:

Although it is difficult to accurately gauge the link between such exposure and share price performance, we still consider waste-related  exposure an important and positive point to track, given that waste is a sustainability megatrend with a 20-25 year lifespan.

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