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Prices in the guar complex nosedived sharply after trading was reintroduced on May 14 2013. It fell over 30 per cent due to lacklustre export demand, expectations of a rise in output and higher acreage. Overseas buyers who feel guar gum is priced too high, are shifting their focus to other synthetic alternative products, and this is also weighing down prices.
Good monsoon in major growing areas is expected to keep the commodity price under pressure as well. A better-than-expected rain fall raised the output of guar seed, as it is a rain-fed monsoon crop which requires 8-15 inches of rain in 3-4 spells.
Excessive speculation
Even though, futures trading has been permitted, these commodities have been under continuous watch of the market regulator Forward Markets Commission (FMC). Excessive speculation and reports of robust export demand resulted in an exceptional rise in prices in the year 2011 that prompted the regulator to discontinue futures trading in guar complex by March 2012.
Over this period guar seed prices soared more than 400 per cent touching a record high of Rs 29,900 a quintal while guar gum hit Rs 95,920 a quintal. Even after the commodity was de-listed from futures platform, prices in spot market continued to rise initially, but corrected later in anticipation of higher output and weak overseas demand. Currently, guar seed in the NCDEX platform is trading at Rs 7,010/quintal whereas guar gum is quoted at Rs 20,190/quintal.
New summer crop with a bumper harvest in Gujarat, is increasing crop arrivals to the spot market. From the farmer’s point of view, 25 per cent of higher acreage and a proportionate rise in output is expected this season. This is due to more farmers growing this crop as the prices were good in the previous year. In Rajasthan, the major producing State in the country, acreage is rising to 45.26 lakh hectares compared with 30.94 lakh hectares in the previous year. Roughly 25-27.5 million bags of guar seed output is anticipated this year against 20-25 million bags last year.
India is the top producer of the commodity, producing about 80 per cent of the global production. Next, Pakistan accounts for 15 per cent of the global production followed by Sudan, Australia and US. Rajasthan, Haryana, Gujarat and Punjab are the major producing States in India. The major processing centre of guar gum is Rajasthan which contributes almost 40 per cent of the world’s guar gum supply. US is the largest importer with a share of 61 per cent followed by China, Germany, Italy and Malaysia.
Surges on fears
Almost 40 per cent of the global guar gum production is utilised for industrial purposes. Guar gum is widely used as a controlling agent in oil wells for facilitating easy drilling and preventing fluid loss. Due to this property, western oil companies’ requirements have been high for the past few years. Exports doubled in the last 3-4 years. Due to large-scale stocking by multinational oil companies on fears of short supply, guar gum prices surged in 2011Apart from its industrial usage, Guar gum powder is used for preparing bakery items, dairy products such as ice creams, sherbets, cheese, etc.
A better-than-expected monsoon, increase in acreage, high production forecasts and lower export demand will weigh down prices. Nevertheless, farmers will not be willing to sell their crops if prices drop below Rs 5,000 a quintal as their input costs have gone up considerably.
(The author is Whole Time Director, Geojit Comtrade Ltd. The views are personal)
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