Their View: Guar likely to trade range-bound

After witnessing the highest ever boom in 2012-13, guar prices started correcting because of increased supply and minimal price variation in the last four years. Prices touched a six-year low in 2016.

But renewed hopes of better export demand and falling supply saw 2017 of to a good start, with prices rising 28 per cent between February and March.

Weather reports play a critical role in influencing guar prices. IMD predictions of early monsoon arrival and steady rainfall, together with the imposition of 5 per cent GST on guar gum and guar meal, led to a substantial price correction thereafter.

But hopes of a good guar crop started fading with the uneven monsoon distribution, while reports of crop damage pushed prices up by 15 per cent boost between July and August. As per the estimates from Rajasthan and Gujarat (key producing regions), the States have witnessed a 10 per cent average drop in acreage of guar for 2017-18.

Farmers have switched to cotton in the irrigated areas especially in Ganganagar (Rajasthan), Punjab and Haryana, and to kharif pulses like urad in rainfed areas, expecting better returns. Excessive rains in the major guar sowing districts of western Rajasthan (contributing 80 per cent of State’s total guar produce) and Gujarat have raised concerns over crop damage and yield.

Falling prices of guar led to a year-on-year decrease in production in the last couple of years. India has produced 11 million tonnes (mt) in the marketing year 2016-17 (Oct-Sept) as compared to 15 million tonnes in 2015-16, leading to the projection of a 30 per cent decrease in guar stocks by end MY2016-17.

Moreover, MY2017-18 is likely to see a fall in output of around 15-20 per cent y-o-y, indicating fast depleting stocks and a narrowing demand-supply gap. Apart from reduced output, firm export demand also contributed to the decline in guar stocks. A total of 0.37 mt of guar seed products has been exported in FY 2016-17, a jump of 85 per cent (y-o-y) with major shipments going to the US, followed by Norway and China. A fall in the rupee value too supported the exports.

The spike in demand from the US came with an increase in the counts of oil rigs (guar gum is used in fracturing for extracting oil and gas). Guar exports grew by 54 per cent in Q1 of FY 2017-18 (April-June) as compared with the year before. As per the reports from Baker Hughes (largest oil field service company), the US rotary rig count (drilling activity) was at 944 till September 8, higher by 86 per cent from last year.

However, export demand is likely to slow down in coming days, given the somewhat muted outlook for crude oil. A fall of 28 per cent in the monthly export of guar seed products in June over May, signals the weakening of export demand with the rise in guar prices. A shift towards cheaper synthetic polymers by the US oil and gas industry will always pose a risk for guar demand.

Given its strong linkage with crude oil and export demand, guar is likely to remain range bound for rest of the year. However, declining stocks, reduced acreage and reports of crop damage may help the guar crop to trade positive till new season arrivals gather steam, probably from November onwards.

A major selling cannot be ruled out at higher levels (₹4,100) due to limited export demand. Demand from the oil industry and the domestic crop output level will remain crucial factors to watch for.

The writer is vice-president and head of agriculture, food, and retail at Biznomics Consulting. The views are personal.

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