Guar Seed Tumbles on Sluggish Overseas Demand

After remaining firm during the last week on the back of 75% growth in export figures, Guar seed and Guar gum futures settled at 4% lower limit on Monday. Subdued overseas demand at higher price levels coupled with FMC’s measures to curb the rising prices has put downside pressure on the prices.

Further, there are reports that farmers in the irrigated areas of Rajasthan and Haryana are looking at planting intermediate Guar crop in February for harvest in May – June.

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In the month of January, FMC has taken various measures to curb the rising prices viz- imposition of special margin, cut in position limit, Further to curb volatility, FMC on 11.1.12 took another measure to curb the rising price of Guar seed and gum viz- Cut in position limits w.e.f. FMC on 11. 1.2012 directed the exchanges to cut position limit in Guar seed by 20% for brokers and clients and in Guar gum by 40% for brokers.

Position limit in Guar gum for clients remain unchanged.

Exports

Guar gum is used as a sealant in fracking or hydraulic fracturing of wells, and shift in technology from vertical to horizontal fracturing has led to manifold increase in demand.

Apart from its use in oil drilling activities the largest market for guar gum is in the food industry. Food grade guar gum accounts for about 30% of a total Indian guar export.

Situation for guar gum remains critical for food buyers; with oilfield service companies are getting priority from suppliers.

Exports of Guar gum from April to October 2011 stood at 3.48 lakh tn a rise of 75.8 % compared to 1.98 lakh tn during the same period last year (Source: Apeda dated 29th Jan, 2011).

In 2010-11 fiscal, Guar gum exports were almost doubled to 4.03 lakh tonnes compared to 2.1 lakh tonnes in 2009-10.

Production

After harvesting a record 15 lakh tonnes of Guar crop in Rajasthan in 2010-11season (Oct 10- Sep 11), output in the current season has declined to around 12.09 lakh tonnes (Second advance Estimates).

Despite higher production prices had touched record levels of Rs 4770 per qtl in 2010-11 on the back of robust exports which doubled from 2.1 lakh tonnes to 4.03 lakh tonnes in 2010-11.

In the current season 2011-12, which started in October 2011, output is estimated 25% lower than previous year, while exports continue to remain firm registering 75% growth during the first 7 months of FY 2011- 12 (Apr 11-Mar -12).

Further. Carryover stocks of Guar in the current season is at lowest levels around 1.5-2 lakh tonnes against normal 4-4.5 lakh tonnes.

Thus, with lower carryover stocks and drop in output, the supplies would not be sufficient in the long run if Guar gum export trend continue to remain the same as last year, thus supporting the upside rally in the longer term.