NCDEX Guar Seed Settles Lower on Selling Pressure

After surging by 10 percent in the last two trading sessions, prices of the Guar complex witnessed selling pressure on fears that FMC might continue its investigations related to high volatility and might take strict steps such as suspending brokers found guilty in manipulating prices.

Robust export figures might however control prices from falling sharply. NCDEX postpones launch of August 2012 contract until further notice. Total margin levied on the long side of Guar seed and Guar gum contracts stands at 72% which include cash margin of 60%.

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

Overseas demand for Guar gum is on rise mainly from oil well drilling sector. 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.