Guar seed and Guar gum futures extended the losses of the previous day and settled 2.9% lower on Tuesday on the back of subdued overseas demand at higher price levels coupled with FMC’s measures to curb the rising 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.
NCDEX postpones launch of August 2012 contract until further notice. 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 Apr to Oct 2011 stood at 3.48 lakh tn a rise of 75.8% compared to 1.98 lakh tn during a year ago (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.
Outlook
Guar prices may witness further correction on account of subdued demand from the overseas. Fears that FMC might continue its investigations related to high volatility and might take strict steps such as suspending brokers found guilty in manipulating etc is seen restricting the upside in the guar prices.
Prices in the long term (April onwards) are expected to take cues from the First Long Range Forecast (LRF) on monsoon which will be released in April and farmer’s sentiments regarding sowing of the Guar crop this season. Guar acreage in the next season is expected to increase sharply at the cost of Pulses in Rajasthan as farmers fetched good returns.
Courtesy: Angel Commodities
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