Bearish signs for guar despite output concerns

In the last one month, guar gum futures contracts traded on the National Commodity and Derivative Exchange have slipped more than 17.5 per cent to ₹8,300 a quintal from ₹10,090. Similarly, guarseed has also dipped more than 11 per cent to ₹3,900.

Currently, the guar crop is ready for harvest in Rajasthan (a major grower) and the prices are in a downtrend despite concerns about production. The yield of guarseed is expected to remain lower this year due to an extensive dry spell in the State during July and August.

According to first advance estimates released by the Commissionerate of Agriculture, Rajasthan, the production is pegged at 19.44 lakh tonnes (lt) — about 8 lt lower than last year’s production.

Guar prices have been quite volatile in 2015 and touched five-year lows in March and August. During the year, there was a negative trend in the first quarter (January-March) and the third quarter (July-September) while prices surged during the second quarter (April-June).

In the first quarter, guar prices declined on higher production and lower export demand from drilling industries in the US as crude oil prices slumped, making it unviable. However, during the second quarter, guar prices surged due to reports of a deficient monsoon in the kharif season. Again, in the third quarter, the prices moved down due to a good start to the monsoon rains.

Rajasthan is the largest guar growing State, accounting for more than 80 per cent of guar production and depending heavily on the monsoon.

Sowing was quite aggressive in Rajasthan but the area under guar declined by 15 per cent to 39.3 lakh hectares due to lower price realisation by farmers last year.

However, in Gujarat, the acreage was up 11 per cent compared to last year.

The importance of guar has increased over the years, as its product guar gum is sought after in the fracking and drilling industries in the US for oil and shale gas extraction.

Guar exports have been under pressure in 2015-16, after rising 10 per cent year-on-year in 2014-15.

According to Commerce Ministry data, in the first quarter of 2015-16 (April-July), exports were down about 46 per cent to 1.27 lt from 2.35 lt last year. It is expected that the export demand for guar in food and textile industries may pick-up in the near future if prices remain at lower levels.

In the next 2-3 months, price movement will depend on export demand from US drilling companies.

Currently, guar prices are under pressure on limited export demand as crude oil prices are at low levels. We expect the guar complex to trade sideways to lower as overall fundamentals are looking in balance due to the forecast of less production, sufficient carryover stocks and subdued export demand.

The writer is Associate Director — Commodities & Currencies, Angel Commodities. Views are personal.

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