Is time up for guar futures? Guar gum and guar seed futures, banned after a sharp 500% rally between 1 October 2011 and 27 March 2012, are due for calmer times. The ban, imposed by the commodity market regulator, the Forward Markets Commission (FMC), was lifted on May 14 this year.
In March 2012, guar seed had touched Rs 29,900 a quintal while guar gum tested Rs 100,000 a quintal. The reasons were export demand and speculation. This led the FMC to take steps-such as increasing the margin required to take exposure to guar gum and guar seed futures-to calm the markets. When these did not work, it de-listed both the commodities from exchanges.
India Infoline says after the delisting, prices of guar seed and guar gum remained firm initially, but started correcting from June 2012 in anticipation of a rise in output (high prices encouraged farmers to plant more) and fall in exports.
If you plan to invest in guar gum and guar seed in expectation of the kind of returns they have given in the past, hold on. Experts are bearish on the two commodities due to expectation of higher production and lower export demand.
USES OF GUAR
Guar, among the most versatile seeds, is used to obtain guar gum refined splits (Endosperm). After the gum is removed, the seed, which has high protein content, can be used to feed animals.
is the return given by guar gum and guar seed between 1 October 2011 and 27 March 2012.
Guar gum forms a viscous gel when mixed with cold water and so has industry applications. It is the primary marketable product of the guar plant. Guar gum is used as a thickener and stabiliser in major industries. It is used in bakeries, dairies and as a stabiliser in chocolate drinks, fruit nectars and juices.
Guar is also mixed with ammonium nitrate, nitroglycerine and oil explosives to maintain these products' explosive properties even in wet conditions. In food, pharmaceutical and cosmetics industries, it is used as a binder, stabiliser, disintegrator and thickener.PRICE MOVEMENT & OUTLOOKGuar Seed:
Guar seed prices have been falling since the re-launch of the contract on both the National Commodity and Derivatives Exchange, or NCDEX, and the Multi-Commodity Exchange or MCX. Starting May 14, prices have slumped more than 10%. On the NCDEX, guar seed's June contract tanked Rs 1,300 per quintal, or 14%, to Rs 8,160 per quintal on May 30. On May 14, it ended the day at Rs 9,460 per quintal. Spot prices followed the trend. "More sowing, expectation of normal monsoon and mounting stocks were the reasons behind this fall," says CP Krishnan, wholetime director, Geojit Comtrade.
The factors that affect guar seed prices are global demand and supply. Guar seeds are also in huge demand in the petroleum industry, where they are used in the process to extract shale gas. As 90% of India's guar seed production is exported, the dollar-rupee rate also impacts prices.
"Low export demand for guar seed products might have a bearish impact on prices. Normal monsoon and higher acreage might also keep guar seed prices under pressure in the short term," says Aurobinda Prasad, chief research analyst, commodities, Karvy Comtrade.
Factors That Affect Prices
>> Domestic production, mainly in Rajasthan
>> Overseas demand for guar gum
>> Carryover stocks in the country
>> Stocks with other exporting countries (Pakistan, Sudan)
>> Demand from importing countries
>> Government policies (taxes/subsidies)
Market experts say India is the top producer of the commodity and accounts for 80% global production. It is followed by Pakistan (15% global production), Sudan, Australia and the US. In India, Rajasthan is the leading producer, followed by Haryana, Gujarat and Punjab. The largest importer, the US, accounts for 61% demand, followed by China, Germany and Italy. In 2011-12, India exported 7.7 lakh tonnes guar seed. In 2012-13, till February, exports were 4.58 lakh tonnes.
Output is expected to be high this season as last year's record prices encouraged farmers to plant more. In Rajasthan, for instance, the acreage is estimated to be 45.26 lakh hectares in the 2012-13 season as against 30.94 lakh hectares in the previous year.Guar Gum:
Prices of guar gum June contract fell Rs 3,090 to Rs 25,060 per quintal between May 30 and May 14. Like guar seed, experts are bearish on guar gum too, on account of higher stocks. Traders expect guar seed output to be 1.8-2 million tonnes in 2012-13, up from 1.3 million tonnes in the previous year.
Ajitesh Mullick, AVP, retail research, Religare Broking, says, "The medium-term trend will depend upon the monsoon. Prices may find strong support if there is any adverse report on the weather front. With industrial demand from the US likely to rise in the coming months, the long-term trend is bullish. The July contract of guar gum can find strong support at Rs 23,000 per quintal and thereafter at Rs 20,000 per quintal. Resistance can be seen at Rs 27,200 a quintal and thereafter at Rs 29,000 a quintal."
Ram Pitre, senior VP and head of research, Anand Rathi Commodities, says, "Good returns encouraged farmers to increase the area under the crop. The anticipated demand is not on a par with supply. This is expected to pressure on prices in the coming weeks."