The breathtaking rally in guarseed and guar gum futures has made heads turn.
After a 270 per cent rally in 2011, guar gum futures have doubled this year to Rs 65,600/quintal now. Guarseed futures, too, have witnessed a similar price action moving from Rs 9,604/quintal in January to Rs 20,000.
Commodity experts say that the guar complex may continue on the upside for more time. According to them, there is no risk of the commodity being banned from trading in near future as it is not a staple food crop.
Export demand supports the rally.
Guar gum and guarseed futures have been rallying on increased export demand. Between April and November 2011, guar gum exports increased to 6.7 lakh tonnes (lt), up from 2.28 lt in the same period a year ago.
India accounts for 80 per cent of the global supply of guar gum and any increase in demand for guar in the global markets is bound to reflect in price of the commodity here.
The demand for guar gum has been driven by the commodity's usage in petroleum refining industry in the recent years. Ms Vandana Bharti, Assistant Vice-President – Commodities, SMC Investments, said: “The recent surge in horizontal drilling technology in the oil industry in the US has increased the demand for guar gum in the market significantly. And as there is no replacement for guar gum in hydraulic fracturing sector currently, the demand for guar is only bound to increase further”.
Thanks to the connections with oil, guar is tracking prices of the energy complex now; guar gum futures moves in tandem with the trend in crude oil futures in the international market. WTI crude has seen a price increase of eight per cent so far this year rising above $107 a barrel.
Regulatory jibes
The measures taken by the Forward Market Commission to curb prices of guarseed and guar gum in the futures market haven't yielded the desired effect. After several rounds of increase the margin in futures contract of guarseed and guar gum stands at around 60 per cent.
But traders need not fear extreme measures from the regulator such as de-listing of the commodity from the futures floor as guar is not among the essential food crops, says Mr Dharmesh Bhatia, Associate Vice-President – Research, Kotak Commodities.
The regulator, however, has postponed the launch of August contracts in guar complex, waiting for prices to stabilise.
Technical outlook
It is advisable that traders buy on corrections in guarseed and guar gum futures. Ms Vandana Bharti says: “The rally has been over-stretched in both guarseed and guar gum futures. Hefty profit booking from higher levels cannot be ruled out. So it is best that traders are cautious and buy on dips with profit booking in the short term.”
Guarseed futures (April) has a strong support at Rs 18,000 and might find resistance at Rs 30,000, she adds.
Guar gum futures (April) has a resistance at Rs 85,000 levels; the support is at Rs 55,000.