Guar prices show signs of recovery

Guar seed prices in the spot market have surged up to ₹5,250 a quintal levels during April. The prices were at ₹3,600 – near a 10-year low in March – which is about 38 per cent below the levels seen during the beginning of the harvest season in October last year.

The record decline in prices is attributed to mainly to subdued demand for guar gum exports. The exports usually pick up during October but lower crude oil prices made it unviable for shale drilling companies to use guar gum in hydraulic fracturing.

According to the Agricultural and Processed Food Products Export Development Authority (Apeda), more than 55 per cent guar gum produced in India is exported to the United States mainly for use in shale drilling.

However, guar prices have been recovering since March, and prices have gained more than 32 per cent to ₹5,000 a quintal from 3,770 levels; guar gum surged about 44 per cent to ₹11,500 a quintal from 8,000 levels on the National Commodity and Derivatives Exchange (NCDEX).

The rise is due to speculative buying because of lower production estimates given the expected El Nino effect on monsoon this season. The rising crude oil prices also may lead to improved export demand which might support the price.

According to government sources, total guarseed production in India is in the range of about 20-30 lakh tonnes (lt) and fluctuates depending upon the monsoon, particularly in the western districts of Rajasthan.

In 2014-15, guar production is estimated at around 20-22 lt, according to the Ministry of Agriculture, down 18-20 per cent compared to last year production of 25-27 lt due to delayed monsoon and lower area sown in Gujarat, Rajasthan and Haryana.

Rajasthan accounts for more 80 per cent of guar production, cultivated mainly in arid districts of western Rajasthan.

The crop is also cultivated in low rainfall areas of Madhya Pradesh, Chhattisgarh, Andhra Pradesh, Karnataka, Tamil Nadu and other areas in both kharif and rabi seasons.

The prediction of below normal monsoon (due to the El Niño phenomenon) for the second successive year by the Met Department may affect guarseed output.

According to Apeda, exports of guar gum have increased by 21 per cent to 6.65 lakh tonnes (lt) from April to March compared to 6 lt exported for the same period last year.

Exports are higher on a year-on-year basis following the increase in demand from the food industry and oil exploration companies as the prices of guar gum dropped to multi-year lows. Lower prices have boosted overseas shipments in the last two years.

Demand has been going up in recent years as it is seen as an environment-friendly biodegradable product for shale gas exploration.

Guarseed and guar gum prices have been trending upwards since March, with lower supply in the domestic market against strong demand by traders and stockists.

The estimation of steady demand from food and textile industry as well as shale gas drilling companies due to improved crude oil prices might help prices surge in coming months.

The writer is Associate Director – Commodities & Currencies, Angel Commodities Broking Pvt. Ltd. Views are personal.