Spot guarseed and guar gum prices crashed by 19 per cent after the Forward Markets Commission (FMC) barred fresh positions in the complex's futures contracts. The curb came into effect on Thursday morning after spot prices for guar gum topped Rs 1 lakh a quintal. Rates in the futures market, too, were near the Rs 1-lakh-mark.
The restrictions followed an unprecedented rally in the futures trade of guar complex since last year, particularly November. The counter is reported to be rallying merely on speculation without any fundamentals. On Thursday, spot guarseed prices at Jodhpur, the hub of guar market, crashed to Rs 24,950.15 a quintal from Wednesday's close of Rs 30,432. Guar gum prices plunged to Rs 81,180.65 from Rs 1,00,195.
Though fresh positions are barred in the futures market, those holding open positions are allowed to square off. But they were caught unawares by the fall. April contracts for guarseed dived to Rs 24,950.15 a quintal and for gum, they slipped to Rs 81,180.65.
On Wednesday, guarseed contracts that expire on April 20 closed at Rs 29,900 a quintal. Guar gum April futures ended at Rs 95,920 a quintal. Early on Thursday morning, the FMC that regulates the futures market in the country, said in a notification that no fresh positions will be allowed in April, May, June and July contracts from Thursday. The bar covers intra-day trade. Already, the FMC had disallowed August and September futures.
No financial gain
The FMC warned that any financial gain made by taking fresh position in violation of the directive will not be payable to the violator. Instead, it would be deposited in the investment protection fund of futures exchanges. However, the Commission said that contracts for the next season starting October will be launched according to the contract launch calendar. The October futures should begin April onwards.
The bar on holding fresh positions comes after guarseed and guar gum futures soared to record levels. In the last 15 months, both these commodities have increased manifold. If an investor had invested Re 1 in either guarseed or guar gum would have earned at least Rs 125 by now.
Quadruple rise
Since the beginning of this year, guar gum and guarseed prices have quadrupled. The rise has been mainly due to surging exports of guar gum. However, export data have come under scrutiny since exports seem to exceed production figures. Guar, a leguminous crop, is primarily grown in Rajasthan, besides Haryana, Punjab, Gujarat and Madhya Pradesh. Rajasthan accounts for 70 per cent of the total crop in the country.
Guarseed is a raw material for producing guar gum. Guar gum is used as a thickening agent and additive in food products such as instant soups, sauces, processed meat products, baked goods, milk and cheese products, yoghurt and ice-creams.
It has industrial applications in the paper and textile sectors, ore flotation, explosives manufacture and fracturing of oil and gas formations. India is the major producer of guar seed and gum, accounting for 80-85 per cent of the total global supply. This year, guarseed production has been projected at 12.1 lakh tonnes against a record 15 lakh tonnes last year.