Domestic prices of guar seed have been steadily declining, following reports of higher production and on fears of a slowdown in guar gum exports. The current sentiment is contrasts sharply with the bullish run that started in July, when price of both seed and gum were up by as much as 33 per cent.
With the arrival of the new crop, guar seed prices are likely to fall further in the coming months. More than half the guar produced in India is exported for use in shale gas exploration in western countries.
According to informal estimates, guar production this year is likely to be around one million tonne, almost same as last year. This apart, there is a carryover stock of around one million tonne from last year, further aiding the fall in prices.
According to traders, guar seed prices are currently hovering around Rs 36 per kg, against Rs 40-46 per kg at end of August.
Similarly, guar gum prices have fallen to about Rs 7,800 per quintal.
One of the reasons for slowing down of international demand is the declining production in the US of shale oil, in which guar gum is an essential component.
"This year, the demand for guar gum in the international market is missing as crude is at around $50/ barrel, which is not viable for all shale oil fields. Another big concern is the possible slowdown of the world economy due to the spat between the US and North Korea. Hence, we expect prices of guar to fall further in the coming months," said B D Agarwal, managing director, Vikas WSP.
Compiled by BS Research Bureau; Source:NCDEX
Notably, around March and April this year, guar prices had firmed up on the possibility of weak monsoons. However, good rains in July-August led to a better harvest, leading to near normal production.
"In general, prices tend to fall as the new crop arrives. This year, there were predictions of poor rainfall, so prices had been going up earlier. Now, the need for natural gas exploration is low due to low crude oil prices, and hence guar prices have fallen," said Ganesh Prajapat, agri-business consultant.
According to a report by APEDA, guar gum exports went up during the April-August period to 218,000 tonnes worth $271 million. Export revenues almost doubled due to higher realisation following revival of US shale oil production. That was possible after Opec decided to cut production last November and crude oil prices revived, resulting in the revival of US shale oil market. However, the market seems to be worried that this situation may not hold for long, as crude oil prices aren't expected to rise any further.
On NCDEX where guar seed and gum are traded, traders are divided. Top ten short and long positions are almost equal, which means the tussle for direction among bulls and bears going on.