Content

Guar Update
Wednesday | May 06, 2015
Content
Price performance
Production
Exports
Outlook
Prepared by
Ritesh Kumar Sahu
Analyst- Agri Commodities
riteshkumar.sahu@angelbroking.com
(022) 2921 2000 Extn. 6165
Angel Commodities Broking Pvt. Ltd.
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Guar Update
Wednesday | May 06, 2015
Guar complex prices have recovered in last Six-weeks
Average monthly Guar Seed and Gum Prices - Rs / quintal
Guar Seed (LHS)
5600
5300
5000
4700
4400
4100
3800
3500
Guar Gum (RHS)
17000
16000
15000
14000
13000
12000
11000
10000
9000
8000
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
The guar seed prices have witnessed a downtrend
since October and crashed to 10 years low to Rs
3,500 per quintals in March. The downward trend
was due to lower demand for the guar gum at
higher prices in the US markets on account of
lower crude oil prices. The prices of guar gum in
India usually pick up during mid-October due to
export demand from the shale gas sector in the
US and China. But export demand did not pick up
this year (2014) as lower crude prices made it
unviable for drilling companies to use guar gum
and instead shifted to cheaper alternatives.
Source: Reuters, Angel Commodity Research
However, since April, the prices at National
Guar complex - Daily Close Price (Rs/Qtl) - NCDEX
Commodity and Derivatives Exchange (NCDEX)
5500
13800
Guar Seed
Guargum
have recovered and trading on a positive note as
12800
prices of Guar seed gained 36.7% to Rs. 5,200 per 5100
11800
quintal from 3766 levels, whereas Guar gum 4700
10800
surged 46.84% to 12,760 per quintal from 8690 4300
9800
levels. It is believed that the prices have surged- 3900
8800
up due to speculative buying on account 3500
7800
anticipation of lower sowing and expecting El Nino
effect on monsoon this season, fearing lower
arrivals in the next season. Other factors for
Source:
surging of prices may due to good demand from
the domestic traders and stockiest on record low prevailing prices, new foreign trade policy for guar
seed and good export demand of guar gum in anticipation of improving crude oil prices.
The price of Guar gum is lower this year compared
to last two years due to slack demand from the
drilling companies in US as crude oil prices are at
record low levels. The higher prices of guar gum
in domestic market discourage the export
demand as the use of guar gum was not
economical in shale gas extraction. Thus the guar
gum prices hover between Rs 8,500 and Rs 8,700
a quintal compared with Rs 14,000 in the year-ago
period.
Yearly price comparison of Guar Gum- (Rs/Quintal)- NCDEX
32000
27000
22000
17000
12000
7000
Source: Reuters
Y 2015
Y 2014
Y 2013
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Meanwhile, in the current season starting October, the guar seed and gum prices have dropped almost
38.4 per cent and 52.4 per cent respectively till March. During this downtrend, guar seed prices have
fallen from Rs 5860 per quintal levels to Rs 3,552 while guar gum, which was trading above Rs 18,000
per quintal has fallen to Rs 7,830 levels. Recently, in the first week of May, the prices have attained
highest price in 5 months and corrected downwards on profit booking at the higher levels and again rose
this week fearing forecast of below normal monsoon.
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Guar Update
Wednesday | May 06, 2015
Below normal monsoon may affect guar production next Kharif
The guar is normally sown during the onset of monsoon i.e. during the second week of July to August
and harvested during October and November. The crop requires good spells of rain during seed setting
and maturing i.e. during first and last week of September.
The prediction of below normal monsoon in 2015 by India Meteorological Department (IMD) has surged
the prices of most agricultural commodities in futures trading on NCDEX including guar seed and guar
gum. The monsoon will be affected this season due to the El Niño phenomenon. This will be the second
year of a weak monsoon, which will impact on agricultural production as well as ground water and
reservoir levels. The guar is mostly sown on rain-fed agricultural lands, particularly in Rajasthan.
Rajasthan accounts for more 80 per cent of guar production and thus the largest Guar producing state in
India. Guar is grown mainly in arid districts of western part of Rajasthan and depends heavily on the
monsoon. The crop is also being cultivated in low rainfall areas of Madhya Pradesh, Chhattisgarh,
Andhra Pradesh, Karnataka, Tamil Nadu and other parts in Kharif as well as in summer season.
Area-Production
Guar Production in India
Area (Lakh Hac.)
30
60
25
50
20
40
30
15
10
20
Lakh Hactares
Prod (Lakh tonnes)
Lakh tonnes
India is the largest producer of guar seed and
accounts for around 80 per cent of the total
world production. As per the government
sources, total Guar seed production in India is in
the range of 28-30 lakh tonnes (lt), which
increased about three fold in last 5 years. The
production of guar fluctuates depending upon
the monsoon condition, particularly in western
districts of Rajasthan.
10
5
0
In 2014-15, guar production is estimated at
2010-11 2011-12 2012-13 2013-14 2014-15*
around 20-22 lt, according to Ministry of
Source: Ministry of Agriculture, GOI
Agriculture, GOI, lower by about 18-20 per cent
compared to last year production of 25-27 lt due to delayed monsoon and lower area of sowing in
Gujarat, Rajasthan and Haryana.
However, in contrast, as per the 2nd advance
Guar Production in Rajasthan (lakh Tonnes)
estimate by the Department of Agriculture,
Rajasthan, the guar seed production in Rajasthan
30
55
is estimated at 28 lt. Earlier, in the first estimate,
Production (Lakh tonnes)
50
Government of Rajasthan has estimated
25
Area (lakh hac)
45
production at 14-15 lt.
20
40
35
15
30
10
25
last year.
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2010-11
2011-12
2012-13
2013-14
2014-15
Source: Department of Agriculture (DoA), Government of Rajasthan
Thus, as per the latest estimate, the output this
year in Rajasthan is lower by only by about 2
percent compared to previous year. Haryana,
second highest producer, likely to produce 3.403.50 lakh tonnes, while Gujarat to produce 40
per cent less to 1.87 lakh tonnes compared to
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Guar Update
Wednesday | May 06, 2015
Guar gum exports increase at lower prices
According 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 its use in shale
drilling. China, Germany, Italy, Malaysia,
Russia and Turkey are other major countries
where India exports guar gum. Due to
heavy demand, the guar gum prices have
increased to unprecedented levels and thus
the oil and shale drilling companies using
guar gum have shifted to cheaper
alternative.
Monthly Guar gum exports (MT)- 2014-15
75000
110000
105000
70000
100000
95000
65000
90000
60000
85000
80000
55000
75000
50000
Source: APEDA
70000
Exports- 2014/15
Value (Rs Lakh)
Guar gum is used in hydraulic fracturing to extract oil and shale gas and shift in the technology from
vertical to horizontal fracturing has led to manifold increase. Apart from its use in oil drilling activities
the largest market for guar gum is in the food industry. Food grade guar gum accounts for about 30-35%
of a total Indian guar export.
Due to the inflated prices of Guar gum and
record low price of crude oil in 2014-15, it
becomes uneconomical to use guar gum in
hydraulic fracturing as the production cost
of shale gas becomes higher than the crude
oil production in oil producing countries.
Thus to balance the demand-supply, the
lower prices of guar gum make it more
feasible for the drilling companies to go for
guar gum in shale gas extraction.
Guar Complex exports (MT)
74000
64000
54000
44000
34000
24000
14000
Source: APEDA
Exports- 2014/15
Exports-2013/14
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In 2014-15, the export demand from the US has been good as the prices of guar complex dropped to
lower levels. According to the data provided APEDA, exports of guar gum from April to February stood at
6.63 lakh tonnes (lt) a raise of 21 per cent compared to 5.45 lt exported last year.
Exports are recorded higher on year-on-year basis following the increase in demand from food industry
and oil exploration companies. Around 50 per cent of guar gum export goes to oil sector. Lower prices of
guar gum have boosted overseas shipments in last two years. The demand for guar gum has been going
up in the recent years as an environment-friendly biodegradable product used in the fracking process in
shale gas wells. It is expected that, with record lower prices of guar complex prevailed during the 2015,
export figures may touch about 7 lt in this financial year. Meanwhile, export of guar gum during the first
11 months (Apr-Feb) in 2014-15, declined in value terms by 12.8 per cent to Rs. 9,561 crores against Rs.
10,964 crore last year.
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Guar Update
Wednesday | May 06, 2015
Outlook
Dwindling arrivals and good demand will surge the prices in near to medium term
The guar complex, this season (starting October 2014) were quite volatile on account of the good
export, erratic monsoon and record falling crude oil prices. Due to below normal rainfall last year the
prices were high during the starting of season as the guar production is estimated to be 20-25% lower
compared to last year.
As the season progressed, the prices have cooled down due to subdued demand from the US, China and
Russia market which compensated the lower supply from the current production. The falling crude
prices, availability of alternative and cheaper substitute for fracking process for US Shale gas companies
and Rouble crisis in Russia has impacted the guar prices, which dragged guar prices to 10 years lows in
March. However, improved crude oil prices and the increase demand from the food and textile industry
due to lower prices have supported the guar prices in last two months. The exports volumes increased
22 per cent in April- February as compared to last year.
Guar seed and guar gum prices are moving positively in last 6 weeks as supply has dwindle amid fearing
of the lower production and good steady demand from food and textile industries apart from oil
industries for drilling purpose.
Guar seed Jun contract has gained by more than 35 per cent over last one month and trading around Rs
5300 per quintal levels. We expect Guar Seed prices to sustain at the current levels and may consolidate
in the range of Rs 5300 and Rs 5600 per quintal and wait for the monsoon for further direction. Similarly
Guar gum may touch Rs 13000 per quintal levels in next one month depending on the demand for
exports on dwindling supplies.
Technical Levels:
Contract
Jun
Jun
S2
4600
11350
S1
4950
11900
CMP
5296
12610
R1
5600
13100
R2
5850
13900
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Commodity
NCDEX Guar Seed
NCDEX Guar Gum
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