The Forward Markets Commission (FMC) has found 4,490 entities were involved in guar gum price manipulation. In a report submitted to the ministry of consumer affairs (MCA) on Friday, the commodity market regulator has said these entities made profits of Rs 1,291 crore by way of price manipulation.
The report also names listed entities Ruchi Soya and Betul Oil. The report is significant as many traders had earlier said the price of guar gum had risen abnormally because of a shortage.
However, the commodity was cornered through other channels, including margin funding and booking of huge stocks under various fake names, as was divulged by the FMC earlier.
Confirming the receipt of the report, Rajiv Agarwal, secretary, MCA, said, “We are examining the issue. We would take appropriate action in future.” While Ruchi Soya’s managing director Dinesh Shahra did not respond to calls by Business Standard, Betul Oil’s spokesperson said, “We are trading in various commodities in the physical as well as futures markets as the routine course of operations. We have complied with all the extant rules, regulations and provisions governing the markets and any directives issued by the exchanges and/or the Forward Markets Commission from time to time.”
Meanwhile, a senior FMC official said the regulator had primarily focused on two major factors in the report. First, banks and non-banking finance companies (NBFCs) are currently lending to small and marginal traders who take positions in the futures exchange, apart from adequate stock holding in the spot market. Hence, these banks and NBFCs should be restricted from funding small and marginal traders.
Second, large physical traders should be asked to reveal stock holding in each commodity in their godowns.
The official argued that these two factors might help bring some transparency into the trading system, thereby preventing players from cornering agri commodities.
Earlier, the FMC had banned Vinod Commodities, Shresth Commodity & Financial Services and Hindustan Technosol from taking any position in futures exchanges early this year. Although, Hindustan Technosol got a reprieve from the Jaipur high court, the other two traders continue to remain suspended from trading in commodity exchanges.
A recent report by Assocham said guar gum and guar seed prices jumped almost 70 per cent since January this year, despite several measures such as high margins, lower position limits, suspension of traders, etc taken by the regulator. The prices of these commodities have risen tenfold in the past year on low stocks. The normal price of guar bean in the season is Rs 10 a kg, while guar seed is traded at Rs 25 a kg and guar gum at Rs 50 a kg.
The prices had increased to Rs 291 a kg for guar seed and Rs 959 a kg for guar gum on March 21. “It is unbelievable that the fodder for animals is priced at Rs 291 a kg—much more than the price of cereals and pulses being used for human consumption,” said the Assocham investment committee’s chairman S K Jindal.
“The prices for guar have gone up 120 per cent in the past month, 700 per cent in the past four months, 875 per cent in the past 12 months and 1,300 per cent in the past 18 months,” the report said.
The FMC has suspended futures trading in both guar seed and gum until September 2012, with room to review in October. Guar gum is used as a thickening and binding agent in the food, textile, paper and pharmaceutical industries and for drilling crude oil from wells. Demand from the oil exploration industry is currently very strong.
Against the total estimated output of 1.5 million tonnes last year, the guar seed crop size is forecast to remain at 1.25 million tonnes this year. With estimated exports of 500,000 tonnes, the total requirement of guar seed stands at a minimum of 1.55 million tonnes. This means the market is expected to remain in a deficit of nearly 20 per cent.