Guar again in grip of speculators

Trade participation low in futures market, FMC monitoring developments

Within a month of its re-launch, guar contracts seem to have again fallen into the grip of speculators. These contracts have hit the circuit limits on either side almost every day since relaunch, despite the lack of participation, thanks to heavy speculation, something which had led to their delisting about 15 months earlier.

Today, almost all guar contracts, for seed and gum, hit the upper circuit. The near-month seed contract shot up 4.1 per cent to trade at Rs 7,110 a quintal and the far-month contract for delivery in November jumped 4.2 per cent to Rs 6,010 a quintal. While the near month gum contracts were resilient, with the price having gained by two to three per cent, the far-month contracts moved up by a little over four per cent. The commodity for delivery in November closed with a gain of four per cent at Rs 18,270 a quintal.

Amid heavy speculation, the Forward Markets Commission (FMC) suspended futures trading in guar in March last year. The regulator allowed its relaunch only last month.

"Only speculators can take the market to the extreme of either side. Guar has again become speculators' preferred choice in the futures market," said Purshotam Mundra, partner at Rajendra Prashad Purshotam Mundra, a Jodhpur-based trading firm.

"Heavy speculation has again started in the futures market. We had urged the FMC not to commence futures trading in guar. In such a massive speculation, small traders might be ruined," said Purushottam Isaria, president, All India Guar Gum Manufacturers Association.

The FMC is monitoring the developments in both the spot and futures markets. However, unlike in the pre-suspension era, when the market seemed completely in the hands of speculators, leading to guar prices hitting record highs, the futures market today lacks active participation. Against a little over 2,00,000 daily volume and open interest in the pre-suspension period, guar seed and guar gum contracts see around 200 tonnes and 40 tonnes, respectively.

Mundra forecasts guar output at 2,75,000 bags (a bag has 100 kg) this year, as against 2,25,000 bags last year.

The gum continues to have high foreign demand. Data from the Agricultural and Processed Food Products Export Development Authority shows gum export recorded a 40 per cent growth at Rs 120,450 crore in 2012-13, compared to Rs 86,028 crore in the previous year.

"Since its relaunch, brokerages have been working hard to attract large players' participation. But traders have hardly evinced interest in guar, as has been the case with other relaunched agri contracts, including those in sugar, wheat and soybean. The volatility in prices can, therefore, be attributed to the dearth of participation," said Kishore Narne, head of research at Motilal Oswal.

Kotak Commodity's agri expert, Faiyaz Hudani, notes the commodity has bounced back from recent lows, recovering almost 30 per cent. The volatility would depend on the rainfall in the monsoon, he added.