Guar gum output slumps with dip in crude oil exploration

Falling crude oil prices have hit the industry, as oil explorations have reduced globally

A huge stock burden from last year, along with higher production and weak exports, have led to a fall in capacity utilisation of guar gum producers to a mere 20 per cent this year. Also, falling crude oil prices have hit the industry, as oil explorations (where it is a is a key input) have reduced globally.

There are around 200 guar gum units in India, mainly Rajasthan, Haryana and Gujarat, with a total processing capacity of about 90,000 tonnes a month (tpm). Current production is about 18,000 tpm. India is the major global source.

“This is the second bad year for the industry as crude oil prices declined, which has reduced oil exploration in the US and European countries in the past two years,” said Girdharilal Sharda, president of the All India Guar Gum Manufacturers Association.

Due to its high viscosity, guar gum is used in oil well drilling and fracturing, oil well stimulation, mud and water drilling, and industrial applications and preparations such as a stabiliser, thickener and suspending agent.

India’s guar gum exports have fallen from 30,000 tpm in October to 17,000 tonnes a month now. Two years earlier, it was about 50,000 tpm. Reduction in export demand also decreased the price of gum from Rs 85 a kg to Rs 60 a kg during the season. Crude oil was $107 a barrel in 2013 and is now around $45 a barrel in international markets.

More, against last year’s carry-forward stock of 800,000 tonnes, the industry estimates that if the current situation continues, the year might see a carry-forward of around a million tonnes. As prices of guar gum had increased three years earlier, it had encouraged farmers to grow it. Export demand was good till 2013-14 but then declined; as a result, carry-over stock of the seed has created a burden.

The guar gum and seed year starts from October and ends in September. For the current year, the industry estimates 1.75 million tonnes of production. The Shellac & Forest Products Export Promotion Council estimates 2.22 mt production of seed. “Lower oil & gas exploration is not only the reason behind the current fall in utilisation. The industry had taken up huge capacity expansion drives during the past five to six years as export demand had zoomed. That’s why the industry is facing trouble now,” said Ravinder Sharda, director of Jai Bharat Gum & Chemicals.

“The prospects of lower production this year, along with rising crude oil prices, leading to improved export demand, could support the price,” said Ajay Kumar Kedia of Kedia Commodity and Comtrade. From January, crude oil prices have recovered from $33.6 to the current level of $45.5 a barrel. Similarly, guar gum has marginally increased from Rs 57 to Rs 60 a kg in the said period.