Guar price crashes on export drop fears

Over 40% fall in six weeks on higher crop estimates and lower demand abroad, importers renegotiating contracts

The spot price of guar has crashed in Rajasthan mandis on concern of high output and a drastic decline in import orders from America, the European Union and the Gulf countries, the three leading export destinations of guar derivatives from India.

The guar seed price has plunged 44 per cent in the past six weeks, to trade currently at Rs 80 a kg, from Rs 145 a kg in mid–July. The gum price dived to Rs 240 a kg today from Rs 400 a kg in mid-July, down 40 per cent. The levels in that month were recent highs, when both guar seed and gum found sudden buying interest from retail farmers for sowing, following intermittent rainfall.

The Union agriculture ministry had estimated a 20 per cent increase in sowing area this kharif season, after revival of monsoon rainfall in the first week of August. The area under guar seed was forecast at 3.5 million hectares (ha) this sowing season, as compared to 2.91 mn ha last season. Purushottam Isaria, president of the All India Guar Gum Manufacturers Association, forecasts a 25 per cent rise in seed output this season. The estimate is 1.5-1.8 million tonnes, as compared to 1.2 mt in the previous season.

However, this is significantly lower than earlier trade estimates of a 300 per cent increase in output. At the beginning of the kharif sowing season, traders said farmers would respond promptly to last season’s record high prices and bring as much area under the seed as possible. Farmers did eye guar at the beginning of the season but a lack of rain hampered sowing. Then, water logging on excessive rainfall hit germination in the sown crop, lowering overall output estimates.

“Hence, the output, though higher this year, is unlikely to achieve the previous estimates. Overall, output might remain marginally higher by 20-25 per cent this year compared to last year,” said B D Agarwal, managing director of Vikas WSP Ltd, one of the largest guar gum exporters.

The 90-day guar crop requires four-five spells of intermittent rainfall. Sowing begins with the onset of the monsoon rain, for harvesting in October.

The drastic price decline has created a massive trade imbalance between exporters and importers of guar derivatives in the US market.

Importers of Indian origin based in America have started re-negotiating prices after the shipment of guar gum from India. According to a leading exporter, around 15,000 tonnes of gum are lying at US ports due to the price negotiations; US buyers who booked at $27,000 a tonne are now seeking delivery at $10,000 a tonne. The exporter said the government’s help had been sought on the issue.

Importers abroad had also built a massive stockpile last year, assuming an increase in prices. According to Ravikant Kanoongo, director of Hindustan Technosol Pvt Ltd, a leading exporter from Rajasthan, guar gum import orders are very low today and are unlikely to resume soon. Once the crop prospects become clear, stockpiles decline and the price continues to soften, demand would rebound, he said.

Also, the US government has initiated working on an alternative to guar gum for its application in hydraulic fracturing – the process for extracting hydrocarbons from tight formations that have revolutionised oil and gas production. Indian exporters feel this substitution is unlikely soon and so demand would continue to pour in from foods, cosmetics, drugs, explosives, fire retardant and paper industries.