Despite a difference of opinion among its members, the Forward Markets Commission (FMC) is considered set to lift its earlier suspension of futures trading in guar, after a meeting with its advisory committee tomorrow.
While the commodity derivatives markets regulator, along with a number of exchange and industry members, is keen on the re-launch of guar contracts on futures exchanges, a section of the 40-member advisory committee opposes the move.
This comes even as farmers have brought a larger area under guar seed sowing this season, assuming a repeat of last year’s price spurt, when it got the highest realisation among all seasonal crops. Last year, both guar seed and gum prices set record highs at Rs 33,500 a quintal and Rs 103,000 a quintal, respectively.
Commodity exchanges are going to strongly support the proposed re-launch, as guar is a large revenue generator. Before the suspension, guar was contributing eight per cent of daily turnover on the National Commodity & Derivatives Exchange and around 30 per cent of business on the Ace Derivatives and Commodity Exchange.
New contracts were postponed by the FMC on April 9 till further notice, due to a controversy on alleged price manipulation by a number of traders on futures exchanges, which led to massive price rise in both guar seed and gum. Earlier, in March, the FMC had banned traders from taking fresh buy positions on exchanges but offloading of existing positions was allowed. There were accusations of price rigging by traders and an expert committee found evidence of huge profits. FMC’s own probe found four Rajasthan-based traders guilty of price rigging and suspended their trading membership early this year.
However, FMC had also argued that the price spurt could not be solely attributed to excessive speculation in futures exchanges. Less crop output and massive import orders from oil extraction companies in the US led to the rise, it said. Data compiled by the Union ministry of agriculture showed a 20 per cent decline in guar seed output last year to 1.2 million tonnes in 2011 as compared to 1.5 mt in the previous year.
This kharif season, however, the ministry estimated a 20 per cent increase in sowing area on revival of the 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 in the previous one. Purushottam Isaria, president of the All India Guar Gum Manufacturers Association, forecasts a 25 per cent increase in seed output this season due to the additional area. Total seed output is estimated at 1.8 mt as compared to 1.2 mt earlier.
This higher output could prompt opposed members to change their stance. But after last year’s controversy where business chamber Assocham talked of an artificial price spurt, the FMC does not want to take a risk, said a member.
Meanwhile, the prices of both guar seed and gum have fallen, to trade currently at Rs 7,000 a quintal and Rs 34,000 a quintal, respectively. And, export demand has come down. According to the Agricultural and Processed Food Products Export Development Authority, export of guar gum, an extraction of the seed for use in a number of industries, including oil extraction, jumped to 706,000 tonnes in 2011-12 as compared to 441,000 tonnes in the previous year. This year, exports are likely to decline to 500,000 tonnes.
The committee is also likely to take a final decision on market making in commodities, the fate of illiquid contracts and the permissible ratio of open interest versus turnover on national-level exchanges.
