Huge stock burden from last year along with higher production and weak exports have led to a fall in capacity utilisation of guar gum production to mere 20% this year.
Moreover, falling crude oil prices have hit the industry as oil explorations have reduced globally.
There are over 200 guar gum units in India mainly located in Rajasthan, Haryana and Gujarat with a total processing capacity of about 90,000 tonnes per month (tpm). However, currently the production stands at just about 18,000 tpm.
“Utilization of actual production capacity has fallen to about 20% as export demand declined significantly. This is the second bad year for guar gum industry in a row as crude oil prices declined which has reduced the oil exploration in the US and European countries in the last two years,” said Girdharilal Sharda, president of the All India Guar Gum Manufacturers Association.
India's guar gum exports to have fallen from 30,000 tpm in October to 17,000 tonnes a month now. Two years back it was about 50,000 tpm. Reduction in export demand also decreased the prices of guar gum from Rs 85 per kg to Rs 60 per kg during the season because of lower exports.
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Crude oil price which were ruling at a high of $ 107 per barrel in 2013, are now around $ 45.52 per barrel in the international markets. The fall in crude oil price has decreased the oil exploration which mainly translated into weak export of guar gum from India.
Moreover, as against the last year’s carry forward stock of 800,000 tonnes, the industry estimates that if the current situation continues, the production year of guar gum may see a carry forward stock of over 1 million tonnes.
As prices of guar gum had increased three years back, it had encouraged farmers to take guar seed crop. Export demand was good till 2013-14 but letter on it has gradually declined and as result carry over stock of guar seed has created stock burden.
Girdharilal Sharda said, “Higher production because of good return in past few years has increased the carry over stock size at the new season this year to 800,000 tonnes and looking to the current demand it may be over 1 million tonne by end of September.”
Guar gum and guar seed year starts from October and ends in September. For the current year, industry is estimated 1.75
However, industry feels that that weak demand and stock burden is not only the reason for lower capacity utilization. Over production capacity is too a cause of fall in production.
“Lower oil and gas exploration is not only the reason behind current fall in utilization. The industry had taken up huge capacity expansion drives during last five to six years as export demand had zoomed between 2011 and 2013. That’s why industry is facing trouble now”, said Ravinder Sharda, director of Jai Bharat gum and Chemicals Limited.
While industry is not hopeful for recovery soon, market experts, on the other hand, believe that with crude oil prices gaining since last couple of months, guar gum market may recover in the coming days.
Ajay Kumar Kedia of Kedia Commodity and Comtrade Private Limited said, “Prospects of lower production this year along with rising Crude Oil prices from lows, leading to improved export demand could support price.”
From January 2016, crude oil price has recovered from $ 33.62 to current $ 45.52 per barrel. Similarly guar gum price marginally increased from Rs 57 to Rs 60 per kg in said period.
| Guar Seed Area and Production | |||||
| Year | Area | Production | |||
| 2011-12 | 3.46 | 2.12 | |||
| 2012-13 | 3.91 | 2.32 | |||
| 2013-14 | 4.42 | 2.06 | |||
| 2014-15 | 3.93 | 1.73 | |||
| 2015-16 | 5.17 | 2.28 | |||
| Source: Shellac & Forest Products Export Promotion Council | |||||
