After a gap of two years, guar gum demand from the food sector has brought back cheer to the domestic guar gum industry.
Guar gum, the powdered endosperm of guar beans, is in demand in Germany, Latin America and China, who are importing the commodity for the food sector. China, leading the race, is expected to import 90,000 tonne of guar gum this year compared to 50,000 tonne last year.
The industry expects the 2014 guar gum exports to be around 5.5-6 lakh tonne due to the revived demand from the food sector and the growing usage of the commodity in the oil drilling sector. In 2013, the exports was 3.25 lakh tonne as there was not much demand from the overseas food industry and many countries had used cheaper alternatives for oil drilling.
The demand for oil drilling sector is also on the rise. Talking to ET, Rajesh Kedia, director of Jai Bharat Gum & Chemicals, said Chinese and American oil drilling companies that had shifted to cheaper alternatives such as carbon methyl cellulose and xanthane gum because of a sudden surge in guar prices in 2012 are once again back in the market. The demand from the oil and gas sector is growing at the rate of 8-10%," he said.
Halliburton and Baker Hughes are the two major buyers of India's guar gum. The companies drill and complete oil and gas wells using a pressure-pumping technique known as fracking, which blasts water mixed with sand and chemicals underground to free trapped hydrocarbons from shale formations. Guar is made into a thick gel and is used for carrying sand down to a well and into the cracks created from fracturing.
But despite the rising demand of guar gum, prices have remained stable as the production has been good during the kharif 2013. According guar gum traders, price of guar gum is being available in the Jodhpur mandi at about Rs 135 per kg. Guar seed is being traded at Rs 50 kg.
"Prices will continue to remain stable over next two to three months," observed Kedia.
India is a leading exporter of guar gum and it commands about 80% of global production, followed by Pakistan. Guar gum is made out of guar seeds (cluster beans), a legume crop that grows in semi-arid regions of Rajasthan, Gujarat and Haryana. Production in kharif 2013 is higher by 39% higher at around 25 lakh tonne.
Guar gum export has seen a sudden spurt in October following demand from international food and oil exploration industry. Exports from October were up 85% and in September they were up 30%. Industry officials say with prices stabilising at the lower levels, demand and orders from overseas players have started coming in. Guar gum has been the top agri commodity in export basket for last two years. However this year in terms of quantity it was growing but slowed down in September.
“Demand for guargum is good in both the oil and food industry. In particular, after a gap of two years, guar gum is once again in demand in the food industry in Europe and the US. At present, 50% of guar gum export is in oil sector and 50% for food industry. One of the reasons for good demand is lower prices. At present guar gum prices have fallen at Rs 150 per kg, and in the coming month, further fall in prices is not ruled out. In addition, guar gum substitutes are costly, which again has pushed demand for guargum," said Suman Jain, owner, Vasundhara Gums & Chemicals.
Price trend in general is subdued because this Kharif Guar seed crop is expected to be around 2.3 million tons and including Rabi total crop is estimated at 2.75 million tonnes. This is 32.5% more than 2 million tons of crop is 2012-13. In 2011-12 total crop was 14.5 million tonnes. Hence in just two years guar crop has doubled.
Prices reached rs.300 per kg in March 2012 and now it is Rs 50 per kg. "Guar gum prices have been stable for the last one and half months, which has pushed up demand," said Santosh Jhanwar, vice president, consulting, Agriwatch.
Orders also started flowing in because, “compositing commodities like CMC and xanthan prices are 30% higher than guar gum,” said an official with one big gum exporter. He said that when guar gum prices were too high, several Indian farmers have increased sowing while Chinese and Australian farmers also experimented with guar sowing. However with prices falling sharply farmers in other countries are losing interest.
With production of seeds likely to be a record, guar gum production will also go up sharply. 2.8 tonnes of guar seed produces 1 ton of guar gum. However with increased production arrivals have also picked up. Now, daily 6,000 tonnes of seeds are arriving in the market and prices in futures are quoted lower than spot indicating that prices will remain subdued. In view of this regulator the Forward Markets Commission (FMC) has, “decided to remove the existing special margin of 10% on long side of all running and yet to be launched contracts of Guar Seed and Guar Gum traded on National Exchanges.”
The National Commodities and Derivatives Exchange will hold the first guar international conference in Jaipur during December 6-7.
Over 200 participants, including about 40 foreign delegates, are expected to attend the conference and share their views on the global scenario of guarseed and its products.
Over the last few years, Indian exporters are receiving numerous queries for the export of guar.
The international community is very keenly watching the challenges and opportunities in the futures market.
Experts and industrialists from the US, Germany, Australia, Pakistan and Sri Lanka have confirmed their participation in the conference, according to a release by NCDEX.
The commodity exchange has taken the initiative to bring together all stakeholders and policy makers in the guar complex value chain.
As part of this effort, and for the first time, the exchange has decided to present Guar International 2013 – a conference and exhibition.
Starting with networking, various issues such as demand and supply, production and price risk management would be discussed in the conference.
A record plunge in the prices of guar gum, a thickening agent used for oil and gas extraction, may boost exports from India as demand revives among US drilling companies and European food processors.
Shipments may surge as much as 50% to 500,000 metric tons in the year that began on 1 April from 333,000 tons a year earlier, said Rajesh Kedia, director at Jai Bharat Gum & Chemicals Ltd., India’s third-largest exporter.
Shipments increased about 30% to about 210,000 tons in the five months through August, he said.
Prices slumped after India, the world’s largest producer, banned futures trading in March 2012 to curb speculation and record rates cut demand from users. Rising supplies may further pressure prices, lowering costs for users Halliburton Co. and Baker Hughes Inc. Guar prices may continue to fall, Mark McCollum, Halliburton’s chief financial officer said 19 September.
The importers will definitely buy more as prices are attractive, Chowda Reddy, a senior manager at Inditrade Derivatives and Commodities Ltd., said in a phone interview from Hyderabad. Demand will increase.
Guar gum futures slumped more than 50% since 15 May, when the Indian exchanges restarted trading after a 14-month ban.
The regulator suspended trading in March 2012 after prices rallied more than nine fold in one year to Rs.95,920 ($1,527) per 100 kilograms (220 pounds) on the National Commodity & Derivatives Exchange Ltd. in Mumbai.
Production is seen exceeding demand for a second year, Kedia said in a phone interview from Bhiwani in Rajasthan.
Processors need 1.8 million tons of guar seeds to meet export demand of 500,000 tons of guar gum, he said. Seed production in Rajasthan, Gujarat and Haryana states, which together account for more than 99% of India’s harvest, is estimated to drop to 12% to 2.15 million tons in the year started July 1 from a year earlier, government data showed.
The erratic rains and long dry spell in western parts of Rajasthan were responsible for the lower production, said J.S. Sandhu, a joint director in the state’s agriculture department. Inventories of about 800,000 tons of guar seeds will make up more any shortfall in output, Kedia said.
India accounts for more than 70% of the global output of guar, which means cow food in Hindi, according to the Multi Commodity Exchange of India Ltd. The seed is also grown in Pakistan and the US
Guar gum is used in the pressure-pumping technique known as fracking, which blasts water mixed with sand and chemicals underground to free trapped hydrocarbons from shale formations.
It is made into a thickening gel used to carry sand down a well and into the cracks created from fracturing. It is also used as an ingredient in food emulsifiers, additives and thickeners.
Guar gum for delivery in December fell 0.6% to 14,620 rupees per 100 kilograms in Mumbai on Thursday.
Some of the drilling companies, which began using alternative products to guar gum after the price surge last year, may return to the commodity as availability is assured at lower prices, Kedia said.
If prices continue to fall, there may be a negative impact on guar crop next year, Kedia said. Farmers are disappointed that guar prices have declined below their expectation.
To maximise farm income and insulate farmers from seasonal losses, Uttar Pradesh government is promoting guar farming, especially in the arid region of Bundelkhand. Guar provides better returns to farmers compared to other cash crops, including paddy and wheat.
"We are encouraging state farmers for guar cultivation. Last year also, guar was sown extensively around June, but torrential rains caused extensive damage to the crop," state agriculture minister Anand Singh told Business Standard in an exclusive interview.
The farmers are being encouraged to sow guar after harvesting sugarcane crop.
"Guar is a profitable proposition for farmers. We are confident that the farmers would take up guar cultivation on large scale after they are convinced of its handsome returns," he added.
This season, India's guar output is projected to rise 50 per cent owing to higher acreage and favourable climatic conditions. The output is estimated at 2.25 million tonnes (MT) compared to 1.5 MT last year.
"The government wants to make agriculture lucrative and increase farmers' income through a multi-pronged strategy. The farm income would rise when farmers produce more, get better returns and save money on farm inputs," he said.
"We are working on a plan to popularise 'custom hiring' of tractors and other farm implements, wherein small cultivators can avail of the benefits of farm mechanisation by hiring the implements," he informed.
Meanwhile, the government has also urged the Centre to increase subsidy on solar power implements from the current level of 75 per cent.
Singh expressed concern over paucity of storage facilities in UP, which resulted in wastage of farm produce. "We want to engage private sector in building up warehousing capacity."
UP is targeting agricultural growth rate of five per cent in the current 12th Plan (2012-2017).
National Bank for Agriculture and Rural Development (NABARD) has pegged the state ground level credit potential at over Rs 1,00,000 crore for 2013-14.
For a second year, guar gum has emerged as Indias largest item of
agricultural export. And, responsible for pushing the countrys overall farm exports
to Rs 120,000 crore in 2012-13, show data from the Director General of Commercial Intelligence and Statistics
Guar gum, has seen rising demand from big Western oil companies on its use as a controlling agent in oil
wells for facilitating easy drilling and preventing fluid loss. Between 2010-11 and 2012-13, it has registered 624
per cent rise in exports in value terms. India is the worlds largest producer of the gum. On average,
the country produces 1-1.5 million tonnes of guar annually. Almost 40 per cent of guar gum produced in
the country is used for industrial purposes. In 2012, guar prices in the world markets rose a massive 800-1,000 per cent,
chiefly due to large-scale stocking by multinational oil companies over fears of short supplies, following drought in India.
Of Indias total agricultural exports of Rs 120,000 crore in 2012-13, guar gum accounted for 18 per cent, DGCIS figures show. In 2010-11,
guar gums total share in Indias overall export of agricultural items was just seven per cent.
Basmati and non-basmati rice, traditionally the flagbearers of Indian agricultural exports, have also risen in export value, but have not managed to upstage guar gum as the primary item. Between 2010-11 and 2012-13, export of basmati rice increased 71 per cent in value terms, while that of non-basmati rice rose a massive 6,000 per cent, pushing India to the pole position in this segment globally in 2012. The share of basmati rice in Indias total agricultural exports from 2010-11 to 2012-13 dropped from 26 per cent to 16 per cent. However, the share of non-basmati rice showed a considerable jump from 0.52 per cent in 2010-11 to 12 per cent in 2012-13, primarily because of the governments decision to lift the ban on its export. Another item that logged impressive growth in exports, according to the data, was flowers rising 43 per cent in value terms between 2010-11 and 2012-13, to Rs 423 crore.
India's output of guar, a tiny seed with an outsize role in shale gas extraction, will rise this year as farmers boost planting acres in hopes of good rains, against a backdrop of attractive prices and resumption of futures trade, traders said.
India, the world's top producer and exporter of the seed, fills 80 percent of world demand for guar, which thickens the slurry of water, sand and chemicals pumped into wells during the hydraulic fracturing process used to tap oil and gas from unconventional shale plays.
The United States, whose shale gas surge has transformed it from the world's largest gas importer to a budding exporter, is the top buyer.
India's western desert state of Rajasthan, which contributes more than 80 percent of the country's output of guar, produced 2 million tonnes in 2012.
Planting acreage of the crop will go up by 5 to 10 percent this year, Shikharchand Dugar, a trader from Jodhpur, a key market in the state, told Reuters, although it was too early to forecast output.
"Sowing is definitely going to be higher because prices are attractive," Dugar said. "No other crop would give this much return."
Guar also brings in better returns than other cash crops, such as cotton, or lentils, because it is less labour-intensive, needs less fertiliser and helps improve soil fertility.
Farmers plant guar in the rainy months of June and July, during India's monsoon season. The weather office has forecast average rains this year after the monsoon hits Kerala on the southern coast on June 3.
India's exports of guar gum from January to April more than doubled to 268.42 billion rupees ($4.78 billion) over the same period last year, government data show.
Prospects for the export of guar gum have brightened as fracking is increasingly viewed as a technology with the potential to change the geopolitics of energy, thanks to its dramatic boost to North American domestic gas supplies.
Guar prices are now hovering around 8,750 rupees per 100 kg, well above the cost of production, said Surendra Kumar Yadav, another trader from Rajasthan.
The resumption of futures trading would also help farmers ascertain prices, said Badruddin Khan, associate vice-president of research at Indiabulls Commodities Ltd, a Mumbai-based brokerage.
On May 14, India's market regulator lifted a ban on guar seed and guar gum futures that was more than 13 months old. Authorities suspended the trade in March 2012 after prices spiked more than 10-fold on strong overseas demand from the global shale oil and gas industry.
India, the world’s largest supplier of guar gum, lifted a ban on futures trading in the commodity used by Halliburton Co. to extract shale gas after a rally in prices spurred farmers to produce a record crop.
Halliburton and Baker Hughes Inc. help drill and complete oil and gas wells using a pressure-pumping technique known as fracking, which blasts water mixed with sand and chemicals underground to free trapped hydrocarbons from shale formations. Guar is made into a thickening gel used to carry sand down a well and into the cracks created from the hydraulic fracturing.
Guar gum has emerged as India's top farm export overtaking traditional heavyweights rice and cotton and looks set to power into the league of top 10 shipments from the country, thanks to the demand from the US oil and gas industry. Latest government data shows that guar gum exports have shot up nearly 139% on a year-on-year basis between April and January with shipments of about $4.9billion. In the previous year, it rose 374% in January alone compared to the same month of 2011. At $4.9billion, guar gum exports during the April-January period were a shade below the exports of plastics and linoleum products at $5billion. Basmati rice exports during the same period totalled $2.7 billion while raw cotton exports stood at $2.6billion. The shift in fortunes for the hitherto unknown guar gum has been phenomenal in recent years. Growing demand for the gum from the petroleum industry in the US has seen a sharp increase in the prices of the commodity, which is commonly known as guar phalli and has a variety of uses in sectors ranging from food to oil and gas drilling.
Guar, from which gum is extracted, is mainly grown in Rajasthan and Haryana India accounts for nearly 80% of global production of guar gum, now bringing in $4.9 billion Used as controlling agent in oil wells for easy drilling Also used in textile, food & cosmetics industries Guar gum prices rose 1,000% in '12
The sharp rise in exports, thanks to the scorching demand from the US oil and gas industry, which uses the commodity while drilling for shale gas, has helped propel prices to stratospheric levels . The robust return from the crop has changed lifestyles and incomes in Rajasthan and Haryana where it is predominantly grown. TOI had earlier reported the dramatic impact of the sharp increase in guar gum demand and prices on lifestyles in Rajasthan. While the growth in demand may have slowed compared to the dizzy heights scaled in 2012, experts say the commodity will hold up for some time. Last year, prices shot up in the 900% to 1,000% range and a quintal of guar gum fetched more than Rs100,000 while prices for the seed shot up from Rs 3,000 to Rs 35,000. "More or less the demand will be there largely because of the requirements of US shale gas drilling," said Naveen Mathur, associate director commodities and currencies at Angel Broking.