August 23, 2013

Guar Complex: Picture can get rosier

India has been a major player in the context of guar and guar gum in the global market. India’s production

contributes to 80% of the world’s total production figuring up to 6 lakh tons. Rajasthan wholly retains the

credit for India’s position producing 70% of the production itself.

Guar gum has a vast range of industrial applications and the major share of demand comes from various

industrial sectors only.

India is the leading net exporter of guar seeds and guar gum. The country

exports over 117,000 tons of guar and its derivatives, which is comprised by

33,000 tons of refined split guar gum, and 84,000 tons of treated and

pulverized guar gum. The net worth of the Indian exports is estimated over Rs.

5000 crores.

In the recent months, guar futures prices have taken a hit due to higher area

under cultivation, a conducive weather, mounting stocks in different states

and weak exports.

Year

2009-10

2010-11

2011-12

2012-13

Production

(000mt)

1150

1650

1250

1900

Crop Holding by Farmers

Guar holdings have been increased by farmers this year in anticipation of higher prices. Last year, farmers

found the prices lucrative which has led them to increase guar holdings this year, mainly in Rajasthan and

Gujarat. As per our initial survey, Rajasthan farmers are still holding around 52% of guar with them out of

total Rajasthan production which includes 10% for seed retention. They have only released 48%, which

majorly consists of small farmers who need money. Also, a recent fall in guar seed prices is causing them to

panic, which leads to selling of their stocks in the open market. However, Haryana farmers seem to be

releasing more stocks in the market compared to the Rajasthan farmers. Haryana farmers have released

around 54% of the total guar production in Haryana and only 46% is left with them. Meanwhile, Gujarat

farmers are not interested in holding guar crop this year and have sold stocks at higher prices. Farmers in

Gujarat regions have released around 85% of the guar crops and hold only 15% stock with them.

Export and Import Scenario

Presently, export demand from US and China has remained consistent, but it does not look like it is going to

increase by huge volumes in the near future. The US already has huge stocks in Houston, which keeps it well

supplied. As far as the monthly exports are concerned, exports of guar gum (split, powder and meal) in June

2013 were reported to be 50,820 tons which is lower in comparison to 56,387 tons exported in May 2013.

According to the Indian Guar Gum Manufacturer’s Association, exports in the current season are likely to

decline by 30% compared to 650,000 tons from the previous season.

Please refer to disclaimer at the end of the report.

The Demand Side

A higher acreage is leading to higher expectations of the crop size. Higher crop expectations of summer crop

have led the prices downwards. Guar prices are falling owing to weak domestic demand. Although we can

expect prices to recover if we see an improvement in the export demand, seems very unlikely. As far as our

exports are concerned, around 30% of the total guar production has already been exported towards China and

US and as mentioned earlier, export demand is also limited.

Outlook

Guarseed:

Technically speaking, since the re-launch

in May 2013, NCDEX Guar seed has been

moving in a downward sloping trend

channel forming lower highs and lower

lows. Price has recently breached the

channel resistance at 4510 indicating

sideways to bullish trend ahead. 4510

was also its previous high and close above

the same could trigger a sharp rally

towards 4810 / 5030.

Guargum:

Guargum Oct can be bought near 12,840

for upside target of 13,675/14,210

Please refer to disclaimer at the end of the report.

For any details contact:

Commodities Advisory Desk - +91 22 3958 3600

commoditiesresearch@motilaloswal.com

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