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Guar Update Wednesday | May 06, 2015 Content Price performance Production Exports Outlook Prepared by Ritesh Kumar Sahu Analyst- Agri Commodities [email protected] (022) 2921 2000 Extn. 6165 Angel Commodities Broking Pvt. Ltd. Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093. Corporate Office: 6th Floor, Ackruti Star, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 2921 2000 MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX: Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302 Page 1 Disclaimer: The information and opinions contained in the document have been compiled from sources believed to be reliable. The company does not warrant its accuracy, completeness and correctness. The document is not, and should not be construed as an offer to sell or solicitation to buy any commodities. This document may not be reproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose without prior permission from “Angel Commodities Broking (P) Ltd”. Your feedback is appreciated on [email protected] www.angelcommodities.com Guar Update Wednesday | May 06, 2015 Guar complex prices have recovered in last Six-weeks Average monthly Guar Seed and Gum Prices - Rs / quintal Guar Seed (LHS) 5600 5300 5000 4700 4400 4100 3800 3500 Guar Gum (RHS) 17000 16000 15000 14000 13000 12000 11000 10000 9000 8000 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 The guar seed prices have witnessed a downtrend since October and crashed to 10 years low to Rs 3,500 per quintals in March. The downward trend was due to lower demand for the guar gum at higher prices in the US markets on account of lower crude oil prices. The prices of guar gum in India usually pick up during mid-October due to export demand from the shale gas sector in the US and China. But export demand did not pick up this year (2014) as lower crude prices made it unviable for drilling companies to use guar gum and instead shifted to cheaper alternatives. Source: Reuters, Angel Commodity Research However, since April, the prices at National Guar complex - Daily Close Price (Rs/Qtl) - NCDEX Commodity and Derivatives Exchange (NCDEX) 5500 13800 Guar Seed Guargum have recovered and trading on a positive note as 12800 prices of Guar seed gained 36.7% to Rs. 5,200 per 5100 11800 quintal from 3766 levels, whereas Guar gum 4700 10800 surged 46.84% to 12,760 per quintal from 8690 4300 9800 levels. It is believed that the prices have surged- 3900 8800 up due to speculative buying on account 3500 7800 anticipation of lower sowing and expecting El Nino effect on monsoon this season, fearing lower arrivals in the next season. Other factors for Source: surging of prices may due to good demand from the domestic traders and stockiest on record low prevailing prices, new foreign trade policy for guar seed and good export demand of guar gum in anticipation of improving crude oil prices. The price of Guar gum is lower this year compared to last two years due to slack demand from the drilling companies in US as crude oil prices are at record low levels. The higher prices of guar gum in domestic market discourage the export demand as the use of guar gum was not economical in shale gas extraction. Thus the guar gum prices hover between Rs 8,500 and Rs 8,700 a quintal compared with Rs 14,000 in the year-ago period. Yearly price comparison of Guar Gum- (Rs/Quintal)- NCDEX 32000 27000 22000 17000 12000 7000 Source: Reuters Y 2015 Y 2014 Y 2013 Page 2 Meanwhile, in the current season starting October, the guar seed and gum prices have dropped almost 38.4 per cent and 52.4 per cent respectively till March. During this downtrend, guar seed prices have fallen from Rs 5860 per quintal levels to Rs 3,552 while guar gum, which was trading above Rs 18,000 per quintal has fallen to Rs 7,830 levels. Recently, in the first week of May, the prices have attained highest price in 5 months and corrected downwards on profit booking at the higher levels and again rose this week fearing forecast of below normal monsoon. www.angelcommodities.com Guar Update Wednesday | May 06, 2015 Below normal monsoon may affect guar production next Kharif The guar is normally sown during the onset of monsoon i.e. during the second week of July to August and harvested during October and November. The crop requires good spells of rain during seed setting and maturing i.e. during first and last week of September. The prediction of below normal monsoon in 2015 by India Meteorological Department (IMD) has surged the prices of most agricultural commodities in futures trading on NCDEX including guar seed and guar gum. The monsoon will be affected this season due to the El Niño phenomenon. This will be the second year of a weak monsoon, which will impact on agricultural production as well as ground water and reservoir levels. The guar is mostly sown on rain-fed agricultural lands, particularly in Rajasthan. Rajasthan accounts for more 80 per cent of guar production and thus the largest Guar producing state in India. Guar is grown mainly in arid districts of western part of Rajasthan and depends heavily on the monsoon. The crop is also being cultivated in low rainfall areas of Madhya Pradesh, Chhattisgarh, Andhra Pradesh, Karnataka, Tamil Nadu and other parts in Kharif as well as in summer season. Area-Production Guar Production in India Area (Lakh Hac.) 30 60 25 50 20 40 30 15 10 20 Lakh Hactares Prod (Lakh tonnes) Lakh tonnes India is the largest producer of guar seed and accounts for around 80 per cent of the total world production. As per the government sources, total Guar seed production in India is in the range of 28-30 lakh tonnes (lt), which increased about three fold in last 5 years. The production of guar fluctuates depending upon the monsoon condition, particularly in western districts of Rajasthan. 10 5 0 In 2014-15, guar production is estimated at 2010-11 2011-12 2012-13 2013-14 2014-15* around 20-22 lt, according to Ministry of Source: Ministry of Agriculture, GOI Agriculture, GOI, lower by about 18-20 per cent compared to last year production of 25-27 lt due to delayed monsoon and lower area of sowing in Gujarat, Rajasthan and Haryana. However, in contrast, as per the 2nd advance Guar Production in Rajasthan (lakh Tonnes) estimate by the Department of Agriculture, Rajasthan, the guar seed production in Rajasthan 30 55 is estimated at 28 lt. Earlier, in the first estimate, Production (Lakh tonnes) 50 Government of Rajasthan has estimated 25 Area (lakh hac) 45 production at 14-15 lt. 20 40 35 15 30 10 25 last year. Page 3 2010-11 2011-12 2012-13 2013-14 2014-15 Source: Department of Agriculture (DoA), Government of Rajasthan Thus, as per the latest estimate, the output this year in Rajasthan is lower by only by about 2 percent compared to previous year. Haryana, second highest producer, likely to produce 3.403.50 lakh tonnes, while Gujarat to produce 40 per cent less to 1.87 lakh tonnes compared to www.angelcommodities.com Guar Update Wednesday | May 06, 2015 Guar gum exports increase at lower prices According the Agricultural and Processed Food Products Export Development Authority (APEDA), more than 55 per cent guar gum produced in India is exported to the United States mainly for its use in shale drilling. China, Germany, Italy, Malaysia, Russia and Turkey are other major countries where India exports guar gum. Due to heavy demand, the guar gum prices have increased to unprecedented levels and thus the oil and shale drilling companies using guar gum have shifted to cheaper alternative. Monthly Guar gum exports (MT)- 2014-15 75000 110000 105000 70000 100000 95000 65000 90000 60000 85000 80000 55000 75000 50000 Source: APEDA 70000 Exports- 2014/15 Value (Rs Lakh) Guar gum is used in hydraulic fracturing to extract oil and shale gas and shift in the technology from vertical to horizontal fracturing has led to manifold increase. Apart from its use in oil drilling activities the largest market for guar gum is in the food industry. Food grade guar gum accounts for about 30-35% of a total Indian guar export. Due to the inflated prices of Guar gum and record low price of crude oil in 2014-15, it becomes uneconomical to use guar gum in hydraulic fracturing as the production cost of shale gas becomes higher than the crude oil production in oil producing countries. Thus to balance the demand-supply, the lower prices of guar gum make it more feasible for the drilling companies to go for guar gum in shale gas extraction. Guar Complex exports (MT) 74000 64000 54000 44000 34000 24000 14000 Source: APEDA Exports- 2014/15 Exports-2013/14 Page 4 In 2014-15, the export demand from the US has been good as the prices of guar complex dropped to lower levels. According to the data provided APEDA, exports of guar gum from April to February stood at 6.63 lakh tonnes (lt) a raise of 21 per cent compared to 5.45 lt exported last year. Exports are recorded higher on year-on-year basis following the increase in demand from food industry and oil exploration companies. Around 50 per cent of guar gum export goes to oil sector. Lower prices of guar gum have boosted overseas shipments in last two years. The demand for guar gum has been going up in the recent years as an environment-friendly biodegradable product used in the fracking process in shale gas wells. It is expected that, with record lower prices of guar complex prevailed during the 2015, export figures may touch about 7 lt in this financial year. Meanwhile, export of guar gum during the first 11 months (Apr-Feb) in 2014-15, declined in value terms by 12.8 per cent to Rs. 9,561 crores against Rs. 10,964 crore last year. www.angelcommodities.com Guar Update Wednesday | May 06, 2015 Outlook Dwindling arrivals and good demand will surge the prices in near to medium term The guar complex, this season (starting October 2014) were quite volatile on account of the good export, erratic monsoon and record falling crude oil prices. Due to below normal rainfall last year the prices were high during the starting of season as the guar production is estimated to be 20-25% lower compared to last year. As the season progressed, the prices have cooled down due to subdued demand from the US, China and Russia market which compensated the lower supply from the current production. The falling crude prices, availability of alternative and cheaper substitute for fracking process for US Shale gas companies and Rouble crisis in Russia has impacted the guar prices, which dragged guar prices to 10 years lows in March. However, improved crude oil prices and the increase demand from the food and textile industry due to lower prices have supported the guar prices in last two months. The exports volumes increased 22 per cent in April- February as compared to last year. Guar seed and guar gum prices are moving positively in last 6 weeks as supply has dwindle amid fearing of the lower production and good steady demand from food and textile industries apart from oil industries for drilling purpose. Guar seed Jun contract has gained by more than 35 per cent over last one month and trading around Rs 5300 per quintal levels. We expect Guar Seed prices to sustain at the current levels and may consolidate in the range of Rs 5300 and Rs 5600 per quintal and wait for the monsoon for further direction. Similarly Guar gum may touch Rs 13000 per quintal levels in next one month depending on the demand for exports on dwindling supplies. Technical Levels: Contract Jun Jun S2 4600 11350 S1 4950 11900 CMP 5296 12610 R1 5600 13100 R2 5850 13900 Page 5 Commodity NCDEX Guar Seed NCDEX Guar Gum www.angelcommodities.com