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Sliding crude oil prices are signalling an end to the guar gum boom, which started a decade ago on the back of a heightened shale gas exploration drive in the US.
Prices of guar seed spiralled down to nearly Rs 4,200 a quintal in January, the lowest since December 2013, against a peak of Rs 30,000 a quintal in March 2012.
In the past six months, the price of guar seed has come down by 30 per cent, from nearly Rs 6,500 a quintal.
Gum prices have fallen to their lowest since June 2011, to Rs 10,000 from its peak in March 2012 of Rs 90,000 in Jodhpur spot mandi.
While the export of guar gum was lower by 70-80 cent in January over the same period last year, the prices are near a four-year low, according to guar gum traders.
In the last six months, more than 60 guar gum plants have shut down, mostly in Rajasthan, says Ganesh Prajapat, a guar gum analyst.
In 2014, the total production of guar seed was estimated to be 3.4 million tonnes (mt), or nearly 34 million bags. Of this, at present, nearly 15 million bags are lying in local warehouses, against seven million last year at the same time, according to Prajapat.
Around 2005, guar gum was discovered to be a cheap substitute for other expensive ingredients needed for Shale gas exploration in the US. The shale gas boom led to a demand surge for guar gum. However, with crude prices falling, shale gas exploration has been curtailed, leading to drastic fall in the demand for guar gum.
In the last couple of years, several Indian traders had opened warehouses in the US. A build-up of inventory in those warehouses had further aggravated the price crash.
“Earlier, it would take nearly a month or so for the consignments to reach the US. Now, almost all big vendors have local warehouses in the US which are full to capacity. This has led to saturation in demand,” said Suman Jain, owner, Vasundhara Gums & Chemicals.
In addition, factors such as a weak Russian currency and a high inventory of the commodity in the warehouses in the US, has led to the fall in exports. Russia is third major importer of Indian guar gum after US and China. However, as the Russian currency touched the lowest point against dollar in the recent months, exports from India nearly nosedived, according to Prajapat.
Between, April-October 2014, India's total guar gum exports stood at Rs 5,826 crore, against Rs 8,053 crore in the same period last year, according to data from Apeda (Agricultural & Processed Food Products Export Development Authority).
