Mulls ‘trade-to-trade’ deposit, as rates break new highs, despite repeated raising of margins.
Under trade-to-trade, a client must deposit the entire value of the trade upfront. The order is settled when the seller ensures delivery. In other words, the system will function like spot trade.
“The matter came for discussion on several occasions in the recent past. However, no firm decision was taken,” said an FMC official.
Guar seed for delivery in the near-month hit the upper circuit on the National Commodity and Derivatives Exchange in early trade on Wednesday, recording a staggering 35.5 per cent rise so far this month. The commodity set a new high record and rose four per cent to close the day at Rs 7,272 a quintal. And, guargum, a derivative of guarseed, also hit the upper circuit and closed at a lifetime record of Rs 24,114 a qtl. It has gained 43.7 per cent so far this month.
The price continued to spiral upward despite the NCDEX raising the special margin thrice this month. Effective December 13, special margins on guargum and guarseed were levied to 10 per cent from the existing exchange margin of 10 per cent, which had proved inadequate for the price to cool. The special margin was then raised to 20 per cent effective December 19. And, to 30 per cent effective December 27. Yet, as noted, the price of both commodities hit the upper circuit to set a new record on Wednesday. The overall margin is now 40 per cent (10 per cent exchange margin and 30 per cent special margin).
Guargum constitutes 1-1.5 per cent of raw material in application industries. Since the commodity faces no competition, industries are ready to buy at a higher price. India supplies 95 per cent of world consumption. Oilfield demand is expected to remain strong for a few years at least, if not longer, as the technology of horizontal drilling spreads beyond its current areas of application. Presently, the industry buys gum powder at an average $7,500-7,600 a tonne (Rs 40,000 a qtl) as compared with last year's average price realisation of $1,600 a tonne. Looking at the increased usage of this process, particularly in the US, this year's demand is expected to be a billion pounds (450,000 tonnes).
Compared to the demand, the supply this year was a major issue for industries. When guar sowing began, it faced stiff competition from cotton, with farmers in Haryana and the northern parts of Rajasthan preferring it over guar, decreasing the area under production. According to market sources, crop output for India this year would be close to a million tonnes (equivalent to 300,000 tonnes of guar gum} and the carryover stock from last year would be 75,000 tonnes. So, total gum availability would be 375,000 tonnes, while expected demand is 450,000 tonnes.
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Official data showed guar gum worth Rs 1,133 crore was exported in 2009-10 and Rs 2,812 crore in 2010 -11. The industry expects export worth Rs 7,247 crore in 2011-12. The gain is for farmers, with prices in major mandis at Rs 6,800-7,000 a qtl for guar seed.
Currently, guargum manufacturers and exporters are enjoying very high margins, of Rs 8,000-12,000 a qtl. Continued depreciation of the rupee against the dollar had boosted realisation, said a Jaipur-based trader. According to Vedika Narvekar, an analyst with Angel Broking, strong fundamentals are driving prices of both gum and seed.
Meanwhile, the FMC has sent teams of its officials in coordination with exchanges to investigate traders’ books of accounts.