The Forward Markets Commission (FMC), the commodity derivatives market regulator, has suspended fresh positions in guar trading, effective immediately. This means all existing live contracts would remain open, only for squaring off positions.
Confirming the development, Ramesh Abhishek, chairman, FMC, said, “There is a genuine shortage of guar seed in the market. Arrivals have dried up. Open positions have also declined. Still, prices of both guar seed and gum were ruling high. Hence, we decided to suspend fresh position building in guar counters throughout this season.”
The decision would result in no fresh booking by any market participant in guar counters until September. Fresh positions would be decided later by the regulator, depending upon the market situation.
After the announcement, both guar seed and gum prices turned negative on the National Commodity & Derivatives Exchange (NCDEX), hitting the downward circuits.
A circular on the NCDEX website said financial gains made by taking fresh positions in violation of this directive, will not be payable to the violator, but will be deposited in the Investor Protection Fund (IPF) of the exchange. Additionally, violation will also attract penalties as prescribed by the regulator.
The contracts for the next season, that is, for expiries from October onwards, will be launched according to the contract launch calendar.
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Earlier, the price of guar gum hit its highest at Rs 100,000 a quintal in the Jodhpur mandi, early Wednesday, on rising demand. Similarly, guar seed price hit Rs 30,000 a quintal.
The near-month contract of guar gum for delivery in NCDEX had hit an all-time high of Rs 95,920 a quintal, while the seed price hit Rs 29,900 a quintal, also a new high. Open interest gradually built to 2,800 lots on Wednesday, as against 240 lots since the beginning of this year at NCDEX for near-month delivery.
A report compiled by Kedia Commodity, the city-based broking firm, said fundamentals had suddenly turned supportive to guar prices. Anticipations of further rise in exports in coming weeks could aid the uptrend, traders said. High demand from China for oil drilling activities has been reported recently, thus pushing up the demand for gum.
Temperatures have increased in parts of Rajasthan and sowing of guar will start in the coming days, as a particular temperature is required for sowing. Also, guar seeds are cheaper and irrigation and labour requirement is less, so it is more viable for farmers in this belt.
After harvesting a record 1.5 million tonnes (mt) of guar crop in Rajasthan in the 2010-11 season (October-September), output in the current season has declined to 1.21 mt. Exports during April-October were up 75 per cent at 348,000 tonnes. How-ever, because of higher prices abroad, demand has slowed in the past few weeks.
NCDEX has cancelled August and September expiry contracts of guar seed and gum to avoid default in deliveries due to dwindling stocks, the exchange said in a statement earlier this month. Traders have estimated a deficit of around 25 per cent in guar seed supply.
Traders estimate that in Haryana, too, the sowing area has fallen to 215,000 hectares, as against 256,000 hectares last year. Production is expected to be 200,000 tonnes. In Gujarat, production is estimated at 65,000 tonnes, an estimated decline of around 15-20 per cent.
Meanwhile, traders in Rajasthan’s major mandis are planning to file a suit in the state high court in the first week of April against FMC for its late action against speculators. A leading Jodhpur-based trader confirmed the plan.
Abhishek, however, had said earlier, “Our surveillance system is continuously monitoring the progress in the commodity market. Whenever we find the right opportunity, we will intervene.”