'Guar gum sector hit by heavy speculation on bourses'

FMC chief accepts 20% rise in guar seed prices in one year.

With the excessive speculation on guar seeds on the online exchange continuing unabated, the guar gum industry in Gujarat was on the verge of closure, said the Gujarat Guar Gum Manufacturers' Association. Of the total 22 guar gum manufacturing mills in the state, 19 had already closed down, it said.

The association said if the kind of intense speculation on guar seeds seen currently "� which was driving up the prices to soaring levels "� continued and was not brought under scanner, the owners of the surviving mills would be left with only one option: to wind up their operations.

Commodity future exchanges provide exporters with an opportunity for hedging, but that should not result in excessive speculation. Although the Forward Markets Commission (FMC) has already put many restrictions on guar seed trade, exporters are perturbed by the continuing inordinate speculation.

The manufacturers' body on Sunday demanded further regulatory control on guar seed speculation, on the silver jubilee celebration of Ahmedabad Commodity Exchange. It urged the FMC to reduce circuit filter for guar seed futures to 1 per cent and put more restriction on open interest position.

Mahendra Bhanushali, president of the association, in his speech, accused the National Commodity and Derivatives Exchange (Ncdex) of allowing intense speculation on its floor. He said, "The guar gum industry is about to close down."

"The heavy speculation being done on guar seeds has resulted into closure of 19 mills out of the total 22 mills in the state. We don't get the raw material and even when we do it is so costly that we can't afford the production cost." The association stressed the high-scale speculation made real hedging difficult, and pushed up the prices beyond reach.

While talking to mediapersons, Bhanushali said, "Only two countries produce guar gum "� India and Pakistan. Around 90-95 per cent of the total produce is exported. The rate has been fixed at $1 a kg, but the raw material cost is so high that we can't afford to sell at that price. Also, prices get doubled with the production expenses such as workforce, power and others."

This, he said, was resulting in Pakistan, which could afford to export guar gum at $1 a kg, getting a major share of exports. And if the majority of earnings went into buying the raw material, "how can the industry survive?" Bhanushali said.

He further said, "The total size of guar seeds in the country is very small, which can be easily bought by hedgers of commodity exchanges. They earn around 12 per cent interest on that and we are left with nothing. At this rate, the time is not far before we sell off the surviving mills. We have realised that the real money is in hedging and not in manufacturing."

In his speech on the occasion, FMC Chairman S Sunderashan said, "I accept that over a year there was a substantial rise of 20 per cent in the guar seed prices. But we are closely monitoring them and also the trading on guar seeds. The prices have remained stable for the last two-and-a-half months," he said.

"We can't ban the commodity from the exchanges, but we can surely monitor its movement. It may be true that the increasing prices of this commodity is affecting the concerned industries, but it is equally right that the farmers are getting good returns for their produce," Sunderashan added.