Futures tense for guarseed

Industry to petition Forward Markets Commission.

The Rs 900 crore guarseed (clusterbeans) industry is caught in a cleft as speculation in the futures (derivatives) market threatens to destabilise the lucrative export market.

Exports account for more than 70 per cent of the guarseed industry's annual turnover. The volatile prices have also forced a few domestic producers to shut shop.

Vineet K Rai, business manager, commodities, of Geojit Financial Services, a leading commodity broker, said guar gum (the finished product) prices had shot up to over $1,249 per tonne now from $869 last year.

This meant a huge loss for traders, who finalised contracts earlier, and were now finding it difficult to procure the product at current prices, he said.

The largest volumes of guarseed are transacted on the National Commodities & Derivatives Exchange (NCDEX), accounting for over 65 per cent of the exchange's total turnover.

Giridharilal Sarda, president of the Indian Guar Gum Manufacturers Association, said the sharp increase in the prices of guar gum, used largely in the petroleum, pharma, food and textile industries forced international buyers to look for alternatives in natural polymers such as cellulose, tamarind gum and starch.

The association was making presentation to the Forward Markets Commission as well as the consumer affairs ministry shortly, Sarda said.

He added that the volatile prices forced a number of guar gum powder manufacturing units to shut down or operate at less than 20 per cent capacity just to cover the minimum power charges.

Sarda said the average daily turnover on the guarseed counter on the NCDEX is around Rs 2,000 crore, which was double the yearly turnover of the entire business.

PH Ravikumar, CEO and managing director, NCDEX, however, said "When NCDEX brought guar onto a neutral trading platform, the transparency broke the domination of a few players with access to private information."

He argued that since the prices were discovered on an open platform, the volatility, which historically averaged 10-15 per cent in the last seven years, has come out in the open.

On the issue of speculation as alleged by the industry, Ravikumar said the exchange had adequate risk containment systems.

"The exchange has real time gross margins at the client level, rather than at the member (broker) level and is based on the time-tested value-at-risk statistical model also followed on the equity exchanges. The margins are changed on an average 5 times a day and is between 15 per cent and 25 per cent for guarseed," he said.

Acknowledging that price volatility was high this year, Ravikumar added that the crop this year was expected to be below normal at roughly 35,000 tonne. "This was not the first time the prices are high; prices in 1998 and 1999 averaged Rs 25,000- Rs 30,000 per tonne," he said.

NCDEX launched trading in guarseed in April this year, and the seed prices jumped by roughly 60 per cent since then from an average of Rs 14,000 to Rs 22,000 per tonne, after which it has come down to a level of Rs 19,900.

Sudhir Merchant, chairman of Encore Natural Polymers Private Ltd, said the settlement prices set by the exchange did not include the charges incurred by the seller for testing, unloading and godown charges. This came to roughly Rs 130 extra per tonne, which was not compensated to the seller and diminished the incentive for delivery, he said.

The exchange recently imposed penalties on sellers failing to deliver, but deliveries have not picked up. The total delivery in the September contract was 10 tonnes, the same level as in July and August. This is due to stringent quality measures arrived at after testing at the Hindustan Gum Laboratory, according to market sources.