Guar prices seen firm on poor rains

Prices of guar seed and guargum are expected to remain firm in the coming months, with guar seed production seen hit by poor second spell of rains in parts of Rajasthan, traders said Thursday. This may lead to added speculation in futures trade for these commodities, they added.

Guar seed, which is grown mainly in the western regions of Rajasthan, showed a rise of Rs 200-250 per 100 kilogram last week. Traders now anticipate further hardening in the coming days, due the current heat spell which has started damaging the crop.

"I expect guar prices to harden further due to hot climatic conditions in the major guar producing districts of Rajasthan," said Satish Jain, a local guar trader. True to the speculative nature of the commodity, guar prices may hit the roof if there are no rains in the growing areas, traders said.

"If it doesn't rain in next few days, then nobody can predict the extent to which prices will rise or as to where they would stop," Jain said. He expects prices to rise above Rs 2,000 per 100 kg in next few days from current levels of Rs 1,880-1,900.

Following a first spell of good monsoon showers in the desert state, guar was sowed in 3 million hectares of land, compared with last year's 2.5 million. However, lack of subsequent rains marred the chances of a good crop.

Earlier expectations of 600,000-700,000 tonne of crop in the state are now being revised downwards. Traders now cut estimates by a hefty 45-50% to place production at 350,000-400,000 tonne.

Rajasthan is an important guar seed producer, contributing 70-74% of the nation's produce. The main producing areas in the state-Jodhpur, Nagaur, Merta, Degana and Balotra-contribute 60% of the total produce, while Sekhawati, Bikaner and Churu are the other sizeable production centers.

Futures trade earlier this week, of guar seeds and guar gum, exhibited considerable volatility, prompting action by authorities to curb speculation. Tuesday, October delivery guar gum was traded on the NCDEX at Rs 5,540 per 100 kilogram, up 6.97% from the previous close. Guar seed traded at Rs 2,031 up 6.12%.

Later Tuesday, NCDEX imposed an additional 10% margin to curtail the sharp rise in prices. The action had an immediate impact and the speculative activity cooled. Towards the end of the trading session, October futures of guar gum fell to Rs 5,300 per 100 kilogram, guar seed traded at Rs 1,974.

Guar accounts for a substantial volume in the futures trade activities. The NCDEX recorded its highest daily trading volume of Rs 7,197 crore Monday, of which guar accounted for more than half at Rs 4,069 crore, traders said. Guar seed September contract traded on NCDEX at Rs 1,926 per 100 kg, while September contract for guar gum quoted at Rs 5,241 on Thursday.

Although the speculation in the futures market has calmed for the time being, traders believe the shortage of guar seed will persist, and may give renewed strength to volatility. Rains seem the only means to curb the foreseen trend, they said. "Even one inch of rainfall will see prices drop substantially," said Bharat Bhansali, of Bhagwati Traders in Jodhpur.

Bhansali sees guar gum prices in the spot market falling to Rs 3,000 per 100 kg if rains resurfaced. Guar seed could fall to Rs 1,300. "Trading will cool for a while as the market digests the developments of the last two days," said Nikhil Dedhia, a trader at SK Comdex in Mumbai. "However, there is a big short position in the market."

Alex Mathew, senior research analyst at Geojit Commodities Ltd in Kollam, said the recent rally was due to speculation rather than fundamentals, though there is indeed a shortage of guar seed and gum in the market.