Weekly: Spot Guar Gains On Demand; Near Term Trend Likely Range-Bound

MUMBAI (Commoditiescontrol) - Guarseed and Guargum traded in the positive territory during the week ended Friday (Oct 9-13) supported by improved buying by crushers and stockists due to better future prospects amid lower production estimates for the current season 2017-18 (Oct-Sept). The futures also followed the spot market and managed to close on strong note.

Guarseed arrivals in the country has started since early this month and has gather momentum. Guarseed supplies during the week totaled at 262,000 bags (100kg each) with daily average arrivals at 43,667 bags.

Guarseed supplies during the week receded due to slow farmers selling as they are engaged in preparing field for rabi sowing. Further they are also not bringing the commodity as they are expecting strong tone this season due to prospects of lower production.

According to trade sources, Guarseed production could not be more than 75 lakh bags and estimated carry over stocks is around 85 lakh bags, which took the total tally at 160 lakh bags, whereas demand (crush) is expected to between 130-150 lakh bags leaving, ending stocks for 2017-18 (Oct-Sept) at around 10-30 lakh bags.

Guargum exports in the last 15-18 months was great due to increasing prospects of crude oil, where it is extensively used. Guar gum is used as a thickening agent and emulsifier in the oil and gas extraction industry for hydraulic fracturing (“fracking”) of subsurface shale.

According to a report by APEDA, guar gum exports went up during the April-August period to 218,000 tonnes worth $271 million. Export revenues almost doubled due to higher realisation following revival of US shale oil production. That was possible after Opec decided to cut production last November and crude oil prices revived, resulting in the revival of US shale oil market. However, the market seems to be worried that this situation may not hold for long, as crude oil prices aren't expected to rise any further.

Guarseed prices in the near term (15-30 days) is expected to trade range-bound due to new crop supply and speculative movement, but long term outlook seems bright as supply-demand is likely to be tighter in case production turned out lower than earlier estimates.

However one should keep a close eye on crude oil prices, shale gas production and U.S rigs count. The recent data of U.S rigs count was not encouraging as it fell 10 times in last 16 released data, but it is still still up 389 Baker Hughes release U.S rigs count data on Friday every week.

Arbitragers are very much active due to differnce between spot and forward futures contracts, which gives them good opportunity to make money. But the returns in the recent weeks seen contracting as spot prices are rationally rising more than futures.

On futures, the most active November Guarseed futures contract rose 0.85% to 3,784/100kg during the week on the National Commodity & Derivatives Exchange Ltd (NCDEX). The contract hovered between Rs 3,681 to Rs 3,893. Similarly Guargum for November delivery edged higher by 1.35% to Rs 8,205.

Guarseed prices in the near term may trade range-bound with volatiltity as activity will be thin in the spot markets next week due to Dhanteras on Oct 17 followed by Diwali on Oct 19. Supply is also expected to be on the lower side next week, but will gather pace by month-end. The long term Guar outlook is heavily depends on Guargum exports, which is expected to do better as it did in the past 15-18 months and if that happens then there is higher probability for Guarseed/Guargum to rise sharply this season.

(By Commoditiescontrol Bureau; +91-22-40015533)