Guar gum industry will benefit from competitive crude oil prices.

Guar is making good impact in commodity market. Guar is only commodity which was having lower entry point for long term investment. Investors must keep stuck their position because up to next two and half month there is no delivery pressure. In this two and half month period Guar will attract a number of investors. Fundamentally guar is very strong Existing stock is very tight and processing industries don’t have any major in house stock. Now this guar gum demand will reach in market and stockist and traders will react bullish to these fresh demands.

Demand will increase as OPEC is struggling to stand in crude oil market which is shifting to shale and tight oil production. IN USA there is different situation. Companies are closing the old oil rigs and marginal production in negative and companies are going for new oil drilling and oil rigs to increase their marginal production and profit. Companies find New oil well profitable instead of recharge the oil well in this hyper competition.

There is good news that break even prices of companies is coming down. In year 2013 the average break even price was 80USD/Barrel it came down USD70/barrel in year 2014, Which further came down to  USD50/barrel right now it has come down to USD 40/barel and It is going down with latest technology.

For example; In Permian Region of USA, oil production from per rig was 100 barrel /Day in 2012 and it is keep increasing with fracking. In 2013 it was 125barrels/Day, in 2014 it was 180barrels/Day, in 2015 it was 200Barrels/Day, in starting of 2016 it was 425 Barrels/day. Right now it is around 500 barrels /Day. This is very good improvement especially in last two years. Companies are focusing in going for new rigs to increase their marginal production and profitability. Demand of Guar will increase with this movement. Companies will go for new oil rigs to increase their profitability.

Investors can maintain their existing position and they can also make fresh investment at this level and there are more chances of better return in Guar in coming period. Guar seed is more stable and solid commodity then guar gum. There is less impact of daily inputs .

Guar Gum demand will increase with falling Crude oil

Guar seed and Guar gum contract size has come down after down fall in last week. This is due to exit of some short term investors. Overall Guar seed is very strong in market. If there will be down fall then Guar seed is strong at down side and if there is upward movement there is more chances of return in guar gum.

People are calculating the increase in Guar cultivation area but at this time it is not a big reason to decide the gaur prices because right now Guar cultivation is increasing in inferior of less productive land. For the First 10,00,000 Hectare productivity will be around 500Kg /Hectare but for rest of cultivation area productivity will not cross 200Kg/Hectare.  At maximum side we can take 70,00,000 bags ( 100 Kg each )of guar seed production. 80,00,000 Bags will be a upper limit figure after all positive  factors.

In a growing market 20,00,000 Bags is not a big equation. For a medium level stockist have a capacity to hold 10,000 Bags of Guar. This over production is a game of 20 medium level stockists. If farmers and small stockist active at same time in market then it is negligible production to affect the prices.

All the stack holders are positive but there is fear of increase in cultivation area. Everyone is positive about Guar prices like processor, middle men, traders, farmers, and exporter. Oil exploration activities have not come down even in this low crude price period. Shale or tight oil production was 1 Million barrel per day in year 2012; it was 2 Million Barrel per day in 2013, 3 Million in 2014, 4.5 Million barrel/Day in 2015, 4.2 Million barrel/Day in 2016. There is no negative figure at Guar gum demand side. It is highly demanded product due  Oil and Natural Gas industry. If Crude oil prices are coming down it means the use of Guar gum is increasing. Industry should not take any tension Hyper competition in crude oil prices will be beneficial for Guar Gum industry. 

Low crude prices are due to competition in Soft crude oil production (Conventional  technology special used in Gulf –African and Old Soviet region)  and Hard crude oil production ( latest technology special in USA, Canada and some part in Russia ). Hold with current position for 6 month to 12 month target. It will give very good return among all the commodity from now.

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Guar seed recovered around 20.31% & Gaur Gum recovered around 30.33% from 1stJuly to 23nd July.

Guar seed recovered around 20.31% & Gaur Gum recovered around 30.33% from 1stJuly to 23nd July.

Positive movement was noticed in complete guar complex. At the starting of July-16 guar seed was at the level of 3200/100 Kg. today it is being traded at 3850/100 Kg. It has recovered almost 20.31% or Rs 650/100 KG. Guar gum was at Rs 5600/100 Kg. Today it is being traded at Rs 7300/100Kg. There is recovery of 30.33% or Rs 1700/100Kg. This is very good return by this guar complex within 22 Days in this year. 

Estimate of Sowing of Guar is very low.

Till 18th July, there is estimate of 9,00,000 Hectare guar gum cultivation from Rajasthan, 40,000 Hectare guar gum cultivation from Gujarat and 25,000 Hectare guar gum cultivation from Haryana.  Total Guar sowing area is lesser than 10,00,000 hectare. At maximum side, guar cultivation area will not cross 12,00,000 Hectare during this year.  In best possible condition production will not cross 60,00,000 Bags of Gaur seed. Or 6,00,000 MT. It far below the average of last year’s productions.

Farmer will not go for fresh guar cultivation until guar will not cross 5000 level. It will not cross 5000 level in current crude oil rates especially in this remaining July month. . 

Farmers are interested but even current rates are not attracting to go for Guar seed cultivation. Farmers need a stable rate for guar seed cultivation. This is also good for industry if the guar seed production goes down. In this case over supply condition will not come and there will be balance between demand and supply.

Export is flat as last year.

Export data were released by Govt for different commodities. There is good news for guar gum export in provisional data. During April and May -2016 there was export of 59,609 Mt of Guar seed. In the same time in April and May-2015 there was export of 61,796 MT of Guar gum. Last year crude oil rates were also better than this year. It is clear that there is regular demand of commodity even at lower crude oil prices. Last year Guar gum was exported at USD 1901/ MT approximately 2 USD/Kg but this year it is exported at 1107 USD/MT or Approximately 1 USD/Kg. Last year there was export of 117 Million USD or 743 Crore INR. This year during April and May there is export of 66.01 Million USD or 440 Crore INR. It was noticed that export is increasing during June and July.  Actual picture will come after release of data by the Govt. As per initial inputs it is increasing.

Restricted Supply during this year

Importer will also go for bulk buying before rates shore up. After knowing the fact that supply will shrink the importers will insure the smooth supply either they will go for stocking or they will give bulk order for annual supply. There will be holding at every level famer will hold for better price, processor will stock for Annual processing requirement. Stockist will stock in expectation of better return. Exporter will also hold as per requirement of Importer.  In the shrinking of low cultivation area every stack holder will try to ensure the regular supply and better price. The best effect of this low cultivation area will come in next year because next year there will be no stock left as carry over. 

Movement before Fresh production

Major stocking activity of existing stock will take place before fresh production. Demand from local trader will give an upward movement. Once the stockist and speculators will active then price s will move upward very fast. There can be still chances of Return of 20-30% in next two months. Existing supply will also become tight. Already this is a restricted supply period. Only rich farmers or the farmers who have ability to hold the commodity is holding commodity.  Rest of farmers have already sold the commodity after harvesting and as per their financial requirement. Initial effect of this low sowing will start to come during these two months or before fresh production.

Forward Market movement

For next two month market will on the market sentiments as there are no fresh contract up to 15th October. For October contract guar complete is already strong. Guar gum has crossed 7300 level and guar seed has crossed 3900 level. It is very strong position. Meanwhile if the demand increases and supply shrinks at the time of harvesting the guar will be around 5000 level. Size of contract is also growing regularly. It is becoming less risky.

Current situation  

Stockists from small-small town are active and right now Guar is only commodity which can be stocked for return or investment purpose. Consolidation of small-small stock has been start. If is good to invest in one year old commodity then fresh commodity, because in fresh commodity there is moisture loss. Market men think that this is good time for investment in guar.  Some investor will wait for confirm news of sowing data after 15th August. Stockist have active in market.