A rally in the prices of guar gum seems unstoppable, unless the commodity exchange steps in with an additional regulatory cap. There is a widespread optimism on the guar gum counter over the past three months on the back of a likely drop in stocks by August-September. Heal­thy export demand from the oil-drilling industry has also fuelled sentiments on the counter.

A hike in the commodity price, had, in fact, prompted NCDEX to ban investors from taking fresh position in the January series, which expired on Friday. In addition, the exchange also increased the long-side special cash margins to 60 per cent from the earlier 40 per cent.

Radheshyam, a senior spokesperson from the Rajas

than Guar Gum Association, said, “For any commodity demand-supply plays a key role in determining prices. To my mind, guar gum demand has risen, which is a key reason for the price hike. Speculators may also be playing a role at the moment.”

The price of guar gum futures (Jodhpur) for Feb

ruary delivery has rallied to Rs 37,800 per quintal on NCDEX, from Rs 15,000 per quintal in the middle of November.

“The guar complex seems to be getting prone to moving up, ignoring a hefty margin of 60 per cent on long side of all running contracts. The optimistic fundamental of enormous demand from the oil-drilling industry and market participants, expecting a decline in ending stocks of guar seed by 87 per cent to 20,000 tonnes during August-September 2012, may make the phrase ‘sky is the limit’, true for these counters,”said DK Aggarwal, CMD at Sanlam Investm-ents & Advisors and national president at Commodity Par-ticipants Association of India

India is the world’s largest producer of guar gum accounting for 80 per cent of total world trade. Although, the commodity is used by several industries, including paper, textiles, pharmaceuticals, cosmetics and mining, but, its major demand comes from the oil-drilling industry, where it is used as a controlling agent. The total requirement of guar gum from the oil industry is estimated to be 4,50,000 tonnes in 2012.

According to the Agricultural and Processed Food Products Export Development Authority, in 2010-2011, India saw an 85 per cent growth in guar gum exports to 4,03,654 million tonnes overall, with the US, China and Germany being the top importers. There are expectations that this year, guar production will be at 12.10 lakh tonnes, compared with 15 lakh tonnes last year.

Since demand for exports has increased and supplies are short, prices are rising.

Experts said, although, the outlook for the commodity looks bright, but, fears over regulatory action by the exchange could take a toll on the commodity prices. Near-term outlook may also be impacted by Chinese lunar holidays. There have been only two sessions this month, when the commodity ended in the red.

“Guar gum prices might resume a bearish trend initially owing to the position limits to be reduced with effective from January 21 and slack spot market activities. Panic selling may arise on fears that guar seed and gum trading might be banned across futures. An increase in margins has made the commodity unviable for trading and that might also lead to liquidation of positions.

Demand from the overseas market has also redu

ced because China is inactive due to the fast-app

roaching lunar holidays. Demand from the European Union is lower due to prevailing economic concerns,” said Karvy Commodities Broking, in a note.

amitmudgill@mydigitalfc.com