Guar crop to climb on prices, boosting exports

Written by Bloomberg | Updated: Apr 21 2012, 08:49am hrs
Farmers in India, the worlds biggest guar gum exporter, may plant more of the crop to benefit from a ninefold surge in prices, boosting supplies for oil industry users such as Halliburton and Baker Hughes.

Area under the crop may climb as much as 20% in the season starting July 1 from 3.5 million hectares (8.6 million acres) this year, said Rajesh Kedia, director at Jai Bharat Gum & Chemicals, Indias second-biggest exporter of guar gum, a thickening agent used mostly in food, pharmaceuticals and in certain fracturing treatments.

Guar gum rallied to R80,970 ($1,557) per 100 kg on March 27 in Mumbai from R8,750 a year earlier, prompting the nations commodity market regulator to ban futures trading. The price surge negatively impacted margins for Halliburton, the worlds largest provider of hydraulic- fracturing services, Dave Lesar, chief executive officer, said on April 18.

I expect a higher crop next year which may lead to a fall in prices by half, said Mitul Shah, managing director of Rama Industries, the third-largest shipper.

Exports from India may climb to as much as 700,000 tonne next year from about 400,000 tonne this year, he said. The increase in demand for guar gum is being driven by a surge in the number of private companies allowed to explore oil and gas in the US, Shah said.

The cost to drill and complete a well climbed 6% in 2010, a further 25% last year and is projected to grow 20% this year, according to a January presentation from Tulsa, Oklahoma-based industry consultant Spears & Associates.

There is a 50-60% increase in demand mainly from the US after the country allowed more private companies into the oil drilling business, Shah said.

Guar gum, is extracted from the seeds of a leguminous plant grown in India, Pakistan and the US and is also an ingredient in food emulsifiers, additives and thickeners. India accounts for more than 70% of the global seed production, according to the Multi Commodity Exchange of India.

If prices remain in the current range, there may be a decline in exports next year, Jai Bharats Kedia said. Export prices surged to $20,000 a ton in March from $5,000 a ton in October, he said.

India exported 403,675 tonne of guar gum worth $617 million in the year ended March 31, 2011, according to the Agricultural & Processed Food Product Export Development Authority.

The problem with guar, its probably the fastest-moving commodity price that Ive ever seen, Halliburtons Lesar said. We, like the rest of the industry, are looking for alternatives to guar, and we are having some customers accept either lower-grade guar or alternatives to guar.