Guar gum, one of lesser known farm commodities, has quietly emerged as the biggest foreign exchange earner among farm items barring cotton, which is a major cash crop.
Guar gum exports had a more than 14-fold jump in the two years through March 2012 to R16,523.83 crore, and also recorded a nearly sixfold rise over 2010-11, official data showed. Industry executives say guar exports may double in value over the next three years.
For sure, guar gum has come a long way from being just a thickening agent or a cattle feed.
Demand for guar gum ? extracted from guar seed, used as sealant in oil and natural gas drilling ? has shot up in the past one year as soaring crude oil prices have made it profitable for US prospecting firms to drill for shale gas, which had been considered unremunerative earlier. Shale gas producers use the commodity for hydraulic fracturing, or fracking.
India produces around 80% of global guar output and the US, the world?s largest oil consumer, accounts for around 75% of the country?s guar consumption.
A big shale well needs hundreds of acres of guar output, and with thousands of wells drilled every year, the oil sector?s appetite for the commodity has helped boost global demand, which more than doubled in the past year, said a senior official with the government of Rajasthan, the country?s biggest producer.
Guar is blended into the millions of barrels of water that are forced into each well for shale drilling. It thickens the fluid, suspending sand and ceramic beads so they can be forced into fractures in the energy-bearing rocks. The proppants allow oil and gas to seep out of shale, which without guar would otherwise settle at the bottom of wells.
Last year, oilfield services sector in the US alone used as much as a 500,000 tonnes of guar powder, a fourfold jump from the 2006 level, according to US industry data. The sector?s appetite is expected to climb further as shale drilling spreads to Poland, Argentina and Australia.
However, although the long-term prospects of guar gum seem bright, the shipment of the commodity is going through a rough patch this fiscal.
“Elevated level of prices late last fiscal and early this fiscal have curbed export demand, and drillers are even looking for alternatives. Consequently, prices have crashed significantly. Exports are likely to fall this fiscal,” said Uday Merchant, chief of Lucid Colloids, which manufactures guar gum powder.
Trade executives said guar gum exports may drop to around 600,000 tonnes in 2012-13 fiscal, down 15% from a year before.
In late March, the National Commodity and Derivatives Exchange suspended outstanding positions in guar gum and seed contracts as its attempts to curb volatility by levying a special margin and reducing position limits failed to prevent a flare-up in futures prices, which had more than doubled in just one month. A senior government official said the Forward Markets Commission may on October 16 decide on re-listing of guar futures.
Guar has tumbled in Rajasthan on fears of a drastic decline in import orders from the US and the European Union. The guar seed rate has crashed by around 40% since mid-July to Rs 85 a kg. The gum price lost 30% to Rs 280 a kg from Rs 400 during the period.
The All India Guar Gum Manufacturers Association expects guar seed output to rise by at least 25% to 1.5 million tonnes, thanks to a 20% increase in planting after farmers reaped benefits of a spurt in prices late last fiscal.
A slump in prices has triggered fierce price negotiations. Industry executives said buyers, who had earlier contracted the commodity at higher prices around July, are trying to renegotiate prices and some are even asking for a 70% reduction in the contracted prices.
High prices earlier prompted some US companies to look for alternatives to guar. TIC Gums, a Maryland-based food additive manufacturer, has introduced guar replacement items for instant drink mixes and baked goods. However, Indian suppliers believe such an alternative for oil drilling may take time and exports are expected to post strong growth again after 2013-14.