Spend Matters welcomes this guest article by Jara Zicha of Mintec.
Guar gum is one of those ingredients in food that most people don’t really know about. The gum is actually a powder that is produced from guar seed and extensively used in food industries as a stabilizer, emulsifier or thickener. It can also be used in cosmetics and pharmaceuticals but the majority is used as a drilling aid in the fracking of shale to retrieve gas and oil.
After last year’s drop in the price of guar gum, prices have turned upward. The market has seen a sharp price increase over the past 2 months with prices rising nearly 45%, from $1,318 per tonne in mid-March to nearly $2,000 per tonne at the end of April.
In 2012, guar gum prices rose tenfold due to the fracking boom in the US. In fact, guar prices in India, which accounts for over 80% of the global output, rose so rapidly that the local commodity exchanges halted trading in guar futures amid a ministerial inquiry. Nevertheless, Indian farmers increased their acreage and new processing facilities were built causing the price to fall toward the end of 2013 and remained fairly stable for a year. Then something happened that no one could have predicted - crude oil prices crashed in the second half of 2014. As a result, demand from the shale oil and gas sector dropped and guar gum prices fell as well. The fourth quarter of 2014 saw a 25% drop in the price of guar gum, and in April the price fell to levels not seen since early 2011.
However, in the past month, prices have started trending upward again, driven predominantly by 2 factors – crude oil and weather. With the price of crude oil on the rise, the demand for guar gum from the fracking industry is expected to improve. Secondly, a weak monsoon has been forecast for India, due to the El Niño weather phenomenon. This could lead to lower production in the upcoming season. The heavy monsoon rain is needed for the specific gelling properties of the guar seed to develop properly.
Guar seed production in India in 2013/14 is forecast to have reached just over 2.1m tonnes, but 2014/15 production is estimated at 1.7m tonnes, down 19% year-over-year. This is due to a fall in acreage as farmers move to more profitable crops, such as lentils or seeds. Acreage in 2014/15 is projected at 9.6 million acres, down 11% on the previous season. With reduced production and the potential for higher demand from shale oil and gas, the price of guar gum could rise further.