Finance Update

Guar seed: Skymet, Opec have just given guar seed reasons to cheer

The prices are expected to receive support from lower acreage.

ET | Apr 05, 2019, 09.21 PM IST

Any below-normal rain during sowing months of June and July could impact guar seed prices this year.

The prices are expected to receive support from lower acreage.

Guar seed is one of the major kharif commercial crops of Rajasthan, which produces around 80 per cent of the total domestic crop.

Guar seed and its derivative guar gum are mainly used in oil exploration industries.

Independent weather agency Skymet has predicted that India could face its third consecutive below-normal monsoon this season, with rainfall expected to be 93 per cent of the long-period average.

There is a 55 per cent probability of below-par monsoon this year, with the rain-busting El-Nino at play, according to Skymet. It saw only 30 per cent chance of normal rain during this year’s South-West monsoon.

Rainfall in the range of 96-104 per cent of the long-period average of 89 cm is considered normal while a range of 90-95 per cent of this average is considered below normal.

Production cut by OPEC and producer allies is a positive for guar gum demand in coming days. With the US getting ready to ramp up shell oil, guar gum finds itself in a sweet spot.

In our view, lower rainfall and increased demand of guar gum will prop up the prices, which could test Rs 4,600 per quintal.

Guar seed futures on NCDEX corrected from a high of Rs 4,870 in November last year to a low of Rs 4,092 in February 2019. It made a solid base around Rs 4,130 on the weekly chart and consolidated in a range of Rs 4,130-4,400.

The commodity futures offered the much-awaited price breakout above Rs 4,400 on a daily closing basis yesterday. The price crossed the 38.2 per cent Fibonacci retracement of current fall of 778 points.

We expect it will test the next Fibonacci retracement of 50 per cent and then 61.8 per cent.

Traders can buy guar seed futures around Rs 4,390 with a strict stop loss below Rs 4,260 on a closing basis and an upside target of Rs 4,480-4,600.

Weakness is expected in contracts only when it closes below Rs 4,260 on daily closing terms and in that case, the prices could test the support level of Rs 4,100 again. But such chances are very rare.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

Source

Prakash Poojary
Business Analyst

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