Mapping The Market Thought of Guar and Guargum markets Nagaraj Meda Guar Scenario Managing Director TransGraph Consulting Pvt.Ltd 24 th Nov, 2013 6 th & 7 th, Dec 2013 Jaipur 1
Price drivers review Good prices realization by Shale producers and increased buying Guar Gum for Shale Fracking Increased cost to Shale Gas producers of gum and Started using Substitutes like Carboxy methyl Cellulose Higher Natural Gas prices in US increased shale Gas Production and higher Guar Gum Exports from India Higher Guar seed Production in 2012-13 Expected Higher Ending stocks & higher Production 2
Demand analysis 3
Indian Guar Gum Exports Sector Wise Guar Gum in the International Markets Guar Gum usage in the Domestic Markets 2% 1% 2% 4% 2% 4% 15% 28% 20% 60% 62% Oil drilling Paper&Textile Cosmetics Food industry Pharmaceutical Others Food Industry Pharmaceutical Others Paper & Textile Cosmetics 4
Shale production: Chemical used per Fracking Quantity Required per activity Position Chemicals ( tons) Acid Hydrochloride 4.25 Biocides Quaternary Ammonium Chloride 17 Corrosion Inhibitor Methanol 4.25 Friction Reduce Petroleum Distillate 4.25 Gelling Agent Guar Gum Or Carboxy Methyl Cellulose 42.5 Oxygen Scavenger Boric Acid 4.25 Cross Linker Sulfate 8.5 Gelling Agent Support gel formation, increase viscosity for proper down hole transportation of sand, ideal proppant carriage Guar gum, hydroxyethylcellulose, ( Carboxy Methyle cellulose), Petroleum Distillate Ethylene Glycol Source : Chevron & TG 5
US Shale Production Trend (BCF) US Shale & Oil Production and % Change y/y 18000 17500 17000 16500 16000 15500 15000 14500 14000 13500 Production %Change 24.16% 17342 17027 16783 15896 14926 6.49% 5.58% 1.45% 1.85% 2011 2012 2013e 2014p 2015p 30% 25% 20% 15% 10% 5% 0% Source : EIA & TG 6
US Recoverable Gas Reserves (TCF) 30.00 25.00 20.00 US Recoverable Shale Gas Reserves Up to 2040 ( In TCF) Source : EIA & TG 15.00 10.00 5.00 0.00 Shale gas Tight gas Coalbed methane US shale Gas reserves are near 26.5 trillion cubic feet and US may meet nearly 60% of its energy requirements from Shale. 7
Key Elements for Guar gum Demand To get a billion cubic feet of shale gas, an estimated 12 tons (approx.) of Gelling Agent will be used. To produce 17027 BCF of gas in 2014, US would require approx., 204325 tons of gelling agents. Guar gum imports in 2012 were 2,04,000 tons. By 2030, EIA estimates shale gas production in US to go to 26,000 BCF of gas resulting into 312000 lakh tons of gelling agents. Depending on price competitiveness there is an excellent scope for demand growth of Guar gum. 8
World Recoverable Shale Gas Reserves (TCF) world Recoverable Shale Gas (TCF) Source : EIA 1200 1115 1000 800 600 400 802 707 665 573 545 437 390 285 245 200 0 60 As per EIA Estimation shale gas will emerge as most important energy resource due to its cost competitiveness. 9
Indian Shale Prospect ONGC started first shale Fracking pilot project in Gujarat recently and if its get successful then they will drill nearly 30 wells in 2 years of time. It is expected that Shale gas production will increase post 2015, as currently Fracking process is expensive. Meanwhile, in India the shale Fracking could lead to water crisis as each well requires near 3 to 5 million liters of water. Demand from Indian shale industry is not very significant. 10
Supply analysis World Guar Production Share 4.70% 1.72% 0.71% 0.55% India Pakisthan US South & North Sudan 92.32% Australia 11
State wise Acreage Source : Agri ministry & TG State 2012-13 2013-14E Reason Rajasthan 45.26 41 Declined sowing in unirrigated area due to lower yield Gujarat 2.46 4.8 Higher price realization than castor seeds Haryana 2.42 3.9 Higher price realization than Bajra MP 0.52 0.48 Lower yield percentage and less accessibility of buyers Punjab 0.42 0.49 Good price realization by last year MH 0.34 0.24 Lower yield from last year crop and few processing centers AP 0.23 0.14 Last year crop damage and lower yield percentage Total (lakh ha) 51.65 51.05-1.16% Lower prices compared with last year 12
State wise production with reasons Source : Agri ministry & TG Guar Seed Production (lakh tons) and % changes states 2012-13 2013-14 % Change Remarks Rajasthan 21.14 17.47 Gujarat 1.23 2.31 Yield prospects suffered due to prolonged Haryana 1.22 1.72 dry weather in Rajasthan, after good monsoon at sowing time. Others 0.56 0.52 Total 24.16 22.02-8.85 13
Guar Seed Last Ten years Area and Production Trend Area & Production in Lakh ha/tons Source : Agri ministry & TG Area Production 60.00 50.00 51.65 51.05 40.00 30.00 20.00 28.67 29.56 33.44 34.73 38.63 29.90 28.37 29.50 22.02 10.00 0.00 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14E 14
Indian Guar Seed Production & Gum Exports Source : DGFT & TG 26.00 24.00 22.00 Seed Production 22.02 20.00 Gum Exports 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.83 0.83 1.38 1.50 1.50 2.07 1.90 3.62 4.87 3.39 5.00 0.00 15
Expected Indian Guar distribution -2013-14 Source : DGFT & TG (in lack tons) Total Guar Production For 2013-14 22.02 Beginning Stocks 8.22 Total Guar Seed Supply in 2013-14 Total Guar Gum Consumption 6.71 Exports of Guar Gum Demand Sector Wise 30.24 Exports 5.00 Domestic 1.71 Shale Gas Food industry Textile & Paper Pharmaceutical Cosmetics Others 3.00 1.00 0.75 0.1 0.05 0.01 Domestic usage of Guar Gum Sector Wise Food Industry Paper & Textile Pharmaceutical Cosmetics Others 1.06 0.47 0.06 0.03 0.06 16
Indian Guar seed Balance Sheet Source : Agri ministry & TG Attribute 2009-10 2010-11 2011-12 2012-13 2013-14E % Change Beginning stocks seeds 16.32 10.69 5.88 0.99 8.22 733.01 Production seeds 5.931 12.06 16 24.16 22.02-8.86 Total Supply Seeds 22.25 22.75 21.88 25.14 30.24 20.24 Domestic Consumption in terms of Seeds Domestic Consumption in terms of Gum 5.21 4.82 4.66 5.62 6.89 22.60 1.8 1.2 1.1 1.4 1.71 22.14 Exports in terms of seed 6.35 12.05 16.23 11.30 16.67 47.36 Exports in terms of Gum 1.90 3.62 4.87 3.39 5 47.36 Total demand Seed 11.56 16.87 20.89 16.92 23.56 39.14 Ending stocks Seed 10.69 5.88 0.99 8.22 6.68-18.70 Stock to use ratio Seed 92.47% 34.85% 4.74% 48.58% 28.35% * Conversion factor for Seed to gum is considered at 3.33 ( All units in Lakh tons) S/c ratio of 28% or 15 weeks of consumption is generally bearish however it appears that farmers will hold to stocks if prices are below 4500 and traders will start stocking when an upward rally is signaled. 17
Guar World Acreage & Production Country Acreage In Lakh ha % Production In Lakh tons % 2012-13 2013-14 Change 2012-13 2013-14 Change India 51.65 51.05-1.16 24.16 22.02-8.86 Pakistan 2.74 2.6-5.11 1.21 1.12-7.44 US 0.41 0.5 21.95 0.32 0.41 28.13 South & North Sudan 0.38 0.41 7.89 0.15 0.17 13.33 Australia 0.26 0.31 19.23 0.114 0.13 14.04 Total 55.44 54.87-1.03 25.954 23.85-8.11 Source : online news & TG The World Guar Production for 2013-14 might be near 2.38 million tons, whereas Indian percentage share is near 92.3% due to higher production from last 2 years by good price realization. Pakistan Guar production might be near 1.12 Lakh tons for 2013-14 year on the back of lower rains in sindh region during pod formation stage. While, last year production was near 1.21 Lakh tons. 18
Technical analysis 19
Guar Seed Jodhpur Spot Market, INR/Qtl Scenario - A Scenario- A of Elliott wave study suggests that Guar Seed prices are on the verge of concluding the intermediate degree corrective wave C of zigzag type primary degree corrective wave 4 of by posting a low between INR 4500-4000 by Jan 14. Thereafter prices shall commence the intermediate degree impulse wave 1 of primary degree wave 5 towards INR 9000-10000 by the second half of the year 2014. The same shall be followed by an intermediated degree corrective wave 2 to bring prices lower towards INR 7000-6000 again. 20
Guar Seed Jodhpur Spot Market, INR/Qtl Scenario - B Scenario- B of Elliott wave study suggests that Guar Seed prices are going through a corrective cycle of primary degree and shall post a low of around INR 4400 to conclude the corrective wave C of intermediate degree within a month. Thereafter prices shall enter a phase of bear market rally and commence combining corrective wave X of intermediate degree. This wave shall post a high around 11000 by the mid of the year 2014. Following that prices shall continue with corrective wave Y of intermediate degree to bring prices lower again. 21
Guar Gum Jodhpur Spot Market, INR/Qtl Scenario - A Scenario- A of Elliott wave study suggests that Guar Gum prices are on the verge of concluding the intermediate degree corrective wave C of zigzag type primary degree corrective wave 4 by posting a low between INR 12500-13200 by Jan 14. Thereafter prices shall commence the intermediate degree impulse wave 1 of primary degree wave 5 towards INR 28000-30000 by the second half of the year 2014. The same shall be followed by an intermediated degree corrective wave 2 to bring prices lower towards INR 19000-17000 again. 22
Guar Gum Jodhpur Spot Market, INR/Qtl Scenario B Scenario- B of Elliott wave study suggests that Guar Seed prices are going through a corrective cycle of primary degree and shall post a low of around INR 12700 to conclude the corrective wave C of intermediate degree within a month. Thereafter prices shall enter a phase of bear market rally and commence combining corrective wave X of intermediate degree. This wave shall post a high around 38000 by the mid of the year 2014. Following that prices shall continue with corrective wave Y of intermediate degree to bring prices lower again. 23
Guar Gum FOB Prices At Mundra Port (USD/ton) 24
Market Guar Gum Spot Market Price Outlook TransGRAPH Price Outlook Jodhpur Guar Gum Spot Market Week Closing INR 13500/qtl. on December 05, 2013 Guargum price outlook Market 1-3 Months: Slightly positive INR 12600-16000 3-6 Months: Positive INR 15500-19500 Jodhpur Guar Seed Spot Market Week Closing INR 4650/qtl. on December 05, 2013 Guarseed price outlook 1-3 Months: Slightly positive INR 4000-5400 3-6 Months: Positive INR 4500-6500 Prices are close to bottom and might slowly enter a sideways to positive trend 25
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