It was not two years ago when companies involved in growing, exporting, importing and distributing guar gum were ecstatic. Future’s prices were going up in leaps and bounds; farmers went racing around for more seed and more cultivatable land to grow more and more to satisfy what was seen as an insatiable market. Guar gum companies are getting very nervous as the volume has fallen off dramatically.
The collapse in the guar gum industry has farmers in Pakistan and India very nervous. Many have taken large loans to increase their output, but with the price falling by 80% in the last year, futures’ trading has been halted. The loans are coming due; these loans were used to purchase seed at $seven a kilo, today the same seed is perhaps $1.50 per kilo.
The reasons:
When it was found that guar gum was exactly what was needed to frack gas from shale, the oil industry began purchasing it in massive quantities. There were oil companies buying close to 2,000 tons a month as it took at least a ton to frack one shale deposit. The oil companies were very aware of the rapidly escalating prices that guar gum companies were charging, so not only were they buying for immediate consumption; they were buying for stock.
The oil companies are reporting huge inventories of guar gum and as a result have stopped forward purchases. Inquires in India and Pakistan for export quantities have simply dried up.
One of the world’s largest oilfield services companies reported that their operating margin had dropped almost 5% to just over 20% in just one-quarter of business. The reason given was that far too much guar gum was purchased at far too high a price per ton.
The future:
The future for guar gum and companies involved in the growing, trading and distribution does not look rosy at the moment. The industry is back to serving the traditional markets; food, cosmetics, pharmaceutical, paper, etc. The oil industry did not embrace fracking as rapidly as was forecasted, the only two countries out of the 38 who have significant shale gas deposits are the US and Canada.
It is feared that during this lull in importing guar gum, that a chemical alternative will be developed for use by the oil industry. There are rumors that a large chemical conglomerate is working on an alternative, and it may be available in 9 to 12 months, just about when the oil companies will be needing to replenish inventory.
As guar gum is a product which is safe for human consumption, a chemical alternative does not have to pass that hurdle. This is very worrisome for any guar gum companies.
