THL

Insights from Three Headed Lion

The following interview took place in Houston Texas on the 6th of May, 2013.  Javed Matin is the co-founder of  Three Headed Lion, a leading intelligence advisory company focused on the Indian sub-continent. Their latest update on the Guar Gum Industry:India (2013) was released at the end of April.

Can you tell us about the current state of the Guar Gum industry cycle in India?

The current cycle is being seen by many industry analysts as a turning point for the Guar Gum industry in India. We feel that the Guar Gum fever has subsided, although the market is far from transparent. The  shakeout continues, with smaller vendors and farmers bearing the brunt of the disappointment.  In our latest report, we diagrammed the state of the industry based on over 700 interviews in the field. It looks to be following a fairly rational model, after all the excitement of the previous year, when we saw the unprecedented disruption caused by skyrocketing prices.

What caused this drop in prices?

It is a supply-demand situation. There is ample availability of Guar seeds in the market to meet current demand for Guar Gum. Demand on the other hand has remained sluggish so far owing to higher inventory levels at key Oil & Gas users particularly in North America at the start of 2013 and a slowdown in fracking activity.

What else does your report cover?

Our unique on the ground presence across the Guar-producing states in India allows us to conduct ongoing exhaustive field research on this topic. For this report, our researchers interacted with a large number of stakeholders in the industry (farmers, traders, government officials, trade association members, etc.) and gathered their inputs and sentiments to construct the most comprehensive current state of the Guar industry in India. We cover a lot of information and what’ s more, it’s timely. We reveal critical data and analysis on guar seed and guar gum production, price trends, demand, supply, we give you a dashboard of key market fundamentals, we identify current risks and mitigation actions required. and we deliver a comprehensive assessment of each stage of the guar gum supply chain to understand current state and risks.

We think that our report is the most important tool available on the market  for business planners, investors and purchasing departments.

So, what should buyers be doing?

While prices look stable at the moment, the market is going through a critical phase as guar seed stock changes hands from farmers to local traders and processors. We expect some upward movement in prices as demand slowly picks up and as availability of seeds reduces in the open market due to arrival of winter crops.

As the year progresses, buyers must remain vigilant of a repeat of last year’s manipulation by vested interests. The absence of strong regulatory enforcement can aid these players to play the market again. Although, there are signs that the government has taken note of cartelization of Guar industry and is contemplating action to prevent it. Buyer should closely monitor developments on the ground to better predict pricing and supply trends as the 2013 season unfolds.

How does this impact the planning process for Guar Gum buyers? Is there a sense that market stabilization is now the norm, or are we in for more shocks?

Despite current stability in the market, the high degree of complexity and opaqueness of the guar gum supply chain in India continues to pose significant challenge for effective planning. The lack of transparency in the market, weak regulatory enforcement and ability of vested interest to play the market will keep this guar gum industry in India exposed to risks. Buyers should ask the right questions:

  • Will the nexus between influential traders and processors once again influence guar gum prices this year?
  • Will the Indian regulator, Future Markets Commission (FMC) allow futures trading of guar on Indian commodity exchange?
  • If Guar gets relisted on the commodities exchange, will FMC get the mandate and ability to check insider trading, cartelization and price manipulation?
  • Is the government contemplating policy changes for Guar Gum?
  • Are there any socio-political-security trends that have the potential to impact the movement of freight from Guar Gum processors to the export ports in India?
  • What happens if export-ports encounter labor issues or greater capacity constraints or a major security breach takes place?
  • Will the farmers continue growing Guar over other competing crops?

The answers to these questions will help companies manage their Guar Gum activities and minimize the inherent risks in the industry.  We encourage all interested parties to delve deeper using our timely report on the state of the Guar Gum industry in India.