India’s exports of guar gum, a thickening agent used for oil and gas extraction, are poised to drop 20 percent this year as high inventory and a slump in prices cool demand among users including Halliburton Co. (HAL:US)
Shipments may total 400,000 metric tons in the year that began on April 1, compared with 500,000 tons a year earlier, said P.K. Hissaria, president of the Indian Guar Gum Manufacturers Association. Prices plunged 69 percent to about 30,000 rupees ($539) per 100 kilograms from a record 95,920 rupees in March after India banned futures trading, he said.
An increase in inventory amid declining demand will pressure prices further, Hissaria said. A nine-fold surge in prices in a year prompted Halliburton, the world’s largest provider of hydraulic-fracturing services, to warn of negative impact on profit margins (HAL:US) in April.
“Export queries are less now because oil-services companies built huge inventory fearing that guar gum might not be available,” Hissaria said in a phone interview on Aug. 31. “Since prices have come down, they are not buying and are using their inventory.”
Halliburton’s North American operating profit margin dropped 4.8 percentage points to 20.7 percent in the second quarter compared with the first quarter as the company purchased too much guar gum too early with high prices. “We should not have purchased the extra inventory,” Chief Executive Officer Dave Lesar told said on a conference call on July 24.
Halliburton helps companies drill and complete oil and gas wells using a pressure-pumping technique known as fracking, which blasts water mixed with sand and chemicals underground to free trapped hydrocarbons from shale formations. Guar gum, made from beans, is used to blend materials in fracking.
“Fracking activities in shale gas have drastically come down as prices of shale gas have come down,” Hissaria said.
The shale gas boom helped the U.S. meet 81 percent of its energy demand in 2011, the highest level since 1992, according to Energy Department data compiled by Bloomberg. Improved drilling techniques including fracking contributed to record U.S. output. Natural gas prices, which have fallen for four straight years, are 11 percent higher this year on the New York Mercantile Exchange.
Falling prices for fracking work spread to more liquid basins in North America in the second quarter, Paal Kibsgaard, chief executive officer of Schlumberger Ltd. (SLB:US), the world’s largest oilfield-services provider, said on July 21. Operating profit margins for fracking will continue to fall in the third quarter due to lower prices and more expensive materials, he said. Prices that Schlumberger is bidding for fracking jobs are down about 20 percent from their peak, Kibsgaard said.
Demand may reemerge from late October with the arrival of fresh crop, Hissaria said. Indian processors are running their plants at about 30 percent of the capacity due to lower demand and a lack of seeds, according to the group.
Guar gum, extracted from the seeds of a leguminous plant grown in India, Pakistan and the U.S., is also an ingredient in food emulsifiers, additives and thickeners. India accounts for more than 70 percent of the global seed production, according to the Multi Commodity Exchange of India Ltd.
The area under guar in Rajasthan, Haryana and Gujarat, the biggest producers, increased to 3.53 million hectares (8.7 million acres) as of Aug. 31 from 3.09 million hectares a year earlier, according to government data. Farmers in Rajasthan, which produces 70 percent of the nation’s crop, sowed the crop in 2.75 million hectares after monsoon rains revived in August.
“My initial expectation in April was that the sowing area would be doubled as the weather bureau predicted normal rainfall,” Hissaria said. When the rain arrived after a delay, it was insufficient and dashed predictions, he said.
The rainfall has been 12 percent below a 50-year average since the start of the monsoon season on June 1, according to the India Meteorological Department.
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