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Wednesday, February 6, 2008

Sesame Seed Market Report 5th Feb,2008
Dear Sir/Madam,
As we are all already aware its been a roller coaster ride in the Sesame Seed market this year. Infact not just the sesame seeds but primarily all oil seeds and commodities are trading at their all time peaks.

Its a known fact now that the global output is way way short than expected while the demand remains strong and steady.We saw a slight correction in the prices after the 2800 Mt Korean Tender last month and after 3 cancellation the Koreans only managed a discount on about 50$ from the opening price and in the process Pakistan and African bids were taken back , giving strong indications that they are not sellers at low levels.

Africa notably Sudan and Ethiopia made huge supplies earlier to China and seem to be in no mood of selling in a hurry.We should also keep in mind that since Africa entered the market at a stage when global prices were already very high their stocking is also of a very high average price and in a panic market as this year they would well want to make big profits on those levels so any big correction there could be ruled out.

It is estimated that good Quality Natural Sesame from Africa are being traded at around $1900-$2000 levels.If we go by past experience the peak demand for African crop is yet to arrive which is before the month long Holy Ramadan which starts on 1st September this year well ahead of any new crop arrival from any origin. The demand for this should pick up around July/August. We wonder what the situation will be like then and fear that the importers might resolve to buying earlier than expected in anticipation of making profits in case there is situation of short supply.Unlike US and Europe where the demand will take a hit owing to high prices as Sesame might not be a necessary condiment in the Middle East and Indonesian demand is likely to be strong and steady for the period as eating Tahini/Halva and various other Sesame based products is almost ritualistic.

Scaringly enough the much awaited Beijing Olympics are in August as well and if the Chinese preparations and their disastrous crop is to be kept in mind we see no reason why they should not be back to buy huge loads around mid year as well. The Chinese demand is sluggish at the moment as they go for their long New Year Celebrations.With very cold winter that they are facing this year , chances are that consumption of Sesame Oil will go up as reported to us by a few of our clients there. The stocks in China remain limited and could well serve them for a few more months after which they are likely to be back in the market to cover more.We believe that the Chinese aggressive buying and quick decision policy has always given them good returns as this year and 4 years before as well when they had a crop shortage.Unlike most they seem to acknowledge and know the fact that their crop is barely enough to cover their needs and any shortfall has to be supplemented from elsewhere and this is the reason they were the first to buy from India and Africa early on at very attractive levels whereas the rest of the world waited and waited for corrections.This is the reason we believe if they are back to buy they WILL buy at all levels and probably clean up the stocks this time.

Zero stocks are nothing new these days , we have seen that happen in Africa last year where they finished every last tonne by Oct and India barely had anything last year to carry forward ,we could be facing the same in Guatemala and other Central American Countries this year. The Japanese are heard to be buying aggressively from Central America and even making advance contracts specially in countries like Bolivia and Paraguay. Bolivia and Paraguay are also reported to have a smaller crop as compared to last year.

Prices for Guatemala hulled are heard to be around $3500 FOB and the supply remains limited.They traditionally cater to a very large segment in North America and though the top end companies with money power may well be able to absorb the high prices a small segment from that market is bound to be diverted to the so called " Common" Indian Hulled Sesame creating additional demand.

The stocks in India remain limited , the fresh arrivals are virtually over and all the cargo is coming out from the stockiest. Prices have almost doubled from the season start so most stockiest have sold 50% of their stocks and recovered their principle amount. They are now sitting entirely on their profits and only the ones who like to maintain their cash flow are selling. This means that unlike previous years all stocks this year are in hands of strong stockiest. The domestic demand which goes down by Mid Jan has picked up vigorously in the past 2 weeks after a cold wave in the entire North India which the main consumer of the winter time sesame demand. The temp are at 50 year peak and touching 0 degree in some places which is quite uncommon in India at this time of the year.

There is a huge cash flow problem due to this sudden rise and this is the reason why we are seeing sudden burst in prices and then a calm period when people buy.Many stockiest have already sold out and encashed their profit which is very strange even for us as these were the people who normally had stocks all they way till September.The situation is so critical here in India that even 10-20 FCL worth of buying can push up the market by 20-30$'s at any point of time. Once again corrections cannot be ruled out , without those the prices as they say will not make a base , but looking at the current situation even the stable prices should be considered as a correction and a buying
opportunity and it would be very optimistic to wait for big fall.

It is a fact that compared to previous years the long term business this year is negligible and it is virtually impossible to believe if someone says that they are covered for the entire season , that could only mean that they are cutting out on a huge volume and out of the market, otherwise the demand undercurrent is definitely there in the market. People still need to cover and that's a fact , what remains to be seen is till what levels can the market stretch itself before we hit the peak and till when are the buyers willing to wait.

We must also keep in mind that around May/June the farmers come back into the market to purchase seeds for resowing. Each farmer may buy only a few Kg's but keeping in mind that sowing is done in million of hectare and each hectare requires several Kg's it cumulates into a very big quantity.The farmers in Gujarat may find that easy as there is summer crop in April/May for about 10-15,000 Mt but in the U.P ,M.P and Rajasthan which are nowthe main sesame growing areas , more and more farmers are likely to try their hand on sesame growing and that could mean requirement of much muchmore resowing seeds.

Personally speaking we see a strong bottom like resistance at $ 2000-$2100 FOB for Hulled and on the higher levels @ $ 2700 which basically is Rupee 100/KG mark in local prices terms and Rs 100 is a lot of money for 1 Kg of Sesame in India.If we can cross that then if could go up another few $100's.

A small 1500 Mt Korean Tender for Crushing Quality is on the 11th Feb and a bigger one of about 5000 Mt (unconfirmed) later this month.