MARKET REPORT - APRIL 2nd , 2009

In continuation to my last report , prices have maintained their lateral movement in the past 2 months since our last reportof end January. Contrary to many people's thought of a market crash we thought that their were certain factors which provided stiff resistance at lower levels.

The prices did go up however do the same factors but the strong USD which traded in the range of about Rs 52.00 = 1USD in comparison to the Oct- Jan average of about Rs 49.00 =1 USD helped make the prices look that much cheaper.The USD in the past 2 weeks has weakened again and is now trading in the range of Rs 50-50.50 =1 USD which again makes the same prices as 2 weeks ago look 3-4 % expensive.

If February a small Korean tender helped move the prices up suddenly even though the bidding prices from India were below everyone's expectation. But once again the absence of competitive prices from Africa which is confirmed to have good big volume crop this year prompted everyone here that there was still scope of absorbing a $100-$200 rise in the international market.

China everyone said will not be buying this year and infact they bought very little since the season started in October,

but as we mentioned in our last report that China may be back for shopping after their major demand period of Chinese New Year got over. The strong buying spree from China in Feb got the prices moving up in Africa as well and after a certain level the demand stopped , clearly showing that the markets this year are very range bound.

Talking to a few of my Chinese colleagues , I learnt that the demand is slow but not down and out in the Sesame Oil business, ofcourse with high prices a certain segment of buyers have switched over but the fact remains that "Nothing is Permanent , not even CHANGE". People switch and then they switch back. A very interesting point as despite this talk of global slowdown and falling commodity prices , the prices of 90% of food items have still not been able to see the lows of late 2007 when this sudden and maddening rise of prices started.

We have all heard of low stocks in India for the last 5 months , low inventory , stocks in the hand of strong stockholders ,stocks at high levels are old topics now. The current buzz word in India nowadays is the Summer crop. I am sure their are all kind of figures already in the market about the size of the summer crop.I've heard estimated ranging from 50,000/Mt to our estimates of about 20,000 MT.

Working of some figures again. Considering that average yield per hectare in Gujarat for Sesame is about 400 Kgs/Hectare that means we need about 2.5 Hectare for 1 Mt of Sesame Seed. For a crop size of 50,000 Mt we would need a total area under cultivation of 2.5 X 50,000 = 125,000 Hectare. This figure looks a little unrealistic as compared to the normal sowing area under production in Gujarat which is about 350,000 Hectare.

Since there have been almost zero rains in Gujarat since Jan 2009 upto March 31st 2009 , some people may argue that summer crop is primarily sown in Irrigated lands with little or no dependence on Rainfall as in the case of normal season crop which is sown in June/July after the first monsoon rains in India.However being situated in a farm area we think we know a little more that people sitting in big cities that such a huge area in India to be cultivated by irrigation is close to impossible and that too for such a high risk and sensitive crop.

In our estimate the crop should be more or less similar in size to previous years with a little sustainable growth pattern and should be the range of 20,000- 25,000 MT. We must also recognize the fact that all of this is not for hulling. This crop will get divided into 3 parts

1:- 99/1 Premium Grade for Natural Export

2:- Hulling Quality

3:- Crushing Grade

Even if we take an average of what other say i.e about 50,000 Mt and our figures of 25,000 Mt , the crop will be around 35,000 Mt.

Lets say the Hulling grade in this is more 50% or about 20,000 Mt . Assuming that only 10 factories(Big small , Auto/Sundry put together ) will run for the next five months from May-September i.e about 150 days.Taking into consideration that the demand is down and there is a major slow down the factories are bound to run at about 60% capacity or lets say they will produce for only 100 days in the next coming 5 months.

10 Factories X 20 Mt Day X 100 Days = 20,000 MT . i.e they will need about 20% more in terms of raw material which means the 10 factories between them will consume about 24,000 Mt.

If less than 10 factories operate out of India , then doesn't that create a situation where the suppliers will have an upper hand in determining the prices and choosing the buyers anyways.If 10 or more factories run even at 60% capacity doesn't that account for this summer crop figure in total.In both cases we see a bottom line resistance being formed.

Where is the spare quantity to pressurize the market to crash? Its not that India needs to finish every last seed before the new crop as a compulsory rule or law.Every year we have carry forward , nothing new if we carry fwd 5-10,000 Mt.

Comparing previous years figures , India generally exports about 80,000 MT in the period April- September , last year i.e April 08- Sep-08 was about 107,000 Mt .Let me know If you need country wise import figures for this period of last 4 years.

Even if this year the April-September figures are down 50 % on low demand , we still would need about 50,000 Mt. We don't see a huge stock situation in India at the moment as even after the price rise in the past month the arrivals did not pick up , some people would say that the stockiest are awaiting for even better prices which may be true in some cases but what is also true is the fact that most stockiest have emptied their warehouse cutting their losses and gearing up for other new crops.After the sudden rise we even saw a 6-7% price correction but even then there was no panic selling by stockiest and no improvement in prices clearly showing that the supply is very very limited.

If all the overseas buyers are running in limited stocks and the demand has been slow over the past 6 months , I think the stockiest in India have been just as smart to realize that fact as well and there is no reason to assume that the stockiest will still hold on to huge stocks and loose their night sleep and money despite getting a chance to exit at breakeven or even at small profits in some cases over the last few weeks.

Some new origins in Africa and Central America will also be coming out with new crop in the coming 2 months but with the strong USD still trading above Rs 50 - 1 USD and at high prices worldwide the import parity and chances of India importing any more raw material is virtually zero. Hulled Sesame from India still remains the cheapest and limited.

Just as we anticipated a Chinese demand after their New year , we anticipate another buying spree from the Middle Eastern Countries and Turkey for their Ramadan demand which falls in August this year much before Indian new crop so all their demand will either be fulfilled by stocks in Africa or Indian Summer crop.

As per our estimates the markets should remain range bound in the next 5-6 months with strong resistance at price of $ 1650 PMT FOB on the lower side and $1850 PMT FOB on the upper side in case of Hulled Sesame. In case of Natural Sesame we see strong resistance at bottom levels of $1400 PMT FOB and $ 1550 PMT FOB.

However the USD still remains a major price determining factor and any downward movement from current highs will only make matters worse.