Sugar Prices Soar as Energy Crisis Boosts Ethanol Output

The global energy crunch is putting pressure on the sugar market as the world’s top exporters convert more cane into ethanol.

Sugar hit a four-year high in October as energy supply shortages roiled commodity markets from magnesium to tomatoes. Facing rampant fuel inflation, Brazil and India are set to produce more ethanol from sugar cane, ensuring supply of sweetener remains tight.

“These are the two big players in the sugar market and the fact that the pressure’s on them to produce more ethanol in the next 12 months is supportive of sugar prices,” said John Stansfield, a trader and analyst at Group Sopex.

The ICE active white sugar contract rose 1.2% in London on Monday, bringing this year’s gain to 22%. Raw sugar climbed 1.1% in New York. Both contracts surged in August when it became clear frosts would damage this year’s Brazilian crop.

Gasoline pump prices in Sao Paulo topped 6 reals per liter for the first time last month, boosting demand for ethanol that’s also used to power cars in Brazil. The country’s gasoline imports rose more than 10-fold in the third quarter to 42,000 barrels a day, state energy company Petrobras SA said in an October filing.

“The domestic market for ethanol and the international market for sugar are fighting for Brazilian cane,” Andy Duff, head of South American food and agribusiness research for Rabobank, said by phone from Sao Paulo. Oil above $80 a barrel has created a “soft floor” of around 17 cents per pound for sugar, he said.

Source: Bloomberg