Friday, June 22, 2007

Sugar may double by year-end on more ethanol use


Posted online: Wednesday, June 20, 2007 at 0045 hours IST

JUN 19 : Prices of sugar, the worst- performing commodity in the past
year, may more than double by the end of 2007 as gains in crude oil
encourage ethanol use, said Greg Smith, executive director at hedge fund
manager Global Commodity Ltd.

More ethanol will be put into use in Brazil and the US as crude oil
prices in New York rose to a nine-month high yesterday. Increased use of
ethanol may help whittle down inventories of sugar, which is used as a
feedstock to produce the alternative fuel, Smith said in an interview in

Raw sugar prices in New York have fallen 36% in the past year, even
after a 6.5% gain on Monday, amid expectations that a glut in major
growing areas such as Brazil and India will swell global inventories.
October delivery futures fell 1.6% to 9.41 cents a pound on the New York
Board of Trade. "Sugar could be as high as 20 cents a pound by the end
of this year," said Smith, who has been trading commodities for over 25
years. "We've actually started to buy sugar about 2-3 months ago because
we believe the market was undervaluing sugar relative to its ethanol value."

The global surplus of the sweetener may reach 9.2 million metric tonne
this year, according to a forecast by the London-based International
Sugar Organization. Excess inventory can be absorbed by more ethanol
use, said Smith. "If you look at it historically, it normally takes
about 12-18 months to consume that excess in inventory," he said.
"However because now more and more vehicles are being run on ethanol,
that inventory will be cut back pretty quickly." Brazil is adding more
ethanol to domestic gasoline starting next month as farmers harvest a
record sugar crop, the government said last week. Brazil's sugarcane
output will rise to 513.3 million tonne this year from 455.3 million
tonne in 2006, it said.

Ethanol is made from sugar in Brazil and corn in the US. Weather is also
a factor that may boost sugar prices, Smith said. "If you get any
hurricane go through Cuba or any adverse weather patterns in Brazil,
then you will see sugar trade substantially higher very quickly," he
added. For the same reason, Smith also liked coffee, wheat, corn and

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