"Sugar prices are likely to have an upside in the next 12 months as sugar is diverted into ethanol production," said Verghese. "Sugar is a more efficient source of bioethanol than corn," he said.
The cost of producing the same amount of bioethanol from sugar is less than half that of corn. ICE October world sugar settled 62 points higher Tuesday at 13.72 cents a pound, and the March 2009 contract rose 50 points to 15.12 cents. Verghese expects sugar demand to rise this year, with the growth rate for this year around or in excess of 3%, compared with an annual compound growth rate of 2%-3% over the past 10 years.
Olam announced Wednesday a joint investment in a high-intensity sweetener producer which produces the zero-calorie sweetener from the stevia plant and has a market expected to grow around 4% per year. "The diversion of sugar into ethanol increases the need for alternative sweeteners," said Verghese.