Raw sugar futures prices could rise by another 25 per cent in the near future due to increased demand for ethanol, a sugar conference was told in London on Wednesday.

The increase in ethanol production in Brazil, which is the world’s largest sugar cane producer, has reduced the amount of sugar available for the food industry. This helped push raw sugar futures to an eight-year high of 12.22 cents a pound last week on the New York Board of Trade. The benchmark contract closed up 0.11 cents at 12.16 cents yesterday. Raw sugar futures are up more than 30 per cent so far this year.

“The world price is going to go higher. It might be 14 cents, 15 cents. It will probably be around that area,” Jonathan Kingsman, managing director of Paris-based Kingsman SA, told the International Sugar Organisation seminar in London.

“We’re looking at something between 14 and 16 cents,” Mr Kingsman said. “The world market will have to go to the Brazilian motorist to say, Can we have our sugar back please?” Raw sugar futures last went close to 16 cents in January 1995 when they peaked at 15.38.

Analysts estimate that about 52 per cent of Brazil’s 28.5m tonnes of sugar cane output this year will be used for ethanol production in the domestic market where there are more than 1m flex-fuel cars that can run entirely on ethanol. This compares with a share of 48 per cent last year. “By the end of 2007 it is expected that the number of these cars will have doubled,” said Czarnikow Sugar in its November monthly report.

Concerns about Brazilian supplies have pushed sugar prices higher. Czarnikow cut its crop estimates for the South American country for the current year due to dry weather in the north of Brazil and wet weather in the centre and south.

This cut was a significant factor behind the UK-based sugar broker forecasting a wider sugar deficit in the current year. Czarnikow estimates a global sugar deficit of 3m tonnes, compared with a 2.2m deficit estimate in August, making it the second year in a row of supply deficits. This in turn has led to sugar inventories in the US, Europe and India falling to relatively low levels.

Investment funds have been attracted to the sugar futures market due to the tighter supply and demand conditions.

The number of contracts currently open on the New York Board of Trade is about 475,000, with about a net 25 per cent of the contracts held by investors betting on further price rises.

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