Sugar Advances; Record Oil Prices May Spur Demand for Ethanol

July 14, 2006

Sugar Advances; Record Oil Prices May Spur Demand for Ethanol

July 14 (Bloomberg) — Sugar rose for a second day in London as record crude oil prices heightened expectations for increased demand for ethanol, an alternative fuel made from sugar cane.

Indonesia said yesterday it may spend as much as $22 billion in the next five years to promote alternative fuels as crude soars. Oil prices extended a rally today to $78.40 a barrel, a record, as escalating violence in the Middle East and damage to Nigerian pipelines threaten to cut off supplies.

“The demand for ethanol will rise as the demand for oil rises,” said Richard Lucas, an analyst at Ambrian Partners Ltd., a London-based investment bank specializing in commodities. “Oil spiked at $78 a barrel, which makes ethanol more attractive.”

White, or refined, sugar futures for October delivery climbed $4.0, or 1 percent, to $481.80 a metric ton at 12:17 p.m. on London’s Euronext.liffe exchange. Prices are still down 0.3 percent this week, after gaining 4.7 percent last week.

As oil prices rise, countries are coming under increased pressure to reduce their reliance on fossil fuels. More than 50 percent of sugarcane from the center-south region of Brazil, the world’s biggest sugar producer, was used for ethanol in the 12 months through June, the country’s Center-South and Ethanol Industry Association said yesterday.

“We’ll see a greater drive for alternative energies, such as ethanol,” said Lucas. “The Indonesians announced that they will spend $22 billion over the next five years on alternative energies. They have looked at how the Brazilian model worked and want to make themselves more self-sufficient.”

To contact the reporters on this story:
Marianne Stigset in London at  mstigset@bloomberg.net; and
Claudia Carpenter in London at  Ccarpenter2@bloomberg.net

Source: Bloomberg

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