Sugar Prices Soar as Energy Crisis Boosts Ethanol Output

Source: By Archie Hunter, Bloomberg • Posted: Wednesday, November 3, 2021

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.

Brazil's soaring petrol prices are putting a floor under sugar

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.

No. 2 exporter India plans for ethanol to make up 20% of vehicle fuel blends by 2025, tapping excess sugar production that has flooded world markets in recent years.

Indian exports have weighed on global sugar markets

That strategy could result in a drop in refined sugar production next year, the Indian Sugar Mills Association said on Thursday.

“The downsizing is a slow burn thing but ISMA estimates are a tangible sign that the process has started,” Tobin Gorey, an agricultural commodity strategist at Commonwealth Bank of Australia, said in a note on Friday.

Indian sugar exports could fall by more than half in 2022-23 from this year’s 6 million tons, Engelhart Commodities Trading Partners said at a recent conference.

“If they don’t export 6 million tons of sugar next year, the world will get very tight and it becomes very interesting,” said Sopex’s Stansfield.