World sugar prices surged on Monday as the US-Israel war with Iran disrupted oil supplies, pushing crude oil prices to $119 a barrel and sparking fears that Brazilian cane mills would ramp up ethanol production at the expense of sugar.
Most ethanol in Brazil, the world's largest sugar producer and exporter, is made from sugarcane, meaning increased cane allocation for biofuel production would reduce the raw material available to produce sugar.
At 1422 GMT, raw sugar price futures on the ICE exchange rose3.4% at 14.58 cents per lb, while white sugar futures were up 1.5% at $420.70 a metric ton, after earlier gaining nearly 3%, Reuters reported.
Ethanol demand is growing thanks to soaring crude oil prices, which have now more than doubled since the start of the year, said Alberto Peixoto, director at broker and consultant AP Commodities.
Oil prices soared to their highest levels since mid-2022 earlier, as the Strait of Hormuz remained virtually closed, cutting off countries worldwide from a fifth of global oil and liquefied natural gas supplies.
The spike in energy prices has overshadowed the impact of a rising dollar, which usually curbs dollar-priced commodities like sugar by making them more expensive for non-US currency holders.
What is keeping sugar's gains in check, however, is the risk of weaker demand from the Gulf States. According to sugar consultant Michael McDougall, the Gulf imports roughly 10% of the world's raw sugar via the Strait of Hormuz each year.
In other soft commodities traded, arabica coffee rose 1.1% to $2.9645 per lb, having gained 4.5% last week, while robusta coffee dipped 0.3% to $3,763 a ton, having gained 4% last week.
London cocoa was little changed at 2,315 pounds per ton, while New York cocoa was also little changed at $3,229 a ton.
