Sugar Advances in London as Commodities Rebound on AIG Bailout

By Marianne Stigset

Sept. 17 (Bloomberg) -- White sugar rose by the most in almost four weeks in London as the bailout of American International Group Inc. soothed concern that a widening credit crisis will sap economic growth and demand for raw materials.

Crude oil, gold and corn rebounded on anticipation the Federal Reserve's action will help stem a financial crisis that threatens to derail growth. The UBS Bloomberg CMCI index of 26 raw materials is now little changed this year, after advancing as much as 34 percent.

``There's been a squeeze on liquidity with a lot of investors exiting the market,'' Abah Ofon, a commodities analyst at Standard Chartered Plc in Dubai, said by phone. ``But this money has to go back in somewhere and investors are going to look for assets with good fundamentals, which is the case for sugar.''

White sugar for December delivery rose as much as $11.40, or 3 percent, to $386.40 a metric ton and traded at $383.30 as of 1:11 p.m. on the Liffe exchange in London. It has gained 22 percent this year, outperforming oil and all the main industrial and precious metals.

Raw sugar futures for March delivery climbed 0.38 cent, or 2.8 percent, to 14.08 cents a pound on ICE Futures U.S.

World demand will surpass output by 3.8 million tons next season, ending two years of surplus, market researcher Kingsman SA forecast Sept. 5.

More sugar will also be used to make ethanol. Brazil, the biggest ethanol exporter, will almost triple output by 2020, according to the Center-South Sugar and Ethanol Industry Association, known as Unica.

Ethanol Production

Brazil will produce 65 billion liters (17 billion gallons) in 2020, up from 22.5 billion liters in the current April- November season, Alfred Szwarc, a senior board adviser to Unica, said yesterday. A growing proportion of the country's sugar-cane output will go toward ethanol, Szwarc said.

Cocoa futures for December delivery fell 12 pounds, or 0.8 percent, to 1,484 pounds ($2,654) a ton on Liffe.

Workers at the coffee and cocoa exchange in Ivory Coast, the biggest producer of the chocolate ingredient, are on strike, slowing shipments. Black pod, a fungal disease that rots beans, may also spread because of rain, Angoua Edoukou, interim president of the Bourse du Cafe et du Cacao, said Sept. 3.

``It is still too early for this and the current mishaps including administrative issues, strikes and corruption allegations to have any real impact on the upcoming main crop due to begin at the start of October,'' Stephanie Garner, a cocoa trader at Sucden (U.K.) Ltd. in London, wrote in a report today.

Robusta for November delivery climbed $15, or 0.7 percent, to $2,092 a ton on Liffe.

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net