Sugar prices rally on fears Iran war will raise ethanol demand, lower sugar output

World sugar prices rallied on Monday on fears the U.S.-Israel war with Iran, which is disrupting global energy supplies, will prompt Brazilian cane mills to produce more ethanol and less sugar.

Ethanol is a cane-based biofuel. If mills in top sugar grower Brazil use more cane to produce the fuel, they will have less of the raw material to produce sugar.

Ar 1045 GMT, raw sugar price futures SBc1 on the ICE exchange were up 2.5% at 14.23 cents per lb, while white sugar futures LSUc1 rose 3.2% to $420.50 a metric ton.

"Higher oil = higher ethanol prices = lower sugar production in Brazil. (The) assumption being that at some point (Brazil's) Petrobras will increase domestic gasoline prices," said a veteran sugar consultant.