Brazil listed sugar companies climb on ICE rally

SAO PAULO, Jan 9 (Reuters) - The recent rally in international raw sugar prices has encouraged investors to buy shares of Brazilian sugar and ethanol listed companies, brokers said on Wednesday.

Buying from funds since the end of last year led raw sugar futures in New York (ICE) to a one-year high this week, reflecting an improved market outlook, they said.

On the Sao Paulo Stock Exchange, Cosan (CSAN3.SA), Brazil's largest sugar and ethanol group, surged 5.93 percent to 25.00 reais on Wednesday. On Wall Street, the group's holding company Cosan Ltd (CZZ.N) hit a record close of $13.94.

Rival Sao Martinho (SMTO3.SA) climbed 10.69 percent to 25.67 reais, while Acucar Guarani (ACGU3.SA), controlled by French group Tereos, rose 4.01 percent to 11.16 reais.

"Cosan's rise is due to the increase in sugar prices ... The outlook for sugar was very negative at the beginning of this year but it has picked up," said Marcos Paulo Pereira, an analyst at Fator brokerage in Sao Paulo.

Influential sugar consultant Jonathan Kingsman on Wednesday forecast the global sugar balance would be "close to flat" in 2008/09 as falling Indian output and rising consumption erase a large surplus this year. For more please see [ID:nL09673577].

Traders in India, which was expected to surpass Brazil this season as the world's largest sugar producer, signaled the country's output could be lower than anticipated. [ID:nDEL97927]

Brokers said buying sugar futures could help investors hedge against a possible pickup in global inflation.

Moreover, the weak dollar, higher crude oil and the possible effects of the U.S. energy bill, signed in December, which indicates a potential higher demand for cane, could be encouraging the rise in funds' long positions, said Unibanco brokerage analyst Fernando Abdalla in a report.

Considering an expected "structural change" in raw sugar prices in the medium and long terms, Unibanco changed the recommendation for Brazilian sugar companies from "hold" to "buy" on Wednesday.

"Sugar prices have moved to a new level, anticipating our expectations of recovery in six months," Abdalla said.

The ICE March sugar contract SBH8 broke resistance on Wednesday at 11.50 cents per lb and, according to Unibanco, it has the chance to run higher to 12.50 cents per lb until its expiration, in late February.

"If funds keep buying raw sugar futures and production problems begin to show up, then there is a chance that the market boosts prices even higher," said Abdalla, who forecasts raw sugar prices at between 11.65 and 12.90 cents per lb during 2008/09 (May-April).

Kingsman said, however, that the recent rally in sugar was "premature" and there is the risk of a downside correction. (Reporting by Inae Riveras and Cesar Bianconi, editing by Matthew Lewis)