Raw sugar prices were near 10-year peaks and refined sugar was off nine-year highs, underpinned by the rising share of Brazilian cane allocated to produce ethanol, a biofuel, instead of sugar, in response to soaring crude oil prices.

Paris-based broker and analyst Jonathan Kingsman forecasts that raw sugar prices could rise to between 14 and 16 cents a lb next year, in part because of increased use of ethanol made from Brazilian cane for flex-fuel cars.

Benchmark New York (NYBOT) March SBH6 raw sugar futures SBH6 closed on Wednesday at 13.39 cents a lb, after trading from 13.21 to a life-of-contract peak of 13.49 cents a lb.

The session peak was the priciest for raw sugar on spot weekly charts since early 1996.

A veteran London sugar trader said prices of refined sugar futures would surge into 2006 on expectations of strong consumer demand, momentum from raw sugar and increasing ethanol demand, and a cut in European Union sugar output as reforms to the 25-member bloc's subsidy-laden regime roll out from July 2006.

Sergey Gudoshnikov, senior economist of the International Sugar Organization (ISO), said the outlook was positive as sugar is seen increasingly as a source of energy as well as food.

But traders warned that if the market sees an oversupply of sugar compared with demand, futures prices could slide suddenly.