Sugar rose in London, rebounding from a second weekly drop, on speculation lower prices will spur demand at a time when millers in leading global producer Brazil may direct more cane to making ethanol. Cocoa fell.

Iraq, the third-biggest white-sugar importer, bought 200,000 metric tons last week. The country is forecast to bring in 795,000 tons in 2012-13, according to the International Sugar Organizationin London. Millers in Brazil may choose to make more ethanol this year, said Marex Spectron Group in London.

“End users may be viewing the current market as a buying opportunity,” Keith Flury, a senior commodities analyst at Rabobank International in London, said by e-mail today. “The recent Iraq tender is likely seen as supportive.”

White, or refined, sugar for May delivery gained 1.6 percent to $497.90 a ton by the close on NYSE Liffe in London after sliding 2.4 percent in the prior two weeks. ICE Futures U.S., where raw sugar, arabica coffee and dollar-denominated cocoa trade, is closed today for Presidents’ Day.

“In the last two weeks, the ethanol parity has risen and the sugar market price has fallen, so we can now expect center south Brazil mills to favor ethanol over sugar production in the new crop,” Paul Bannister, head of sugar brokerage at Marex Spectron, said in a report dated today. Center south is the nation’s main growing region.

Switch to Premium

Raw sugar for delivery in March on ICE closed at a premium of 0.26 cent to the May contract on Feb. 15, a reversal of a week-earlier discount that may indicate limited supply. The March contract expires Feb. 28.

“With a little over a week remaining before the March expiry, the firming spread is suggesting potential physical tightness,” Tom McNeill, a director at Brisbane, Australia- based researcher Green Pool Commodity Specialists Pty, said in a report e-mailed today. “Some are pointing to logistical constraints in center south Brazil, where grain and oilseed exports compete with sugar at the ports.”

Robusta coffee for delivery in May was unchanged at $2,057 a ton. Cocoa for delivery in March fell 0.6 percent to 1,400 pounds ($2,165) a ton, the lowest close since April 11.

Money managers cut bets on rising prices of London cocoa to the lowest in almost 11 months in the week ended Feb. 12, according to NYSE Liffe. Investors were net-long by 12,895 futures and options contracts, the smallest net-long position since March 13 and compared with 16,650 lots a week earlier.