Indian sugar drops on expectations of higher quota, imports

MUMBAI, Sept 26 (Reuters) - Indian sugar futures slipped on Wednesday on expectations the government will release higher non-levy quota for December quarter and as mills started importing raw sugar.

* Non-levy, or free-sale, sugar is sold by millers in the open market, but the quantity each mill can sell is fixed by the federal government. The government is likely to announce non-levy quota for the December quarter this week.

* The key November contract on India's National Commodity and Derivatives Exchange was down 0.85 percent at 3,481 rupees per 100 kg at 0954 GMT.

* "Expectations of higher quota for the December quarter are pulling down the market," said Prasoon Mathur, a senior analyst with Religare Commodities.

"In the short-term, prices are likely to remain under pressure due to higher supplies, but they are unlikely to fall sharply due to festival demand."

* India had released 5.166 million tonnes of non-levy sugar for the September quarter.

* A majority of Indians will celebrate Dussehra in October and Diwali in November. Sugar consumption usually rises during this period.

* In the Kolhapur spot market in Maharashtra, sugar nudged up a rupee to 3,651 per 100 kg.

* Indian mills have signed deals to buy up to 450,000 tonnes of Brazilian raw sugar for delivery from October to December as the gap between domestic and overseas prices widens, making room for the first imports in more than two years, five dealers said.

* "Imports is bearish news for the market. They will raise supplies," Mathur said.

* Sugar inventory on Oct. 1, when the new 2012/13 season begins, is estimated to be 6 million tonnes, up from 5.5 million tonnes a year earlier, said the Indian Sugar Mills Association, a producers' body. (Reporting by Rajendra Jadhav; Editing by Prateek Chatterjee)