Indian sugar futures up as mills trim supplies

MUMBAI, July 15 (Reuters) - Indian sugar futures rose sharply on Tuesday as millers cut market supplies hoping a lower than expected sale quota for the September quarter and a drop in cane planting would push prices higher.

The area under sugarcane fell more than 18 percent to 4.32 million hectares up to July 11 from a year ago, which could result in substantially lower output in the 2008/09 season. See [ID:nDEL53439].

At 3:21 p.m. (0951 GMT), the July contract NSMN8 on the National Commodity and Derivatives Exchange was up 2.55 percent to 1,528 rupees ($35.3) per 100 kg.

The August contract NSMQ8 was up 2.88 percent at 1,608 rupees. It earlier breached the 3 percent mark, rising to an intraday high of 1,617 rupees.

Spot prices in the western state of Maharashtra, the country's largest producer, rose 1.2 percent to 1,535.10 rupees.

"Mills have choked supplies in the local market. They are not ready to sell at current prices, while normal demand continues," Suresh Mantri, an analyst at Ventura Commodities Pvt Ltd, said.

India's sugar sector is controlled by the government, which has allowed millers to sell 3 million tonnes of sugar in the open market in the three months up to September, lower than trade expectations.

In addition, the government has allowed sugar firms to freely sell between May and September 2 million tonnes of sugar from a buffer stock created last year to help millers saddled with excess supplies.

"Most of the millers are not selling the buffer sugar. This has created an artificial shortage in the market," a sugar broker in Mumbai said. ($1=43.3 rupees) (Reporting by Abhishek Shanker, Editing by Mark Williams)