* Large block of Indian exports could drag on prices -trade
* Indian industry lobbies for 2 mln tonnes exports -analysts
By David Brough and Mayank Bhardwaj
LONDON/NEW DELHI, Nov 12 (Reuters) - India is likely to approve sugar exports bit by bit to prevent a shock to the market and plug a supply gap until the next Brazilian harvest.
Sugar market traders are on tenterhooks waiting for an announcement expected by the end of the month on the amount of sugar India will export.
ICE raw sugar futures touched a 30-year high of 33.39 cents a lb on Thursday after a prolonged rally driven by lower-than-expected output in key producing countries due to adverse weather. Raw sugar futures have more than doubled since May.
Analysts have revised estimates higher for output from India, the world's number 2 producer after Brazil, and say that it could make up for a supply shortfall before Brazil's next harvest starts in April 2011.
"I think a lot of people in the market are looking to India as part of the solution to Brazil's off-crop period," said Toby Cohen, head of analysis at merchant Czarnikow.
Indian millers, seeking to lock in high prices, have urged authorities to approve 2 million tonnes of "open general licence" (OGL) sugar exports in 2010/11, analysts say.
But if India authorises the 2 million tonnes in one block, that could trigger a shock sell-off, said Jonathan Kingsman, managing director of Lausanne-based consultancy Kingsman SA.
"It seems that India will be drip feeding out sugar exports," he said, echoing the views of several analysts and traders.
"The market is now expecting the Indian government to authorise exports in tranches of, say, 500,000 tonnes at a time, spread over the next few months," Kingsman added.
STRIKING A BALANCE
Indian authorities also will want to strike a balance between making sure the country has sufficient stocks and helping sugar producers, a powerful lobby, analysts say.
"Even if the government allows exports under OGL, I do not see the country exporting a large quantity," said Amol Tilak, an analyst with Mumbai-based brokerage Kotak Commodities.
"The government will prefer to have a bigger buffer stock (rather) than permit large quantities for export."
India is likely to produce 25.5 million tonnes of sugar in 2010/2011, up from 18.8 million tonnes a year ago, according to the Indian Sugar Mills Association, a body of private producers.
Indian analysts estimate Indian sugar stocks at around 5 million tonnes, less than a quarter of annual consumption.
London-based merchant Czarnikow says stocks could be as low as 4 million tonnes, which analysts consider to be tight.
India consumes roughly 23 million tonnes a year of sugar. If the government approves 2 million tonnes for export, that leaves little room to boost stocks.
Sanjay Tapriya, finance director of producer Simbhaoli Sugars Ltd, said, "I do not see India as a large exporter, but there is some room for exports under OGL.
"Given current global prices, exports under OGL will help mills improve their situation."
Part of India's decision may depend on the authorities' view of likely sugar prices later in the year.
A less likely scenario, analysts say, could be that India decides not to allow exports because of fears that it would have to import later at higher prices. Such a decision could trigger an immediate price rally.
On the other hand, Czarnikow's Cohen said India and some other producers could export refined sugar now during the inter-crop period, while prices are high, and then later import raw sugar.
Over the coming months sugar prices could decline if a consensus emerges for a larger-than-expected Indian crop in the year from October 2010 to September 2011.
"That will slowly creep into the market's consciousness, rather than knock its legs out from under it," Kingsman said.
ICE front-month raw sugar futures slid over 6 percent in early trade on Friday, in a broad-based sell-off of commodities and other markets on concerns over peripheral euro zone economies' ability to service their debt.
ICE March raw sugar futures were down 1.64 cent or 5.4 percent to 28.06 cents a lb at 1451 GMT.
(editing by Jane Baird)