* Indian cane mills are struggling due to weak sugar prices
* Mills could muscle out competition from Brazil to Iran
* Government could grant transport subsidy to mills
By David Brough and Rajendra Jadhav
LONDON/MUMBAI, Dec 5 A pickup in Indian sugar exports will weigh on global prices after a standoff was resolved between mills and farmers over the cane price, and sales to Iran look increasingly likely.
Analysts expect India to be a net exporter of sugar in 2013/14, selling at least 1.5 million tonnes and possibly more than 2.0 million depending on price movements in coming months.
ICE raw sugar futures slipped to three-month lows this week after news that the cane crush in India had begun, signalling more exports.
ICE raw sugar futures were down 0.1 cent or 0.6 percent at 16.58 cents a lb on Thursday, near a three-month trough of 16.55 cents, and well below 19 cents a lb, considered to be a level at which Indian mills would be hoping to export.
Mills in India are struggling because they have to pay supported cane prices to farmers, while domestic and international sugar prices remain depressed.
Crushing was delayed as farmers in Uttar Pradesh and other states demanded an increase in the cane price to compensate for a rise in fuel and fertiliser rates. The dispute was temporarily resolved on Sunday.
"Local prices are falling continuously, but still mills are not able to sell sugar and raise money to make cane payments," a Delhi-based dealer said. "This may force some mills to agree to exports at lower prices."
Abinash Verma, director-general of the Indian Sugar Mills Association (ISMA), said he expected India to export 2 million tonnes of sugar in 2013/14, of which around 500,000 tonnes had been booked so far, some destined to the Al Khaleej refinery in Dubai, which has traditionally been a buyer of Brazilian sugar.
Sterling Smith, a futures specialist with Citigroup, said mills in India would want to export to generate cash.
"We are awash in sugar. The impasse being broken in India will put another 1.5 to 2 million tonnes in the export corridor. And given the economic situation in India, they're going to be willing to export," Chicago-based Smith said.
Analyst Stefan Uhlenbrock of F.O. Licht, said the current climate of weak sugar prices would squeeze mills' margins.
"Mills will amass losses in this season in India and cane payment arrears will pile up," he said.
A committee headed by Farm Minister Sharad Pawar and comprising food, finance and oil ministers is expected to meet on Friday to decide financial assistance to sugar mills.
Some analysts expect the government to provide a transport subsidy to the mills, but say any support was likely to be too little to make much difference to mills' financial health.
"Any new assistance to the mills will be insignificant," said Robin Shaw, sugar analyst with Marex Spectron.
"India will export as soon as the world price rises above the domestic price. Therefore India will be a major obstacle to any rally in the world market."
Indian exporters are expected to muscle out competition from Brazil and Thailand to regional markets such as the Dubai Al Khaleej refinery and Iran because of their freight advantage.
Indian dealers are trying to seal deals with Iran as the country is ready to pay a premium over global prices.
The sanctions-hit country has contracted nearly 200,000 tonnes of raw sugar and can buy much more, dealers said.
Sanctions aimed at curbing Iran's nuclear ambitions imposed by Western countries forced India to trim oil buying from Iran, but India remained a big customer.
In 2012 as sanctions stalled dollar payments, India started settling part of its oil debt in rupees and Iran used those rupees to buy goods from India.
"Iran can emerge as the biggest buyer of Indian raw sugar. It has a lot of potential. It wants to utilise rupees lying in Indian banks," said Kamal Jain, a Pune-based broker. (Additional reporting by Chris Prentice in New York; Reporting by David Brough and Rajendra Jadhav; Editing by Nigel Hunt and Keiron Henderson)