UPDATE 1-China considers raising tariffs on sugar imports - sources

* Beijing proposal sent to big sugar users -sources

* Follows anti-dumping probe; ruling due May 22

* 3-yr tariff hike on top of current 50 pct duty -sources

* Potential boost for China suppliers vs cheap imports (Adding comment from China’s Ministry of Commerce)

By Hallie Gu and Josephine Mason

BEIJING, April 26 (Reuters) - China is considering special import duties on sugar as part of an anti-dumping probe, according to two people familiar with the matter, in what would be a win for domestic producers seeking help battling cheap imports from Brazil and other major growers.

China’s Dairy Industry Association sent a document late last week to members asking them to comment on the Beijing proposal on duties, according to two people who reviewed it. They declined to be named since the document, addressed to some of the biggest industrial sugar users in China, was not public.

Beijing is set to make its first ruling on the anti-dumping probe on May 22, having launched an investigation last September following complaints from domestic mills about rising farm costs and cheaper overseas arrivals.

If approved, the proposal would introduce a 45-percent duty this fiscal year, followed by an extra 40 percent in the following year and 35 percent in the year after that, according to the Dairy Industry Association document. That would be on top of the 50-percent duty now imposed on out-of-quota shipments.

The dairy group represents some of China’s biggest agribusinesses, including Inner Mongolia Yili Industrial Group , China Mengniu Dairy Co, and Bright Dairy and Food Co Ltd.

It’s not clear if the government is considering other options, nor whether the proposal, first reported by Bloomberg on Tuesday, will be implemented.

The Ministry of Commerce, in a faxed reply to Reuters late Wednesday afternoon, said they will “issue the final ruling in a timely manner, following the requirements of the investigation procedures.”

“Investigation of the case is underway. We will make the final ruling in accordance with the legal procedure,” the ministry said.

The potential hike in duties comes amid growing trade tensions between major commodity-producing nations from steel to aluminium and grains.

Based on current prices, it would cost at least 1,000 yuan ($145.11) more per tonne to import out-of-quota sugar this fiscal year, according to industry insiders, lifting the cost to around 6,700-7,000 per tonne.

That would put imports on par with physical prices in Guangxi, China’s top sugar-producing region, although it would still be profitable to import in Shandong, where spot prices are 7,060 yuan, according to trade website Guangxi Sugar Network.

Still, the proposal is lower than many major sugar-consuming food producers had feared, said Zhan Xiao, an analyst with Shanghai Buyun Investment Management. China’s sugar futures hit two-week lows on Tuesday of 6,655 yuan per tonne on the first report of the proposal.

Analysts also cautioned that penalties might increase smuggling and may not be as effective as intended in protecting domestic producers.

Currently, Beijing has set out-of-quota imports at about 1.9 million tonnes in the previous two years.

Beijing also allows 1.94 million tonnes of sugar imports annually at a tariff of 15 percent as part of China’s commitments to the World Trade Organization.

China bought 3 million tonnes of sugar last year, down 37 percent from 2015, the lowest level since 2011. ($1 = 6.8911 Chinese yuan renminbi) (Reporting by Hallie Gu and Josephine Mason; Editing by Kenneth Maxwell and Christian Schmollinger)