Nov. 23 (Bloomberg) -- Indian sugar makers, battered by falling prices of the sweetener, face more losses after the nation's biggest producing state forced them to buy cane at above market prices.

Balrampur Chini Mills Ltd., the nation's second-largest producer, expects to lose 3.5 rupees (9 cents) on every kilogram of sugar in northern Uttar Pradesh state, Chief Financial Officer Kishor Shah said in a telephone interview.

``It's not viable to run mills at these prices,'' Shah said today. ``We hardly have any money to operate the plants. Banks are unwilling to advance money.''

India curbed exports of rice and wheat, capped retail fuel prices and banned some commodities trading to protect the 600 million people in the world's largest democracy who live off the land. The latest interference may exacerbate a fall in Balrampur and larger rival Bajaj Hindusthan Ltd.'s stock.

``I would urge investors to stay away from sugar company shares for another one to two years,'' said Utpal Choudhury, an analyst at IDBI Capital Market Services Ltd. in Mumbai. ``Avoid the sector until the issue on pricing of sugar cane is sorted out.'' He has a ``sell'' rating on Balrampur Chini shares.

Balrampur Chini stock has more than halved from its peak on April 30, 2006, and is up only 6 percent this year, compared with the Sensitive Index's 35 percent gain. Bajaj Hindusthan has slumped 15 percent in 2007.

Ordered Mills

Indian sugar mills pay a so-called state-advised price set by the provincial governments to the nation's 50 million cane growers.

Uttar Pradesh last month ordered mills in the state to pay cane growers as much as 130 rupees ($3.3) for 100 kilograms. The price was cut to 110 rupees last week by a court in the northern state after mills challenged the directive.

The reduction is not enough to cover the increased costs, Shah said. It will cost Balrampur up to 17 rupees to produce a kilogram of sugar at the rate set by the court, or 26 percent more than its selling price.

The company on Nov. 11 reported a loss for a second quarter ended Sept. 30. Bajaj, which posted a loss in the June quarter, is yet to announce earnings. Ravijit Chaudhuri, a spokesman at Bajaj Hindustan, couldn't be reached for comment.

Global prices have fallen 17 percent in the past year amid concern India will increase exports as a record harvest leads to oversupply. The South Asian nation, set to surpass Brazil as the world's largest producer, closed the year ended Sept. 30 with reserves of 11.9 million tons, enough to meet demand for more than seven months.

``A pile up in stocks and a higher-than-expected production would keep the sugar scenario gloomy for the next two to three seasons,'' IDBI's Choudhury said. ``It remains to be seen what the ultimate decision on cane pricing will be. There is no clear picture as of now.''

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net.

Last Updated: November 23, 2007 00:51 EST