Jan. 11 (Bloomberg) -- India may export more sugar than previously expected as mills in the world's second-biggest producer of the sweetener seek to benefit from a rally in prices to a one-year high.

Mills have sold 1.6 million metric tons of sugar abroad from the beginning of October and may sell another 1.4 million tons by September, S.L. Jain, director general of Indian Sugar Mills Association, said in an interview yesterday. The trade body last month forecast exports for the year at 2.5 million tons.

Higher shipments may help reduce a domestic glut and narrow losses at Bajaj Hindusthan Ltd. and Balrampur Chini Mills Ltd., India's biggest millers. Sugar, the fourth-worst performing commodity in 2007, may gain the most this year, alongside cotton and coffee, investor Jim Rogers, who predicted the start of the commodities rally in 1999, told Bloomberg Television on Jan. 7.

``The recent increase in prices is certainly good news for Indian exporters,'' Jain said. ``I'm bullish and expect raw sugar to gain another two cents a pound in the foreseeable future.''

Sugar futures traded in New York have risen 17 percent since Dec. 1 on speculation record crude oil prices would boost demand for fuel made from cane. The contract for March delivery reached 11.78 cents a pound on Jan. 8, the highest since Dec. 29, 2006. The futures fell 0.5 percent to 11.39 cents yesterday.

Index Funds

Hedge-fund managers and other large speculators increased their net-long positions in New York sugar futures in the week ended Jan. 1, according to the U.S. Commodity Futures Trading Commission data. Indexes such as the Dow Jones AIG Commodity Index are giving a greater weighting to sugar in 2008 after prices fell for a second straight year. Funds that follow the index may have to buy more of the products that fell in 2007 to restore target weightings.

Sugar was the fourth-worst performer last year in the UBS Bloomberg Constant Maturity Commodity Index of 26 commodities, declining 7.9 percent.

``You have index and hedge funds beginning to chase sugar,'' Jain said. ``All the factors, including record crude oil prices, are in favor of a further rise in prices.''

Morgan Stanley on Jan. 7 raised its average-price estimate to 11.1 cents for the year ending Sept. 30, from a forecast of 9.2 cents. Sugar will rise over the next three years, averaging 17.1 cents a pound in the year to September 2011, up from an estimate of 12.7 cents, the brokerage said.

`Looking Up'

Bajaj Hindusthan had a profit in the quarter ended Sept. 30 after reporting a loss in the previous three months. Bajaj posted a drop in earnings for four straight quarters starting April 2006. Balrampur had a loss for a second straight quarter in September.

``Things are certainly looking up for sugar mills with the recovery in prices,'' said Prakash Naiknavare, managing director of the Maharashtra State Cooperative Sugar Factories Federation Ltd., a group of 190 producers. ``There's good demand for Indian sugar from importers.''

India may produce 28 million tons of the sweetener in the year ending Sept. 30, less than the 31 million tons forecast by the association last month, Jain said. Production dropped to 6 million tons in the December quarter from 7.34 million tons a year earlier, according to the National Federation.

Still, the nation may export as much as 3 million tons a year until 2010, London-based International Sugar Organization said yesterday. Brazil is the world's biggest producer and exporter of the sweetener.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.

Last Updated: January 11, 2008 01:33 EST