SAO PAULO, Nov 4 (Reuters) - Current reference prices

for raw sugar are not high enough to justify investment

in new plants, and marginal gains in production from adjustments

to existing plants are close to the limit, said Brazilian

millers on Monday.

Sugar demand continues to grow around 2% per year, while

production has suffered due to factors such as climate change

and biofuel blending policies such as in India. That situation

has kept the market in a tight supply and demand balance.

"When you run an analysis of a potential investment in a new

sugar plant, with a sugar mix of 50%, the internal rate of

return is 9%, so there is no incentive," said Rodrigo Penna de

Siqueira, chief financial officer at Jalles Machado

mill, one of the largest sugar groups in Brazil.

Siqueira said prices need to rise and stay high for longer

to allow for fresh investments. His comments were made during a

conference organized by investment bank BTG Pactual in Sao

Paulo. Other executives had similar views.

"Brazil's capacity to put more sugar in the market is

nearing the limit," said Renato Junqueira, vice president at

Adecoagro ( AGRO ), which operates three mills in Brazil.

Brazilian mills have made investments in the last two years

to increase the sugar mix, or the capacity to divert more

sugarcane to produce sugar, and consequently making less

cane-based ethanol.

Consultancy FG/A estimates changes to sugar mix resulted in

additional sugar production capacity of 2.6 million tons in

Brazil.

The executives said there is a limit to what can be done in

existing plants.

Any additional sugar production capacity will likely still

come from sugarcane, not sugar beet, said Pierre Santoul, head

of Tereos Brasil.

He believes India, the world's second largest sugarcane

producer, will not ramp up sugar production due to cane juice

diversion for ethanol to meet its blending program, which will

keep the global sugar market tight.

"We have a constructive view for prices (going forward)," he

said.