By Marcelo Teixeira

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 , 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.

(Reporting by Marcelo Teixeira; Editing by Aurora Ellis)

((marcelo.teixeira@tr.com; +1 332 220 8062; Reuters Messaging: marcelo.teixeira.thomsonreuters.com@reuters.net - ))