Sumitomo expects the nickel surplus to rise to 26,000 tonnes in 2008 due to the slow recovery of stainless steel demand.

    Sumitomo Metal Mining Co Ltd, a top Japanese smelter, said it expects a global surplus in nickel this year of 26,000 tonnes, citing a slow recovery in stainless steel demand.

    "The outlook for a recovery in stainless steel demand is rather opaque, and it might be difficult to expect it to happen this year," a company spokesman said.

    Production of nickel, which is used to add strength and sheen to stainless steel, is expected to amount to about 1.38 million tonnes, up about 2.8 percent from 2007, Sumitomo said.

    Consumption this year is expected to total about 1.35 million tonnes, up 5.1 percent from a year earlier, the company said.

    "There is demand for nickel, but at the moment it's hard to anticipate any stronger growth," the spokesman said.

    The company revised down its production estimate due to a reduction in production at various smelters.

    This includes the shutdown of BHP Billiton Ltd's 100,000 tonne-per-year Kalgoorlie smelter in Australia for four months for repairs.

    By some estimates, this has removed about 20,000 tonnes of supply from the market this year.

    Most recently China's top nickel producer, Jinchuan Group Ltd, cut its annual production target by 10,000 to 20,000 tonnes, down from an earlier plan of 120,000 tonnes, due to delays to a new smelter among other reasons.

    Weak demand for nickel MNI3, widely used in kitchen appliances and cutlery, has caused prices to tumble by about 50 percent from the year's high of $34,700 per tonne marked in early March on the London Metal Exchange.

    Growth in demand for the metal from the stainless steel industry is likely to be just 3-5 percent this year, versus previous market expectations of 8-12 percent, Jim Lennon, analyst at Macquarie Bank, told Reuters.

    Meanwhile, Sumitomo Metal also said it expects the 60,000-tonnes-a-year Goro nickel project in New Caledonia to begin production in the fourth quarter of this year as scheduled.

    The target for full production at Goro is three years, the spokesman said.

    Sumitomo Metal and Mitsui & Co together own a combined 21 percent stake in Goro, one of the world's biggest nickel projects.

    Vale Inco, the operator of the project, said in late August that it did not anticipate any changes to its operations as a result of falling nickel prices.