ANALYSIS-Nickel risks further sharp fall on slow demand

By Anna Stablum

LONDON, Aug 29 (Reuters) - Nickel prices could plunge another 25 percent by the end of this year, unless orders from stainless steel producers in Europe pick up in the next two to three weeks, industry sources and analysts say.

London Metal Exchange nickel MNI3 has already experienced a steep decline this year -- three-month metal is down 23 percent and traded around $20,060 per tonne on Friday.

Undermining the market has been weaker-than-expected off-take from the stainless steel sector, which accounts for around two-thirds of nickel consumption.

Demand for stainless steel, which is widely used in kitchen appliances and cutlery, has fallen as consumers slow spending due to fears of economic recession and distributors delay restocking until the market stops sliding.

Nickel demand growth from the stainless 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.

More nickel price pain could be in store unless the stainless market recovers soon, said UK-based Michael Wright, chairman of stainless steel metal recycler ELG Haniel Metals.

"If demand from the stainless steel mills does not pick up in the fourth quarter, we could see prices fall to $15,000," Wright said. "We are in a little bit of suspense on the market, it could go either way," he added.

Roughly 45-48 percent of nickel used in stainless steel comes from scrap, according to Macquarie Bank.