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By Lucy Hornby

BEIJING, Nov 12 (Reuters) - Nickel demand from stainless steel producers is firming in Europe in the fourth quarter and should revive in Asia in the first quarter of next year, senior executives from the world's biggest nickel miner said on Monday.

Chinese stainless steel plants are raising production after weak product prices and a collapse in nickel prices hurt returns in the last quarter, but refined nickel demand is still roughly flat, Viktor Sprogis, deputy general director of Norilsk Nickel (GMKN.MM: Quote, Profile, Research), said during his annual visit to China.

"For the timebeing, the market is slow, although we have seen the first signs of recovery," Sprogis said.

European demand and some American demand was starting to resume, but Japanese demand is still flat this quarter compared to last, he added.

"There is no precedent for such volatility in nickel prices, and both high prices and volatility really affected consumption," he said.

"We are keeping our fingers crossed. We are positive about growth in consumption in the fourth quarter, and even more in the first quarter. That's why we have a general optimism for recovery."

A spike in benchmark nickel futures (MNI3: Quote, Profile, Research) to a historic high of $51,800 a tonne in May, and subsequent collapse in the third quarter, hurt those mills using nickel in stainless steel.

Revived first quarter demand is unlikely to hit a "new record" after a strong first quarter in 2007, Sprogis added.

World stainless steel production fell by about 9 percent in the third quarter compared with the year before, and that of austenitic stainless steel, which contains nickel, fell by 18 percent year on year, according to a report issued by Macquarie Research on Monday.

The report estimated austenitic grade stainless steel would be 10 percent lower in the fourth quarter than the year before.

Chinese stainless steel producers have seen "a 10-20 percent improvement" in their order books and production this quarter compared with last, Sprogis said, but refined nickel demand looks to be unchanged this quarter from last.

Altogether, Chinese nickel consumption rose by 20 percent this year, including refined nickel and nickel in pig iron, scrap and ferronickel, he estimated.

LOOKING EAST

Norilsk is planning to diversify away from its traditional markets in Russia and Europe, following its takeover this year of LionOre Mining International and the nickel assets of U.S.-based OM Group (OMG.N: Quote, Profile, Research)

Asia now accounts for about 20 percent of Norilsk sales, but that is expected to rise to 25 percent, or between 70,000-80,000 tonnes, by the end of the decade as sales to China double, Sprogis said.

Norilsk's copper exports are solely to Europe. But Asia could be a new market as the company studies development of new mines and infrastructure in Siberia, which could begin production in about five years.

Chinese refined nickel imports are expected to pick up sharply in the next few years, as constrained local production and limited availability of nickel pig iron, a substitute raw material, are unable to match growth in stainless steel production, said Norilsk's chief economist, David Humphreys.

Nickel available to stainless steel producers would be capped at about 100,000 tonnes a year, he said, after a surge of laterite ore from the Philippines is exhausted.

Norilsk sales of platimum group metals are roughly evenly divided between Asia, Europe and the Americas, but again, China is expected to provide most growth for palladium thanks to rising car ownership.

The company plans to promote palladium for jewellery in China, where it is currently seen mostly as a cheap alternative to platinum.

But plenty of available stock will moderate any price rises for palladium, which is starting to see increased interest from the investment community, Humphreys said.