By Masumi Suga and Ichiro Suzuki

July 22 (Bloomberg) -- Sumitomo Metal Mining Co., Japan’s largest nickel maker, forecast a “substantial recovery” in demand in the six months starting October as customers boost production and increase commodity purchases.

“Demand for electronics materials is recovering and stainless steel mill output is improving,” Akira Nozaki, general manager at the nickel sales and raw material division, said yesterday in an interview in Tokyo. The company has already announced plans to increase production by 42 percent in the six months ending March 31 compared with the first half.

Japan’s economy is reviving from its worst recession since World War II, fueling consumption of raw materials. The government on July 13 upgraded its view of exports, business sentiment and consumer spending. Nickel prices in London have gained 34 percent this year as customers including stainless steelmakers, the biggest consumers, ramp up output.

“Demand is gradually improving this summer and we forecast a substantial recovery in the second half,” Nozaki said. The company mainly sells its nickel in the domestic market, he said.

Sumitomo Metal Mining declined 0.8 percent to close at 1,385 yen on the Tokyo Stock Exchange. The shares have gained 47 percent this year compared with a 9.8 percent gain in the benchmark Nikkei 225 Index.

Nickel for delivery in three months on the London Metal Exchange fell 1.6 percent to $15,702 a metric ton at 5:48 p.m. in Tokyo. The price reached $16,600 a ton on July 1, the highest intraday price since Sept. 29.

Production Plan

Sumitomo Metal Mining plans to produce 19,500 tons of refined nickel in the fiscal second-half, compared with 14,901 tons a year earlier, Nozaki said. The company forecasts first- half output of 13,700 tons, down 23 percent from a year earlier after the recession curbed demand.

Ferronickel output may exceed an April estimate of 16,800 tons for the fiscal year, Nozaki said, without giving a number.

Nippon Steel & Sumikin Stainless Steel Corp., Japan’s largest maker of the alloy and a Sumitomo Metal Mining customer, plans to restore capacity usage to 70 percent this quarter, from about 50 percent in the previous three months, as China’s demand rises and customers cut back inventories, spokesman Manabu Tani said. The Tokyo-based company is a venture between Nippon Steel Corp. and Sumitomo Metal Industries Ltd.

Global supply of nickel will probably total between 1.25 million tons to 1.29 million tons in 2009, “slightly” exceeding global demand, Nozaki said.

World nickel consumption rose to 98,500 tons in May from 95,700 tons the previous month, the Lisbon-based International Nickel Study Group said July 15. So-called primary nickel output gained to 113,100 tons from 112,300 tons the previous month, it said.