TOKYO, Oct 7 (Reuters) - The global nickel market is

expected to remain in surplus next year for a third consecutive

year due to Indonesia's continued output growth, Japan's top

nickel smelter Sumitomo Metal Mining ( STMNF ) said on

Tuesday.

The surplus is projected at 256,000 metric tons in 2026,

slightly below 263,000 tons this year, as Indonesia's production

of low-grade nickel pig iron is forecast to rise 4.1% to 1.76

million tons, SMM said in its half-year market outlook

presentation.

Indonesia's nickel pig iron production is seen jumping 10.3%

in 2025.

Global nickel demand is forecast to grow 2.4% year-on-year

to 3.52 million tons in 2026, supported by steady stainless

steel consumption, while supply is seen rising 2.0% to 3.78

million tons, according to SMM.

The forecast assumes no significant impact from U.S. tariffs

on demand as there has been limited effect so far this year,

Shirou Imai, SMM's general manager, told reporters.

"Demand growth will be driven by stainless steel, similar to

2025, while demand for batteries will likely stay slow, with

growth rate expected to be modest," Imai said.

Nickel is primarily used in stainless steel, but is also a

key component in lithium-ion batteries that power electric

vehicles (EVs).

However, demand growth has slowed as lithium-iron-phosphate

(LFP) batteries, which are cheaper and contain no nickel or

cobalt, gain market share, accounting for two-thirds of EV sales

in China in 2023, according to the International Energy Agency.

SMM, which supplies cathode materials for Panasonic ( PCRFF )

lithium-ion batteries used in Tesla EVs, expects

global nickel demand for batteries to rise to 470,000 tons next

year, up only 10,000 tons from 2025.

"Demand for nickel-rich conventional EV batteries is likely

to pick up over the longer term as China is restricting on

exporting LFP technology," Imai said.