Nov. 13 (Bloomberg) -- Nickel, heading for its worst week in two months, will decline 8 percent by the end of the year as demand weakens, research group CRU said.

Nickel for three-month delivery on the London Metal Exchange fell 5.9 percent this week to $16,325 a metric ton at 7:31 a.m., the worst performance since the week ending Sept. 4. Prices may drop to $15,000 by the end of the year, CRU said.

“The price reflects the reappearance of demand weakness in the market, both in the western world and in Asia,” Maartje Collignon, an analyst at CRU in London, said by phone.

Prices rose 40 percent this year as stainless steel mills restocked and imports into China, the world’s largest user, almost doubled in the first nine months. Stainless steel mills use about two-thirds of global output.

“People are concerned that China might export some of the nickel surpluses they have in the country now,” Collignon said. As much as 50,000 tons of the nation’s estimated 140,000 tons in stockpiles could be exported, she said.

Prices may average $16,000 a ton in the first half of next year before rising “slightly” in the second half as demand from the steel industry strengthens, Collignon said. Supply will continue to outpace demand next year, she said.

Supply will expand once a strike at Vale SA’s operations in Canada ends, Collignon said.

About 3,300 of almost 4,600 employees at Sudbury, Vale’s largest nickel and copper operations in the country, walked off the job on July 13 after talks broke down over a labor contract, leading to the longest strike in Vale’s 67-year history.

“Prices are where they are because of the strike, otherwise they would have been a lot lower,” Collignon said.

To contact the reporter on this story: Anna Stablum in London at [email protected]

Last Updated: November 13, 2009 03:26 EST