* China nickel consumption seen falling nearly 5 pct in H2 from H1 * Nickel smelters asking government for help with exports -sources * Stainless steel import prices fall 15 pct this year By Polly Yam HONG KONG, Aug 29 (Reuters) - Nickel smelters in China, the world's top consumer of the metal, have been lobbying Beijing to reduce or cancel a 15 percent tax on exports as they look to sell more of their output overseas, sources said. Domestic appetite for the metal has plummeted this year as stainless steel mills curb output due to falling demand for their product on the back of a slowing economy, with traders saying consumption will stay weak at least until the end of 2012. Any rise in nickel exports from China would weigh on prices on the London Metal Exchange, which have already dropped a quarter from their high for the year so far, marked in February. Nickel smelters are also pushing for the extension of a policy that would allow them to import nickel raw materials and then export finished metal produced from those imports tax-free, one of the two sources said, declining to be named due to the sensitivity of the matter. Currently only seven large copper smelters have this so-called "toll" smelter status. It is unclear whether the lobbying will be successful, but China cancelled a tax on exports of cobalt in 2009 after producers requested the termination. Official data showed exports of refined nickel and alloy fell 17 percent from a year earlier to 19,253 tonnes in the first seven months of the year, suggesting there is plenty of room for growth. MAINTENANCE Weak demand from stainless steel mills prompted a 1 percent drop in real consumption for nickel to 329,000 tonnes in the first half from the same period last year, said Xu Aidong, senior analyst at state-backed research firm Antaike. She added that consumption in the second half may weaken a further 5 percent or so to 313,000 tonnes. Chinese traders have been delaying term nickel imports and returning at a discount metal they had bought, with maintenance at major stainless steel mills in August, further cutting consumption. Output of stainless steel, used in everything from kitchenware to crude oil storage tanks, in the world's top producer last year accounted for about 80 percent of nickel consumption in the country. But most large stainless steel mills are currently running at 70-80 percent of production capacity due to weak demand, compared to nearly full capacity in the first quarter, said a senior executive at a large mill. "Demand for stainless steel in the third quarter has fallen further from the second quarter," he said. "Buying from end-users is quite bad, with merchants unwilling to make purchases because they are not certain whether demand will pick up in the fourth quarter." China's five leading stainless steel mills, including Shanxi Taigang, produced a total of about 2 million tonnes in April-June, a 4 percent fall from the previous quarter and 2.8 percent lower than a year earlier, said Antaike's Xu. FURTHER TO FALL Toll factories, which are allowed to import stainless steel and export finished products duty free, have reduced imports of spot stainless steel this year, traders said, after the economic slowdown in the euro zone and the United States cut demand for Chinese goods. "Chinese are not buying even if you beg them. Many importers are expecting prices of stainless steel to fall further," a trader at an international trading house said. Prices for standard 304 2B grade coil with 2mm thickness have fallen near 15 percent this year to $2,450-$2,700 a tonne for Taiwan, South Korea and Japan origins, on a free on board basis, from $2,850-$3,100 in early January, traders said. In Wuxi city, in China's eastern Zhejiang province, standard 304 grade stainless steel with 2mm thickness changed hands at about 17,800 yuan ($2,800) a tonne on Tuesday, down 11 percent from late December. ($1 = 6.3568 Chinese yuan) (Reporting by Polly Yam; Editing by Joseph Radford)

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