Aug. 29 (Bloomberg) -- Posco, Asia's third-biggest steelmaker, will cut production of stainless steel in September as some customers are deferring orders in the expectation that a decline in nickel costs will prompt lower product prices.

Output of hot-rolled stainless steel, which totals 2 million tons a year, will be reduced by 25,000 tons, Ko Min Jin, a spokeswoman for the Pohang, South Korea-based company, said today. The planned cut represents 1.3 percent of annual output.

Nickel futures have plunged by about half since reaching a record in May, undermined by rising inventories and concern that high prices would discourage usage. Nippon Steel & Sumikin Stainless Steel Corp., Japan's largest maker of the metal, said yesterday it will cut output for a second month. Nickel is added to stainless steel to make it rust-proof.

``Posco wants to use up its inventories,'' said Lee Eun Young, an analyst at Mirae Asset Securities Co. ``Demand in the market is not good at the moment,''

The three-month nickel price on the London Metal Exchange traded at $27,600 a metric ton at 12:36 p.m. Seoul time today, 47 percent lower than the record $51,800 reached on May 9. The metal touched a low this year of $24,800.

``Customers are hesitant to place buy orders on expectations that the falling price of nickel will pull down the price of stainless steel,'' Posco's Ko said today.

Hyundai Steel Co., South Korea's second-biggest steelmaker, said Aug. 27 it will halt production of cold-rolled stainless steel for five days starting from that day because of falling demand. Hyundai produces 200,000 tons of the product a year.

``Demand for stainless steel, however, is likely to improve as the nickel price seems to hit bottom, and the summer, low- demand season is going to be over soon,'' said Mirae Asset's Lee.

Posco, which has more than doubled in Seoul trading over the past year, gained 0.2 percent to 552,000 won at 1:04 p.m. local time.

To contact the reporter on this story: Sung Woo Park in Seoul at spark47@bloomberg.net

Last Updated: August 29, 2007 00:16 EDT