Jan. 12 (Bloomberg) -- Stainless-steel production will fall for a third year in 2009 as steel mills use up stockpiles and demand weakens, according to London-based research company CRU.

Production will fall less than 1 percent after last year’s 7 percent plunge, the biggest drop in at least 20 years, Vanessa Davidson, managing consultant for the nickel and chrome group at CRU, said in an interview by phone today. Prices of nickel, used to make stainless steel, have dropped 65 percent in the past two years as stainless steel output declined from a peak in 2006.

“Going into this year demand continues to be weak,” Davidson said from London. Stainless-steel makers “are under pressure to maintain production curtailments.”

Macquarie Group Ltd. said in a report today that its forecast for 2009 stainless-steel production has been cut by 24 percent from an estimate made a year ago, the most of six commodities including copper, aluminum and carbon steel. Its nickel production estimate is down 19 percent.

Output of stainless steel dropped to 26.6 million metric tons last year, with producers from China, the largest supplier, to Japan, the U.S. and Taiwan cutting back, CRU’s Davidson said.

“Demand was hit very badly in the fourth quarter of the year so people were destocking as much as possible,” Davidson said.

ThyssenKrupp AG, Germany’s biggest steelmaker, said in November it would cut stainless steel output by 25 percent in the first half of this year as weakening demand from carmakers and builders hits sales. Finland’s Outokumpu Oyj, the world’s fourth- biggest stainless-steel maker, last month cut its fourth-quarter profit target.

Stainless-steel production worldwide fell 0.3 percent in 2007 after climbing almost 15 percent in 2006, according to CRU. Stainless steel makes up about 65 percent of demand for nickel.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net

Last Updated: January 12, 2009 08:24 EST