"Things in the rechargeable battery industry are much worse than expected," said a trader at a major Japanese trading house. "Japanese demand for cobalt this year won'T reach 7,000 tonnes."

He is one of many traders who now expect demand for cobalt in Japan, the world's second-biggest user of the metal, to fail to reach 7,000 tonnes this year, with little growth expected next year. Japan's 1997 cobalt demand was around 6,800 tonnes.

For a long time, explosive growth in production of lithium-ion batteries offset declines in other sectors, including industrial machinery makers, who have been badly hit by sharp falls in capital spending and a setback in the automotive industry.

But now the country's worst recession since World War Two has started to eat into the battery industry, as domestic sales of mobile phones and personal computers have also slowed.

"It's not that the output of lithium-ion batteries is dropping. Its growth has normalised after expansion of several hundred percent," said an official at the Japan Storage Battery Association.

He said Japanese shipments of lithium-ion batteries would total some 270 million units this year after 195 million units last year, while shipments of nickel-metal hydride batties would stand some 630 million units this year after some 570 million units in 1997.

Traders in Tokyo were braced for further drops in the price of cobalt, which now stands at around $10.50/$11.50 per pound for high-grade material and about $9.5/$10.7 for low-grade, compared with above $24 and $20 respectively in June.

Rapid price falls since the middle of this year have made it virtually impossible for the metal's users to place major buy orders, though many were slowly running out of inventories, they said.

"Stocks are running low. But nobody dares to buy amid wide expectations that prices will fall further," said another trader. "Most have changed their minds after being tempted to do so about a week ago. They're just waiting for prices to stabilise."

Traders said, however, such hopes might not be fulfilled for along time as Western producers, including Sherritt International Corp, were selling aggressively to make up for shrinking revenues from their nickel business ahead of the year-end.

Such moves by traditional producers were accelerated in view of new low-cost Australian mines, including Murrin Murrin nickel/cobalt project, which were expected to come on stream sometime next year, they said.

Adding to the gloom was news last week that Asia's economic crisis would hurt Boeing Co's profits over the next few years and force it to cut another 20,000 jobs, as it would further dent demand from super alloy makers, they said.

"There is oversupply. Unless this gets changed, prices will slide further," said another cobalt trader. "The US super alloy sector's not faring well. They will also feel major production cuts at Boeing."