Sumitomo, which has been struggling to stabilize production levels and improve profitability at the Ambatovy project, now forecasts an annual nickel output of about 30,000 metric tons for the year to March 31, down from its November estimate of about 40,000 tons.

"In addition to some equipment malfunctions during the October-December quarter, another glitch was found at the utility plant at the end of last year," Chief Financial Officer Reiji Morooka told a news conference.

Also, due to lower-than-expected prices of nickel, Sumitomo revised down an annual financial impact estimate from the Ambatovy to a 17.4 billion yen ($117 million) loss from its November forecast of break-even, Morooka said.

The company is not clear how soon the issue at the project will be resolved, another official said.

Nickel has long been feted as a key battery material for electric vehicles because it improves energy density so cars can run further on a single charge.

But the metal's producers have been squeezed by Indonesia's emergence as a supply powerhouse and on the demand side by innovations that move away from using nickel in batteries. Prices have slumped by 40% over the past year to around $16,000 a ton.

Sumitomo reported a 13% drop in April-December net profit, hit by lower prices of coal and base metals.

The company posted a profit of 404.1 billion yen in the nine months through Dec. 31 compared with 464.4 billion yen a year earlier.

It stuck to its full-year profit forecast through end-March of 500 billion yen, in line with the 506 billion yen mean estimate in a poll of 9 analysts compiled by LSEG.

($1 = 148.4200 yen)

(Reporting by Yuka Obayashi; Editing by Ros Russell)