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MOSCOW, July 14 (Reuters) - Russia's Norilsk Nickel, the world's biggest producer of nickel and palladium, expects demand for its metals to fall in the third quarter after a strong first half, but prospects for next year are still hazy.

"In the third quarter (of 2010) we see a decline in demand practically on all (our metals) markets, but it is within seasonal norms," Viktor Sprogis, Norilsk deputy CEO for sales and distribution, told Reuters in an interview.

"With the very strong first and second quarters it would have been logical to expect a more flat third quarter."

He said the European market still looked weak, but conditions in China and the United States were improving and markets in general were expected to be balanced for the whole of 2010, but 2011 was still unclear.

"We do not plan significant changes for our 2011 model, but there is a difference between expectations and preparations," Sprogis said.

He said global overproduction in 2008 and 2009 may have repercussions in some metals-consuming sectors next year, which would have an impact on demand.

"We expect the markets to be stable, but currently no one can say something sensible about the future of the markets," he said. "Problems exist and the medicine, which has been applied so far, only cured some external manifestations of the illness."

Norilsk sells all it produces and does not stockpile its metals, Sprogis said. The company produced 282,894 tonnes of nickel and 2.8 million ounces of palladium last year.

Sprogis said Norilsk sold its nickel and copper at prices above average market prices in 2008 and 2009 and in the first half of 2010.

Sprogis expects Europe, its main market, to account for 60 percent of Norilsk's sales volumes in 2010, Asia for more than 25 percent and the Americas for around 13 percent.

In 2009 Norilsk became the top nickel supplier to China and India. It supplied 60,000 tonnes of the metal to China, twice as much as in 2008.

PALLADIUM STOCKS

Sprogis also said he believes that stocks of palladium at state precious metals and gems repository Gokhran are depleted. "We believe the (state export) process is over and we build our palladium market models on the basis of this supposition," Sprogis said.

"We are not convinced if all the exported product has been sold, but we expect most of it to have been sold as, according to our data, there have been no new shipments in the last two years."

However, precious metals refiner Johnson Matthey said in May it expected part of Russian state stocks of some 3 billion ounces, shipped to Switzerland in 2007 and 2008, to be sold in 2010. The company also suspects that some 10 tonnes of palladium, mainly used in making autocatalysts, shipped from Russia in early 2010 could have come from the state stocks.

Gokhran, part of the finance ministry, does not disclose its stocks.