SYDNEY (Reuters) - Vital Metals Ltd (VML.AX: Quote, Profile, Research) plans to start production at its Watershed tungsten mine in Australia at rate of up to 1,200 tonnes annually in 2010, when it hopes to catch a forecast upswing in world prices, its managing director said on Wednesday.

"We hope to finish our bankable feasilibity study by October this year and be in production in 2010," Andy Haslam told Reuters in an interview.

At the maximum rate of production, Vital will supply about 2 percent of the world market for the metal, used chiefly to harden steel, Haslam said.

China is the world's main supplier of tungsten.

($1=A$1.20)

(Reporting by James Regan)