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Some meat for your bones cpg

* Rio Tinto Q4 iron ore output falls 18 pct

* Sales fall 23 pct, in line with lowered estimate

* Posco sees lower crude steel output, sales in 2009

* Q4 net profit stagnated, sharply below forecasts

By Sonali Paul and Miyoung Kim

MELBOURNE/SEOUL, Jan 15 (Reuters) - Miner Rio Tinto said on Thursday it suffered a sharp fall in iron ore output and steelmaker POSCO posted disappointing profits as eroding demand for autos and appliances hit both ends of the steel chain.

The global recession has hammered consumption of steel and iron ore, the raw material used to make steel, as consumers shy away from big purchases and companies cancel infrastructure projects.

The steel sector, led by China, the world's biggest producer of the metal, has sharply curtailed production, sparking a response from companies like Rio Tinto that supply it.

Rio (RIO.AX) (RIO.L), the second largest iron ore producer after Brazil's Vale (VALE5.SA), said on Thursday that its iron ore output fell 18 percent in the fourth quarter to 31.8 million tonnes, one of its biggest quarterly falls. [ID:nSYD376178]

The firm, which is slashing costs and selling assets to help pay down debt, said sales slid 23 percent to 33.6 million tonnes, just meeting its lowered target.

The group delivered no major surprises in its December-quarter operations report, but did say aluminium profits would be hurt by falling prices and that it would write down inventories of the metal.

The drop in sales from its Western Australia iron ore mines, which more closely reflect Chinese demand, will likely be used to bolster arguments as steel mills and miners jostle in ongoing iron ore price talks.

Chinese and Japanese mills, which are pressing for a 40 percent cut in contract prices, will point to weak demand while miners will cite their lower output as evidence of reduced supply that should help balance the market.

Contract prices last year nearly doubled, but spot iron ore prices have plunged from a high of nearly $200 a tonne last February to around $80.

"The most important thing is that Rio has removed supply overhanging the market and that's going to give them a much better chance of getting a reasonable price outcome this year," said David Tucker, an analyst for consultancy Hatch Beddows.

Tucker, who originally expected a rollover for 2009 contract prices now expects a fall.

"I would not imagine a fall of more than 20 percent," he said.

For a production summary graphic, click: here

Rio shares -- which have slumped more than 40 percent since bigger rival BHP Billiton (BHP.AX) (BLT.L) scrapped a $66 billion takeover bid for Rio in November -- were up 0.4 percent in London after sliding 8.1 percent in Sydney.

POSCO WARNS ON '09 OUTPUT

POSCO (005490.KS), the No.4 steelmaker, warned on Thursday that slumping demand would hit its steel output and sales this year after reporting worse-than-expected quarterly profits. [ID:nSEO79961]

Before the results were announced, Chief Executive Lee Ku-taek resigned to make way for a new leader, ending speculation that he would step down as the company struggles against the world's worst economic downturn in decades.

"The outlook is bleak due to the recession and mounting risks such as China's slowdown," said Hwang Chang-joong, an analyst at Woori Investment & Securities. "The first quarter will mark a peak in terms of difficulties."

The faltering demand is seen hitting earnings at steel majors this year, in a sharp reversal to the sector's record profits logged last year.

POSCO's October-December net profit came in at 721 billion won ($527 million), sharply below a forecast of 1.15 trillion won from 10 analysts polled by Reuters Estimates.

Net profit rose 1.1 percent from 713 billion a year ago but dropped 41 percent from the July-September period.

The results undershot expectations because sales faltered in December as a result of a big slump in demand and as a weaker won boosted foreign-currency debts.

POSCO, which cut production for the first time ever in December-January, has predicted that this month will see its worst monthly performance amid weak demand and volatile markets, but said it should remain profitable.

The steelmaker, which ranks behind ArcelorMittal (ISPA.AS), Nippon Steel (5401.T) and JFE (5411.T), must also contend with higher imported raw material costs due to a weaker won currency.

Shares in POSCO, South Korea's second-largest listed company, dropped 14 percent in the fourth quarter, outperforming a 22 percent drop in the broader market .

The stock ended down 5.3 percent on Thursday before the results announcement as the broader market slumped 6 percent.

For a graphic on POSCO results, click on: here

For the story on POSCO's outgoing CEO click on [ID:nSEO101307]. (Additional reporting by Bruce Hextall, Mark Bendeich and Denny Thomas in Sydney and Eric Onstad in London; editing by Karen Foster)