Rio Tinto, the country’s biggest iron ore exporter, has bowed to the reality of the worldwide steel slump revealing today a 10% cut in its iron ore shipments.

The decision follows a similar one 10 days ago from the world’s biggest iron ore shipper, Vale of Brazil, which cut its output 10% from the 2008 target of around 325 million tonnes.

Rio Tinto told the ASX in a statement:

Rio Tinto is today revising its estimate of iron ore shipments from the Pilbara region of Western Australia to between 170 million tonnes and 175 million tonnes (100 per cent basis) in 2008. As a result of the reduced demand from its customers and reduced shipments, the annualised run rate of iron ore production from its Pilbara mines will be reduced by approximately ten per cent.

Tom Albanese, Chief executive, Rio Tinto, said, “Operations continue to perform well but demand has continued to decelerate. This reduction is a prudent move to align production with revised customer delivery requirements in the light of the fourth quarter drop in Chinese demand. We believe this will be a short, sharp slowdown in China, with demand rebounding over the course of 2009, as the fundamentals of Chinese economic growth remain sound.”

Rio had been looking to boost output this year to around 190 million tonnes in the year to December 30.

Last week the world’s biggest steel producer, Arcelor Mittal, revealed an earnings slump, production cut of 30% on average this quarter, cost cuts of 50% next year and a sharp reduction in planned capital spending for 2009.

Rio is already suffering from lower aluminium and copper prices (as is BHP). BHP is also being hit by falling oil prices.

Meanwhile, Australia’s resources sector giant, BHP Billiton, has yet to announce whether it will be cutting production as well. It seems inevitable that it will follow.

Both companies face downward pressure on 2009 coking coal and iron ore prices, but any reductions would still leave prices at their second highest level in history after the 85% rise for iron ore this year and a 200% plus jump in the contracted coal price with Chinese and other Asian buyers.