Rio Tinto Q1 iron ore output misses forecasts

* March quarter iron ore output below forecasts

* Quarterly iron ore production outpaces shipments

* Still expects to ship around 350 mln tonnes iron ore in 2015 (Recasts, adds investor comment)

By James Regan and Sonali Paul

SYDNEY/MELBOURNE, April 21 (Reuters) - Rio Tinto (Xetra: 855018 - news) on Tuesday missed first quarter analyst forecasts for iron ore shipments due to bad weather and transport delays, but maintained its full year production target in a bearish sign for prices already at 10-year lows.

The world's no. 2 producer after Vale increased production 12 percent in the first quarter from a year earlier, to 74.7 million tonnes, according to the company's latest operations report.

That was roughly in line with a forecast from UBS (NYSEArca: FBGX - news) but around 8 million tonnes below other analysts' forecasts.

Iron ore shipments rose 9 percent to 72.5 million tonnes, still less than it mined, following a cyclone and a train derailment that blocked access to the company's Dampier port in Australia, the company said.

But Rio stuck to its forecast to increase annual shipments to around 350 million tonnes in 2015, implying shipments will have to average around 92 million tonnes over the next three quarters, and said it would use inventory to meet its targets.

"They will draw down on stocks, which means cheaper costs and larger output," said James Wilson, an analyst with Morgans Financial.

Iron ore prices have slumped after low cost mega miners Vale, Rio and fellow Australian BHP Billiton ramped up output just as demand growth in China began to slow.

China's crude steel output in March fell 1.2 percent from a year ago to 69.48 million tonnes as softening demand and tough environmental checks led mills to cut output.

Steelmakers have warned that production could come under further pressure and more domestic producers could go under.

"It's all becoming more about Chinese demand and where that ends up," said Paul Phillips, a partner at Perennial Growth Management.

The Anglo-Australian miner has been cutting costs to protect its margins in the face of declining prices for iron ore, which accounts for about 90 percent of overall earnings.

Rio Tinto's average cash cost of iron ore production was $19.50 a tonne in 2014, and is forecast at about $17 a tonne this year. Iron ore delivered to China currently fetches around $50 a tonne , down from a high above $190 a tonne four years ago.

Goldman Sachs (NYSE: GS-PB - news) has said in a report that the iron ore market is so dire for all but the top three miners that half the world's so-called "tier two" producers run the risk of closing. (Editing by Richard Pullin)