BHP Billiton, the world's largest miner, expects market conditions to remain uncertain as its base metals output falls.

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The Melbourne-based BHP , which today reported a slight 1 per cent fall in third quarter iron ore production, said it expects market conditions to remain uncertain in the medium term and that all of its businesses will remain under review.

“We will continue to take appropriate actions in any business that is cash negative and set to remain so, or where there is a lack of demand,” BHP said in a statement.

The Anglo-Australian company, which retracted an all-share takeover bid for rival Rio Tinto last year because of deteriorating market conditions, reiterated that it’s well placed to take advantages of acquisition opportunities.

Unlike its peers in the global iron ore arena, like Rio Tinto and Brazil’s Vale, BHP has yet to announce any significant cuts in iron ore production, despite falling demand.

It did, however, decide to slash nickel and coal output in January.

BHP said iron ore production in the three months to March 31 fell just 1 per cent on year to 28.19 million tonnes.

For the nine months to March 31, production rose by 6 per cent to 87.37 million tonnes, which is a record year-to-date figure.

Quarterly production was affected by cyclone interruptions and safety incidents, BHP said.

In a sign global demand for iron has been impacted by slowing national economies, BHP said its Pilbara operation, Western Australian Iron Ore, received requests for deferrals of long term contracts.

The deferred tonnes were sold on the spot market, BHP said.

Fat Prophets Analyst Gavin Wendt said the quarterly production report was roughly in line with expectations.

“Output across the board was generally weaker because of the downturn in demand,” he said.

“Iron ore output held up well, considering the bad weather in the Pilbara, and compares well to Rio Tinto’s quarterly output, where heavy rain cut output by about 15 per cent.”

But Mr Wendt said copper output was “disappointing”, on the back of ongoing problems at the Escondida mine in Chile.

“It would probably make sense to have this old mine come under single ownership,” Mr Wendt said.

Third quarter copper production slid 14 per cent to 282,800 tonnes. BHP said total copper production at Escondida in the 2009 financial year is expected to decline by about 30 per cent.

Nickel production rose 10 per cent to 47,500 tonnes, but is sure to be effected in future quarterly reports by BHP shutting its Ravensthorpe nickel mine in Western Australia in January.

Output of metallurgical coal, used in steel production, rose 11 per cent to 7.60 million tonnes on year after operations in early 2008 were hit by flooding in Queensland.

BHP in January said it will cut coal production in Australia by 10 per cent to 15 per cent, equivalent to an annual loss of 4 million to 6 million tonnes.

Production of petroleum products fell 3 per cent to 31.67 million barrels of oil equivalent.

Third quarter lead production fell 30 per cent to 47.24 million tonnes, silver production dropped 22 per cent to 8.73 million ounces and aluminium output fell 4 per cent to 304,000 tonnes.

Zinc production rose 10 per cent to 39.40 million tonnes.