India's biggest iron ore miner, NMDC Ltd (NMDC.BO), expects production in fiscal year 2008/09 to drop from the year before, its chairman said on Thursday, trimming an earlier forecast for flat output.

Rana Som, whose company controls 15 percent of India's iron ore production, said last month NMDC would match last year's output of 29.8 million tonnes, with weak demand from global steel mills making an earlier target of 32 million tonnes unfeasable.

It may be a little less (from last year). May be 27.5-28.5 million tonnes, Som told reporters on the sidelines of a news conference. The sector is affected by the recession.

Som declined to comment on how iron-ore prices would move, but said there were three trends visible globally.

Steel prices are falling, spot prices are 10 percent down, and I see how the negotiations are going on, he said.

The state-run firm sells most of its products in long-term contracts, setting prices based on those of global mining majors. It sells mostly to local steel firms like Essar Steel ESRG.BO, Ispat Industries (ISPT.BO) and Jindal Vijayanagar Steel.

Som said NMDC would renegotiate its long-term contracts in April, but declined to say how prices would move from last year's levels. In December, NMDC had cut prices by 25 percent for local firms. NMDC would be very cautious and was going slow on its international investments, Som said, citing uncertainty about natural resource price trends.

I would be very careful. Am I doing the right thing by pumping in my investment fund into it? And when I get returns, what will be the trend in the market?

For the year ending March 2010, NMDC would spend 12 billion rupees ($239 million) in expansion plans, including setting up a steel plant and two pelletisation plants, he said.

At 0844 GMT, shares in NMDC were down 0.5 percent at 149.35 rupees in a Mumbai market .BSESN that was down 0.2 percent. ($1=50.2 rupees) (Reporting by C.J. Kuncheria, Editing by Mark Williams)

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