UPDATE 1-Kumba Q1 output up 14 pct y/y, but falls q/q

* Q1 output up 14 pct y/y, down 2 pct q/q

* To cut production if demand drops further (Adds details)

JOHANNESBURG, April 30 (Reuters) - First quarter output at Kumba Iron Ore (KIOJ.J), a unit of global miner Anglo American (AAL.L), rose by 14 percent year-on-year, but fell compared with the last three months of 2008, it said on Thursday.

Kumba's output in the quarter rose to 9.3 million tonnes from 8.19 million the previous year boosted by the ramp up of its jig plant, but was down 2 percent from the 9.5 million seen in the fourth quarter of 2008 owing to the economic slowdown.

"The challenges faced by the global economy that led to unprecedented volatility and rapid decreases in commodity prices and iron ore sales volumes traded have continued into the first quarter of 2009," Kumba said in a statement.

The company said it had raised export sales by 3.5 percent from the previous quarter to 6 million tonnes, but domestic sales dropped by 0.8 million tonnes year-on-year.

Slumping demand for steel has forced producers across the globe to cut production sharply and delay expansions, leaving the iron ore market with a glut of material and making it almost impossible for miners to achieve a price increase.

Kumba has targeted China to make up for some of the lost demand in Europe and Japan, but said it would consider production cuts should the drop in demand not be absorbed by China, and if domestic demand drops further and stockpiles rise beyond physical capacity.

Finished product stocks at its Sishen mine, Saldanha and Qingdao ports have increased to 7.5 million tonnes from 5.8 million at the end of 2008. The company said it would still seek to raise production by 10 percent during 2009, depending on market conditions.

(Reporting by Agnieszka Flak)