* World iron ore trade faces disruption due to cyclone
* Rio Tinto, BHP iron ore ports closing ahead of cyclone
* Storm intensifying off Australia's northwest coast
* Cyclone forecast to reach Port Hedland by Wednesday
By James Regan
SYDNEY, Feb 25 (Reuters) - World trade in iron ore faces major disruptions as a cyclone bears down on Western Australia, shutting port terminals used by Rio Tinto and BHP Billiton and handling nearly half the global supply of the steel-making raw material.
The ports in Australia's Pilbara iron belt, responsible for shipping around 500 million tonnes of ore this year, are bracing for cyclone Rusty, which meteorologists expect to cross the coast by Wednesday with winds reaching up to 280 kph (170 mph).
"Further intensification is likely as the cyclone approaches the coast on Monday and Tuesday and there is a high risk that it will cross the coast as a severe tropical cyclone," the Australian weather bureau said.
Most of the iron ore mined in Australia is contracted by Chinese steel mills, with Japanese and South Korean mills also big buyers.
Port Hedland, a major terminal for iron ore exports, has been closed and all vessels sent out to sea in preparation for the storm, according to port spokesman Steed Farrell.
Further south, Dampier port is expected to be fully closed by sunset on Monday, Harbour Master John Fewings said in a statement emailed to Reuters.
Cyclone Rusty could strengthen to a category 4 storm -- on a scale of one-to five -- by the time its reaches Port Hedland, according to the Bureau of Meteorology tracking system.
The storm is currently rated a category 2.
BHP Billiton, Fortescue Metals Group Ltd and Atlas Iron Ltd are forecast to ship more than 275 million tonnes of iron ore this year through Port Hedland.
BHP said it was monitoring the cyclone's advance.
The ports of Dampier and Cape Lambert, about 200 km (125 miles) south of Port Hedland are used by Rio Tinto. Australia's biggest iron ore miner is targeting shipments of 260 million tonnes of ore through these ports this year.
A Rio Tinto spokesman said the company's two terminals at Dampier were in the final phases of ship loading, while its port at Cape Lambert closed Sunday evening.
However, in-loading services at Cape Lambert -- train dumping, stockpile stacking, and management -- was continuing for now - "but obviously contingent upon the conditions, which are worsening", according to the spokesman.
A weaker category 1 system which passed the Pilbara in January forced the shutdown of all three iron ore export terminals, contributing to a 9 percent drop in exports for the month and a 5.2 rise in spot prices.
Iron ore prices have pulled back to just under $154 a tonne since hitting a 16-month peak of $158.90 last Wednesday.
Iron ore shipments from Port Hedland in January totaled 22 million tonnes.
The region between Port Hedland and Dampier is known among mariners as "cyclone alley", with the peak season running from November to April.