UPDATE 1-BHP copper output off sharply, iron ore down

* BHP Billiton reports 14 pct drop in Q3 copper output

* Ready to cut back production further; outlook uncertain

* Iron ore, aluminium output also slip amid weak demand (Adds outlook comment, background)

SYDNEY, April 22 (Reuters) - Global miner BHP Billiton (BHP.AX) (BLT.L) posted a big drop in quarterly copper production on Wednesday, as well as falling iron ore and aluminium output, and said it was ready to halt more operations as demand weakens.

BHP Billiton has been cutting production and shelving projects amid the worst global recession in decades. So far, its biggest cut-back has been in nickel in the current downturn and analysts say more cutbacks could follow in other commodities.

"In the medium term, we expect that market conditions will remain uncertain," the world's biggest mining house said in its March quarter production report.

"All our operations 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 lack of demand," the company added.

BHP also reported a 1 percent drop in iron ore production and 4 percent fall in aluminium output. Nickel output rose 10 percent in the quarter but BHP's recent closure of its Ravensthorpe nickel mine has yet to flow through to current production data.

"The copper number is particularly of concern because copper is a bellwether of the wider state of the industrial commodities sector," said Andrew Harrington, Sydney-based mining analyst for the Patersons brokerage. (Reporting by James Regan, editing by Mark Bendeich)