The uphill battle facing Jim Leng, the new chairman of Rio Tinto, was underlined today with the mining giant reporting one of its biggest-ever quarterly falls in iron-ore production.

Demand from Chinese steel mills slumped late last year, forcing Rio to cut output and slash costs, debt and jobs, and sell assets.

It reported an 18% fall in fourth-quarter iron-ore output to 31.8 million tonnes while sales from its Western Australian iron-ore mines, which more closely reflect demand from Chinese steel mills, slid 23% to 33.6 million tonnes.

Leng, currently deputy chairman of India's Tata Steel, is due to take over as chairman from Paul Skinner when he retires in April.

Analysts say Leng has a history of delivering high margins to the companies he has worked for.

He will have his work cut out for him as Rio and other iron-ore producers such as BHP Billiton and Brazil's Vale enter contract-price negotiations for the coming year. China's mills are demanding a 40% cut in contract prices.

Rio chief Tom Albanese said the company was battening down the hatches to weather the economic storm.

“We are taking firm action in response to the global economic downturn and, given the resilience of Rio Tinto's low cost assets, expect to remain well positioned when recovery comes,” Albanese said.

The company's December-quarter operations report was broadly as expected. Aluminium profits are expected to be hit by falling prices and Rio had already flagged in November that it would cut its annual iron ore production rate by 10%. That grew by 6% in 2008.

Last month, Rio Tinto announced plans to slash spending, cut 14,000 jobs and sell assets to help pay down $39 billion (£26.87 billion) in debt.

Fourth-quarter output of refined copper fell 18% due to a continued decline in grades and operational problems at Escondida in Chile, while aluminium production from the combined Rio Tinto and Alcan operations fell 2%.

However, hard coking-coal production surged 40%, spurred in part by increased port capacity, while thermal coal output jumped 21%.