UPDATE 1-Anglo unit Kumba lifts Q3 iron ore output, sales

* Kumba maintains 10 pct FY iron ore production growth

* Has not settled contract prices with China

(Adds details)

JOHANNESBURG, Oct 22 (Reuters) - Kumba Iron Ore (KIOJ.J), a unit of global miner Anglo American (AAL.L), boosted production and exports of the steel-making metal in the third quarter, and said it was on track to lift annual output by 10 percent.

South Africa's Kumba, the continent's biggest producer of the steel-making ingredient, said in an update to the market total iron ore production year-on-year rose 12 percent in the third quarter to end September.

Year to end September export sales volumes rose 39 percent to 26.5 million tonnes, versus the year to September 2008, the company said, adding that export sales in the third quarter were the second highest ever achieved at 9.4 million tonnes, after hitting a record 11.1 Mt in the second quarter of 2009.

Kumba said the European, Japanese and Korean markets have started to recover and an improvement in iron ore demand was seen during the third quarter due to some production increases and restocking by the steel industry.

The company had had to redirect all of its lost sales in Europe to China, the world's largest iron ore buyer and consumes more than half of the world's traded ore.

"Although the sustainability of China's increasing appetite for imported iron ore is uncertain, Kumba remains cautiously optimistic on its continued ability to redirect its export sales volumes into China where necessary," the company said.

It warned that domestic sales volumes to Africa's biggest steel maker ArcelorMittal SA (ACLJ.J), a unit of the world's biggest steel maker, are likely to be lower in 2009 than the 8.2 million tonnes sold in 2008.

Kumba said it had settled prices with its European, Japanese and Korean customers. In China, it continued to sell at provisional prices to its contract customers.

Slumping demand for steel owing to the global downturn 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 hard for miners to achieve a price increase.

(Reporting by James Macharia)