UPDATE 2-ArcelorMittal suspends Senegal iron ore project

* $2.2 billion West African iron ore project shelved

* Senegal suspension follows Liberia project delay

* Mine, port and railway would have created 10,000 jobs

(Adds quote, background)

By Diadie Ba

DAKAR, July 3 (Reuters) - World number one steelmaker ArcelorMittal (ISPA.AS)MTS.PA is suspending development of its Faleme iron ore project in Senegal as a result of the global economic downturn, a company source in the West African country said on Friday.

The $2.2 billion project in the south-east of the country was due to begin producing steelmaking raw material iron ore in 2011, and full production capacity was estimated at 25 million tonnes per year.

"We are suspending the project for the time being because of the economic situation worldwide, but we hope to carry out the project as soon as the situation gets better," the source said, speaking on condition of anonymity.

The project, which included building a new port and railway line, would have created 10,000 jobs for Senegalese workers, the company said when announcing the inception of the plan in 2007.

ArcelorMittal officials in London and Luxembourg were not immediately available for comment on Friday.

"The government is saying, 'either you do it or we look for another company to do it,'" the source said.

"We are open to the option of doing it with a partner but for the time being we cannot do it alone," the source said.

The firm has cut output as it struggles with falling demand for steel. It reported slightly worse than expected first-quarter results in April, and had its ratings downgraded by Standard & Poor's in June.

Faleme is its second African project to be delayed in less than two months. In May, the firm said it was delaying the launch of a planned $1.5 billion iron ore mine in Liberia. (Writing by Daniel Magnowski; Editing by James Jukwey)