* Rio sees 10-20 mln/t drop in 2017 Australia output guidance
* Rio Q1 iron ore shipments up 11 pct vs yr ago
* Keeps 2016 target of 350mln/t
* Warns of price volatility across markets (Adds quotes from analysts, details on autonomous trains)
By James Regan
SYDNEY, April 19 (Reuters) - Rio Tinto on Tuesday cut its 2017 production guidance from its Australian iron ore mines due to a delay in the rollout of its autonomous transport technology, based on driverless trains.
The global mining giant said output from its Pilbara mines, which make up the vast majority of its iron ore production, would fall to 330 million to 340 million tonnes from a previous forecast of 350 million tonnes, as testing of its AutoHaul technology continues.
Rio Tinto's $518 million autonomous train plan has been under development since 2012, and follows the deployment of 71 autonomous trucks at its Australian iron ore mines.
Still, the world's No. 2 iron ore producer posted an 11 percent rise in first quarter iron ore shipments and confirmed it was on track for a record 350 million tonnes in 2016 as it runs its mines at full tilt despite a global supply glut amid slower Chinese industrial growth.
The production increases underscore the determination of outgoing Chief Executive Sam Walsh to defy calls for supply restraints until markets are in better balance.
Rio Tinto's first quarter shipments climbed to 80.8 million tonnes from 72.5 million in the year-ago quarter, but were down from 91.3 million tonnes in the preceding quarter due to a cyclone that interupted shipments in late January.
"We continue to experience volatility in commodity prices across all markets," Walsh, who last week tipped a second-half contraction in iron ore prices, said in a statement.
Iron ore .IO62-CNI=SI stood at $59.40 a tonne, having advanced nearly 40 percent since January due to restocking of depleted inventories in China.
"In the short term Rio's guidance is being maintained and that comes as the iron ore price is high," said Shaw & Partners analyst Peter O'Connor. "Next year, their guidance is down, and we don't know where the price is going to be, that's not good."
Citigroup analysts forecast a decline in iron ore prices in the second half of 2016 due to continued oversupply. The bank sees iron ore averaging $45 a tonne in 2016, $39 in 2017 and $38 in 2018.
Walsh, who retires in July, has repeatedly defended running the company's mines at maximum speed even as demand growth from China's steel mills waned, saying any curtailment would simply open the door for competitors to fill the void and do little to lower supply and elevate prices.
BHP Billiton <BHP.AX<, the world no. 3 producer, will report quarterly production on Wednesday. It is likely to report a strong quarter, although also affected by weather, as it too focuses on reducing costs rather than shedding production. However, its overall shipments will be crimped by the suspension of production from its Samarco joint venture in Brazil following a deadly damburst.
Rio Tinto said its thermal coal output fell 3 percent in first quarter versus a year ago to 5.5 million tonnes, pointing to a yearly total of 16 million to 17 million tonnes.
In copper, where Rio Tinto is looking for greater exposure to offset a high-weighting toward iron ore, first quarter mined production slipped 2 percent to 141,200 tonnes against the same period a year ago. (Reporting by James Regan; Editing by Richard Pullin)