* Shagang fails to pay Diana Shipping for months -source
* Shagang official says co needs extra time to get financing
* Shagang is third China firm to delay pay to shipowners (Adds details)
SINGAPORE, Jan 5 (Reuters) - China's Shagang Shipping has failed to pay millions of dollars in vessel rental fees to Diana Shipping, said a source close to the Greece-based firm, as Chinese maritime companies struggle through a downturn in the dry bulk freight market.
Shagang Shipping is the latest in a growing list of Chinese maritime firms that have unilaterally delayed payments to foreign shipowners in the past year, actions that have soiled China's reputation with the international maritime community.
The shipping unit of Chinese steelmaker Jiangsu Shagang Group has for months delayed payments for the use of a large iron ore carrier owned by Diana Shipping, accumulating more than $3 million in outstanding debt, the source said.
"The problem with delayed payments goes back more than a year but this is the longest period without payment," said the Greece-based source who asked not to be identified because he was not authorized to speak to the media.
"It is very important to do business with people and companies that are in a good financial condition and have a good reputation. In this case, this has been a bad experience."
A senior Shagang Shipping official said the company does owe Diana Shipping money for use of the dry bulk carrier, MV Houston, but not as much as $3 million.
Shagang Shipping, which operates a fleet of 50 capesize iron ore carriers, intends to pay but needs extra time to obtain financing from its overseas lender, he said.
"We are already starting to pay step by step but we need time to get money from our lender," he said, adding that the company remained "very healthy" financially.
"Capesize vessel operators are facing huge losses and they need time to get money, but this company is not giving us any breathing space."
China's shipping sector has become one of the world's most influential with its fleet more than doubling over the last decade, matching the country's appetite for commodities and raw materials.
The global economic slowdown, however, has led to an oversupply of vessels and low freight rates, forcing Chinese shipping companies to take drastic measures to support their businesses.
China's top shipping conglomerate COSCO Holdings and Grand China Logistics, a unit of HNA Group, halted payments to several foreign ship owners last year to re-negotiate better contract terms.
COSCO has since paid its debts to DryShips Inc and other ship owners, while Grand China still struggles with legal challenges from Greek-based firm Vafias Group.