* BHP says China commodities demand surges in Dec qtr
* But warns removal of stimulus could slow recovery
* Mine accident, strike, hits copper at time of high prices
* here (Adds details, analyst quotes)
By James Regan
SYDNEY, Jan 20 (Reuters) - BHP Billiton (BHP.AX: Quote, Profile, Research), the world's largest miner, on Wednesday gave its most upbeat outlook for commodities since the global downturn, reporting record iron ore shipments and setting the stage for higher metal prices in 2010.
The company highlighted hefty price recoveries across key commodities, from iron ore and copper to aluminium and nickel, in the December quarter, led by strong sales to China as well as inventory rebuilding in developed economies.
The firm added a note of caution, saying commodity prices could remain volatile in the near term as rich economies withdrew stimulus funding, but analysts called it a strong showing, underlining their forecasts for a further run-up in prices.
"It's an impressive production scorecard," Bank of America Merrill Lynch said in a client note.
BHP Billiton's production of iron ore, the main material used to manufacture steel, leapt 11 percent in the quarter from a year earlier, mirroring strong production data from rivals Rio Tinto (RIO.AX: Quote, Profile, Research) (RIO.L: Quote, Profile, Research) and Vale (VALE5.SA: Quote, Profile, Research). BHP Billiton is third-largest of the three major producers.
The surging demand for iron ore, especially from China, is encouraging producers to make more sales onto the spot market, where buyers are willing to pay twice the price paid under long-term contracts that have traditionally governed the market.
IRON ORE PRICES
Contract iron ore prices under negotiation with steel mills are forecast by analysts to rise by as much as 40 percent this year after recoiling in 2009/10, as steelmakers ramp up production and miners struggle to keep pace.
For the half-year ended December, BHP said 46 percent of its Australian iron ore shipments were sold on shorter-term reference pricing, or spot, versus only 30 percent in the previous half.
This highlights a trend across the industry as Chinese steelmakers raise production and could weaken the hand of steel mills negotiating 2010/11 benchmark contracts.
India sold almost 100 million tonnes of ore to China on a spot basis last year, or about two-thirds of BHP Billiton's total projected output for 2010.
Spot prices are just above $129 C.I.F (Cost, Insurance and Freight), according to the Steel Index .IO62-CNI=SI against contract prices valid until March 31 of around $60 a tonne.
COPPER
Copper output, as expected, fell 11 percent in the December quarter after an accident at BHP's Olympic Dam mine in Australia.
Olympic Dam has run at a quarter of capacity since the accident in October, which led to the closure of its main haulage shaft. The mine lost 20,000 tonnes production in the December quarter. It is scheduled to return to normal by the end of March.
Industrial action at the company's Spence mine in Chile cut production by a further 28,000 tonnes.
Copper prices MCU3 have risen over 130 percent in the last year. Some analysts are projecting a supply deficit later in 2010, aggravated by the production shortfalls in Australia and Chile and only partially offset by higher output from BHP's majority-owned Escondida mine.
Nickel production rose 20 percent, owing to a stronger output at BHP's Australian mines, lifting its exposure to rising prices in the sector despite a growing global supply surplus.
London Metal Exchange nickel MNI3 is fetching about $19,300 per tonne versus $13,000 a year ago.
BHP firmed more than 1 percent after the production report before easing to stand at A$43.57, up 0.6 percent, by 0214 GMT, outperforming the wider market.
Coking and thermal coal and uranium each showed marginal year-on-year declines.
"All in all, Rio packed a bigger punch but came from a lower base than BHP, which weathered the global financial crisis a lot better," said DJ Carmichael & Co mining analyst James Wilson.
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