UPDATE 1-Rio sees China demand pick-up, defends Chinalco deal

Australian iron ore producers are taking advantage of mine closures in China and lower spot prices to ship more ore to its biggest market, Rio Tinto (RIO.AX) said on Tuesday, saying its mines were running "flat out".

But the top-three iron ore producer said its major growth projects were still either shelved or just "ticking over", suggesting it was not yet ready to rekindle its long-term plan to expand annual output by 45 percent to 320 million tonnes.

"Our long-term confidence remains despite the short-term shocks of the recent past," Rio Tinto's iron ore chief, Sam Walsh, told a mining conference.

China imported a record 57 million tonnes of iron ore in April, an all-time high, up 9 percent from the previous month and 33 percent greater than last April, official data showed.

The figure surprised industry analysts and came as major producers Rio Tinto, BHP Billiton (BHP.AX) (BLT.L) and Brazil's Vale (VALE5.SA) are locked in tense price negotiations with Chinese, Japanese and South Korean steel-makers.

Walsh also defended the principle behind Rio Tinto's planned $19.5 billion tie-up with state-owned Chinese aluminium-maker Chinalco, which faces opposition from some major shareholders on financial grounds and some politicians on national-interest grounds.

Under the deal announced in February, Chinalco would take direct minority stakes in some Rio mining assets, including Australian iron ore mines, as well as buying convertible notes that could double its equity stake to 18 percent.

Walsh attacked those who argue that China, as a major customer of Australian commodities, should not be allowed to take major equity stakes in Australian producers. He cited examples of where both Japanese and Chinese customers had helped to develop Australia's resources industry without conflicts of interest.

"It beggars belief that anybody can now object to this in 2009, on the basis of some principle entirely new to this industry," he said.

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