Strong demand from China and a recovery in iron ore production at its principal Australian mine, led Rio Tinto on Thursday to nudge its full-year production forecasts upwards.

“In the first quarter, most of our operations continued to run at capacity,” said Tom Albanese, chief executive of Rio Tinto.

“Chinese demand grew strongly and we saw some recovery in OECD markets, but we are still cautious about short-term volatility. The long-term outlook remains very strong and we are now ramping up our growth projects with sustained investment in our iron ore business and the start of development of Oyu Tolgoi [in Mongolia].”

Shares in Rio Tinto fell 0.5 per cent or 21.23p to £39.38 in early trading.

In the first quarter of 2010, iron ore production rose by 39 per cent compared with the previous year to 43m tonnes. However, the group faced an untypical comparator, given that production in the first quarter of 2009 was affected by two separate shutdowns in operations of a fortnight each at the Pilbara mine in Australia due to heavy rains.

Rio Tinto is now targeting production of 234m tonnes of iron ore from its Canadian and Australian mines, slightly ahead of the 230m tonnes the company forecast in January. This would mark a 7 per cent increase on 2009, when the company produced 217m tonnes of iron ore.

Last week, Rio Tinto decided to follow its competitors Vale and BHP Billiton and scrap the 40-year old annual negotiations of iron ore prices with steelmakers, and instead shift to quarterly contracts.

However, production did not increase for all metal ores. Mined copper production fell 16 per cent due to lower-quality copper ore coming from two mines in Indonesia and the US.

Following agreement with the Mongolian government last month, Rio Tinto will begin development of a joint copper and gold mine at Oyu Tolgoi, with production expected to begin in 2013.

Production of the aluminium ore bauxite rose 18 per cent compared with the first quarter last year, while production of other aluminium ores remained unchanged from last year.

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