BHP Billiton Ltd/Plc , the world's largest miner, gave a guarded outlook for global commodity demand, sending a worrying signal for weaker rivals, after a slump in metals prices triggered its first profit decline in seven years.

While the mining sector has suffered from the global economic slump, forcing companies to idle capacity and delay expansion projects, BHP is seen well positioned with a strong balance sheet to take advantage of any upturn.

Chief Executive Marius Kloppers said the last 12 months were the toughest he'd seen, and it would be hard to tell whether real demand has recovered until next year.

Over a 12-month period, we went from a situation where rampant demand couldn't be satisfied to where demand simply evaporated and, lately, stabilisation, he said.

It'll be 2010 before we see a clean set of underlying demand figures, without all these stocking movements.

While demand in developed markets remains constrained, a brighter outlook has emerged recently from some of the developing markets, it said. After intensive destocking, there is emerging evidence of demand improving in North America, Europe and Japan.

In spite of a year that saw massive writedowns on nickel plants, the result beat market forecasts as base metals earnings were not as weak as expected and cashflow was strong.

The shares were up 0.3 percent at 1,532 pence by 1150 GMT (7:50 a.m. EDT) in London, compared with a 0.8 percent gain in the UK mining index <.FTNMX1770>, after closing up 1.0 percent in Australia.

These results were generally better than expected... though the cautious statement may deter some of the enthusiasm, said ING analyst Nick Hatch.

The company is the low risk alternative for investors looking to take a position in the diversified mining sector, he said, citing BHP's strong balance sheet, its ability to raise its dividend and its commodity and geographical diversification.

Fund managers said they expected to see some forecasts raised.

The scale and financial clout BHP enjoys over its peer group is clearly evident when you compare its result to that of its smaller rival Xstrata , said Cameron Peacock, market analyst with IG Markets.

China is the key to any early recovery for Australian miners, as it is the biggest buyer of iron ore, the largest earner for BHP and rival Rio Tinto Ltd/Plc .

However, China's detention of four Rio Tinto staff last month and their formal arrest on Wednesday has raised concerns about doing business in China, strained ties with Australia and overshadowed 2009 iron ore price talks.

We are basically selling all of the product that we can produce, said Kloppers at a presentation in London in response to a question about the arrests.

Obviously I would have liked to have had a benchmark settled by now, he said, referring to the annual price talks, but added that a lack of agreement has not impeded the company's ability to price and ship iron ore.

To beef up their operations and save up to $10 billion, Rio and BHP, the world's second- and third-largest iron ore miners after Brazil's Vale SA , plan to combine their iron ore production in a joint venture in Western Australia.

BHP's January-June net profit before one-offs fell to $4.59 billion from $9.37 billion, but came in ahead of analysts' forecasts for around $4.1 billion.

That headline number is going to cause some upgrades in the market place, said Adam Dixon, portfolio manager at Ausbil Dexia in Sydney.

BHP reported losses of $4.8 billion, largely on the suspension of its Ravensthorpe nickel operation and the sale of its Yabulu nickel refinery. The losses dragged down annual net profit to $5.88 billion.

It held its final dividend steady at 41 cents a share, but the full-year payout was up 17 percent.

Full-year iron ore earnings rose by more than a third to $6.2 billion, but base metals earnings plunged 84 percent to $1.29 billion. Full-year earnings from petroleum fell 26 percent.

BHP Billiton beat our forecasts by cutting costs - particularly in petroleum and iron ore, said Charles Kernot, analyst at Evolution Securities.

Rio is due to report its results on August 20.

Rio doesn't have the petroleum division or the bigger coal division -- something which was an insurance policy for BHP and got them through the economic decline when base metals and aluminum got shot to pieces. So it should be interesting to see how Rio goes, said James Wilson, mining analyst at DJ Carmichael & Co in Perth.

(Additional reporting by James Regan; Editing by Valerie Lee, Mark Bendeich and Simon Jessop)