Rio Tinto Ltd/Plc's first-quarter aluminum output fell a steeper-than-expected 6 percent, iron ore production was down 15 percent while refined copper rose 33 percent as the firm struggled to balance supply with global demand.

Rio said it hoped to see a demand revival for iron ore in the second half of the year on the back of a recovery in China, expectations of which have already sent copper prices surging 50 percent this year.

We were expecting it to be soft but it was softer than we thought, UBS mining analyst Glyn Lawcock said.

Obviously some of the curtailments that they have announced have come through quite quickly so all divisions were a little bit weaker than we thought except for copper and iron ore, he said.

Rio shares in London , which have shot up 63 percent so far this year, fell 4.36 percent to 2,391 pence, underperforming a 3.2 percent decline in the UK mining index <.FTNMX1770> as copper prices fell. In Sydney the shares closed up 1.1 percent.

After being a strong performer in recent weeks we would not be surprised to see some profit-taking in the market, said analyst Nick Hatch at ING in London.

He said investors might also be disappointed that Rio failed to say much about its plan to sell minority asset stakes and more equity to state-owned Chinese aluminum group Chinalco -- already its biggest shareholder -- to raise $19.5 billion to help cover a punishing debt load.

Chief Executive Tom Albanese reiterated Rio's commitment to the Chinalco deal, which is due to be a focus of Rio's annual general meeting in London on Wednesday.

The deal has sparked opposition from some shareholders who want to participate in Rio's fundraising and Australian politicians worried about Chinese influence in a key sector.

Rio Tinto is the world's top aluminum maker since buying Canada's Alcan but the November 2007 takeover saddled the group with $39 billion in debt.

Rio Tinto's financing arm, Rio Tinto Finance (USA) Ltd, did see very strong demand for its $3.5 billion sale of five-year and 10-year notes earlier on Tuesday.

Both tranches of the deal priced at the high end of expectations and the order book ended up at $15 billion with around 1,000 investors interested in the offering, according to IFR, a Thomson Reuters service.

DEPRESSED ALUMINUM PRICES

Rio's weaker aluminum output reflected supply cuts, but those along with similar moves by rivals have done little to bolster depressed prices, which have hovered around five-year lows since late last year as demand wanes for the lightweight metal, used in everything from jets to beer cans.

Aluminum demand is expected to shrink sharply this year due to the global economic slowdown, leaving the market with a bigger surplus than was forecast in January, a Reuters survey showed on Tuesday.

Since the Alcan acquisition, aluminum prices have dropped more than $1,000 to around $1,500 a tonne.

Over the quarter, a steady performance at Rio's Canadian smelters was outweighed by production cutbacks in operations in Europe and at a smelter in New Zealand, the company said.

Production of raw materials to make aluminum also declined. Alumina fell 2 percent to 2.18 million tonnes and bauxite fell 19 percent to 6.97 million tonnes.

Albanese said the timing for any economic recovery was unknown, though he held out hope that China's steel mills at least -- big buyers of the company's iron ore -- could see improvements later this year.

This was keeping intact Rio's plans to boost iron ore output to 200 million tonnes, from 175 million last year, Albanese said.

First quarter iron ore shipments from the company's main Pilbara mines were slowed by 9 percent due to flooding in the region over the period, which is the height of the cyclone season, the company said.

Rio supplies more iron ore to China than close rival BHP Billiton Ltd/Plc , which reports its quarterly production on April 22. Both companies are locked in 2009 price negotiations with the mills.

DJ Carmichael & Co mining analyst James Wilson expects Rio to accept a 25-30 percent price drop from the mills.

Our estimate is based on the fact that Chinese internal iron ore production is a certain cost and difference between that and the current price is about 29 percent, he said.

Richer ore grades at the company's Kennecott and Escondida mines boosted refined copper production to 104,300 tonnes while mined copper rose 9 percent to 196,000 tonnes thanks to improvements at Kennecott and the Grasberg mine in Indonesia.

(Additional reporting by Bruce Hextall and Eric Onstad in London; Editing by David Cowell and Richard Hubbard)

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