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, stabilization, he said.

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

BHP said demand in China and India had returned earlier than many had expected, driven mainly by restocking, but it noted the rebuilding of stocks in China was now largely over. It also left a question mark over signs of a pickup in developed markets.

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.

Despite 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. 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 top buyer of iron ore, the biggest earner for BHP and rival Rio Tinto Ltd/Plc .

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.

Last year, European Union competition regulators raised concerns about BHP's planned takeover of Rio Tinto, a deal that BHP ultimately dropped as commodity prices plunged.

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, 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.

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.

Rio is due to report its results on August 20.

(Additional reporting by James Regan; Editing by Mark Bendeich & Ian Geoghegan)