BHP Billiton lifts annual iron ore production guidance

* BHP lifts full-year iron ore guidance by 5 million tonnes

* Says cyclonic weather over last quarter had little impact on mines

* March quarter iron ore output up 1 pct vs Dec quarter (Adds detail on iron ore, copper, oil, copper, quote)

By James Regan

SYDNEY, April 16 (Reuters) - BHP Billiton (NYSE: BBL - news) is lifting its iron ore production this year to capture more of the Chinese market for the steelmaking ingredient, amid strong competition from rivals in Australia and Brazil.

The world's biggest mining company on Wednesday lifted full-year iron ore production guidance by 5 million tonnes to 217 million as it pushes ahead with new mine work in Australia.

That's still behind BHP's Australian rival, Rio Tinto (Xetra: 855018 - news) , which is close to mining 300 million tonnes a year and Rio de Janeiro-based Vale which is targeting annual output of more than 360 million tonnes.

China imports more than a half-billion tonnes of iron ore annually to supplement domestic production of mostly lower-grade ore. China's crude steel production rate of some 2 million tonne a day makes it by far the biggest consumer of iron ore.

Output from BHP's most profitable division rose 1 pct to 49.6 million tonnes in the three months ended March 31 versus the previous quarter, and rose 23 percent against the year-ago period, BHP said in its latest production report.

BHP said the lift in output was helped by a limited impact from cyclonic weather in Australia's Pilbara iron ore belt in January and expansion work underway at the company's new Jimblebar mine.

Rio Tinto this week blamed an 8 percent fall in quarterly iron ore shipments on heavy rains and winds from cyclone Christie that disrupted its transport and shipping operations.

BHP also maintained its full-year copper production guidance at 1.7 million tonnes on a 100 percent basis with joint venture partners, or 1.2 million tonnes for its share.

The company has already said its copper production in the second half would be weighted towards the June 2014 quarter.

The miner also said higher productivity and commissioning of a new mine in Australia's Queensland state had led to an upward revision to fiscal 2014 metallurgical coal production to 43.5 million tonnes.

BHP Managing Director Andrew Mackenzie said capital and exploration spending was on track to fall by 25 percent this year and decline further next year, as the company refocuses on businesses with the greatest profit potential.

"By maintaining strict financial discipline and a focus on our four pillars of iron ore, copper, coal and petroleum, we continue to believe that an average rate of return greater than 20 percent is achievable for our major development options," Mackenzie said in a statement.

The company cut its fiscal 2014 guidance for petroleum products by 5 million barrels to 245 million barrels of oil equivalent, reflecting divestments during the last quarter. (Reporting by James Regan; Editing by Andre Grenon and Ed Davies)