By James Regan

SYDNEY (Reuters) - Rio Tinto and BHP Billiton are set to report solid iron ore output growth in the December quarter as they continue to expand mining in Australia, betting any loss in China's appetite for the steelmaking material is only temporary.

Both companies maintain that sales orders to China, the world's top buyer, are showing no signs of weakening despite a slowdown in Chinese steel production.

"Production and earnings are expected to highlight what remains a robust sector, even though economic uncertainties continue to drive near-term sentiment," brokerage Nomura said in a note.

Analysts expect Rio to show a rise of more than 25 percent in iron ore output over the previous quarter when it reports December-quarter production data on Tuesday.

And BHP's December-quarter iron ore yield could be up as much as 23 percent when it reports on Wednesday, they said.

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Coal output from Australia -- the largest source of steel-making coal and also a big supplier of thermal grades for power generation -- remained under par because of flooding in early 2011 that left transport lines and some collieries underwater.

Iron ore should show the biggest gains in the December quarter across both companies' diversified portfolios.

A record 60.9 million tonnes of iron ore was shipped in the December quarter through Australia's Port Hedland, where BHP is the biggest user. In December alone, the port's iron ore shipments climbed 23 percent to 21.4 million tonnes.

The no. 3 iron ore producer behind Brazil's Vale and Rio, BHP has already tipped the market to expect a total output of 159 million tonnes in 2011/12.

Rio expects calendar 2011 output at around 240 million tonnes, which most analysts forecast it will reach, given the strong December-quarter performance from its mines in Australia. Rio also operates a much smaller iron ore business in Canada.

Nomura expects BHP to produce 48.9 million tonnes of iron ore in the December quarter, up from 39.6 million in the previous quarter. It sees Rio's output at 64 million tonnes in the December quarter, versus 49.8 million tonnes previously.

Iron ore was steady at $142.20 a tonne, cost and freight delivered to China, on Friday, holding near the highest level since November, according to the Steel Index.

LONG-TERM OUTPUT TARGETS INTACT

While acknowledging economic clouds gathering over China's industries, in particular steel making, both companies are still likely to maintain their longer-term production forecasts earmarked to bring an additional combined 100 million tonnes of ore to the market by the middle of the decade.

China's steel output in the final 11 days of December was the lowest for all of 2011, according to the China Iron & Steel Association.

Industry analysts suggest Chinese steel producers will continue to suffer from low profitability in the quarter ending March 31, when both mining companies could see even larger yields.

Based on analyst forecasts, Rio is expected to report full-year 2011 earnings before interest and tax (EBIT) of around $23 billion, up from $21.1 billion a year ago. BHP Billiton is tipped to show flat EBIT of $32 billion year-on-year for the 12-month period ending June 30.

Rio's coking coal output could be down as much as 15 percent in the fourth quarter year-on-year given the lengthy recovery period in Australia's Bowen Basin coalfields, where some of the worst flooding on record occurred between January and March.

BHP, which operates the world's biggest coking coal collieries in partnership with Mitsubishi Corp in the basin, is expected to record a more modest decline of around 5 percent in the December quarter, on lingering effects of flooding and sporadic labor disruptions at some mines.

RIO MORE EXPOSED TO ALUMINIUM

The weakening trend in aluminum, which lost nearly a fifth of its value in 2011, holds broader implications for Rio than BHP. Rio became the world's no. 1 supplier of the lightweight metal after buying Alcan in 2007.

"Rio is staring down the barrel of a weakening market for aluminum," said a commodities analyst, who commented on condition of anonymity as he is not authorized to speak about specific companies.

Rio's aluminum production averaged 948,000 tonnes per quarter, or 2.9 million tonnes, over the previous three quarters, suggesting a reduced December quarter would leave full-year production under 2010's total of 3.8 million tonnes.

Credit Suisse on Monday advised clients to expect fourth-quarter aluminum production of 919,000 tonnes.

Last week Alcoa Inc, the largest U.S. producer of aluminum, announced a production cut in response to steep aluminum price falls, slashing annual global smelting capacity by 12 percent.

Prices for aluminum on the London Metal Exchange (LME) of around $2,140 a tonne are well below levels above $2,800 seen last May.

Rio's 175,000-tonnes-per-year Lynemouth aluminum smelter in England is running at a reduced rate after a power cut in December knocked out more than half its capacity

Some in the industry question whether the company will restart the lost capacity, especially after it said in November that it was set to close the Lynemouth smelter as rising energy costs put pressure on margins.

A consultation process on its closure is in progress and due to continue to the end of February.

The company started slashing output at the 438,000-tonnes per-year Alma smelter on January 1 over a labor dispute. The impact of that action will result in lower January-March quarter production figures.

BHP is expected to record aluminum output of just under 300,000 tonnes in the December quarter versus 315,000 tonnes in the prior quarter and 314,000 tonnes a year ago.

COPPER OUTPUT TO RECOVER

BHP's worldwide copper output in the December quarter could recover to the year-ago level of around 300,000 tonnes following the resolution of a July 21-Aug 5 strike at its 57.5 percent-owned Escondida mine in Chile.

BHP's copper output had dropped to 220,000 tonnes in the September-quarter partly due to the strike.

Analysts estimate the strike at Escondida -- the world's largest copper mine -- to have cost BHP more than 40,000 tonnes of copper production.

Rio is also expected to get a boost in copper production from the end to labor troubles at Escondida, where it holds a 30 percent interest.

If Rio's own guidance is met for overall mined copper production of 522,000 tonnes in 2011, then mined production in the December quarter will be up 27 percent from a year earlier, noted UBS analyst Glyn Lawcock.

(Editing by Ed Davies, Himani Sarkar)