BHP Billiton said that significant demand contraction has been exacerbated by dramatic movements in inventory levels, in its latest production report.

China’s inventory build is “essentially complete” and North America, Europe and Japan are restocking commodities, BHP Billiton said.

In its production update for the second quarter ended 30 June, the company reported a 10% fall in its iron ore production to 27 million tonnes compared to the same quarter in 2008, due to safety initiatives at its Western Australian operations.

Metallurgical coal production increased by 4% while production of energy coal was down by 5%, due to the planned closure of underground mining operations in South Africa.

Production of manganese ore fell by 73% over the second quarter of 2008 due to production adjustments made because of weak demand, BHP said.

Lower ore grade and reduced output from milling operations in Chile have reduced copper production by 21% to 307,200t year-on-year.

In addition, the company announced that it plans to close its Escondida’s Laguna Seca SAG mill for 45 days in the third quarter of 2009 for maintenance work to make the operations more reliable.

The high margin businesses and strong balance sheet allow the company to invest for the future in these moderate market conditions, BHP said.