BHP Billiton Ltd. (BHP) iron ore chief executive Ian Ashby said Wednesday the iron ore industry had "every reason" to be optimistic but retained a cautious stance on the outlook for fundamental, underlying demand in China, the world's largest iron ore consumer.

"We are cautious on China after going through an enormous trough in 2008 when stocks were drawn down. We think restocking has come to an end but we still don't know what the fundamental demand is. We think we'll find out in the second half of the year," Ashby told reporters at the Diggers and Dealers forum.

China has increased its share of seaborne imports after many domestic, smaller mines shut down due to a slump in prices and plummeting freight rates as well as tighter safety standards made imports more competitive.

Imports have swelled to record levels this year, with China importing 279.2 million metric tons of ore in the six months to June 30, up 29% on the same period a year earlier, according to preliminary data from China's General Administration of Customs.

Asked if BHP's business relations with China had changed in light of the arrest of four Rio Tinto PLC (RTP) iron ore executives on suspicion of stealing state secrets, Ashby said: "It is business as usual for us in China. Nothing has changed. There are no changes to our shipping schedule."

Beyond China, long-term fundamentals for the market were solid, based on "one-third of the global population modernizing," said Ashby.

"The world is short iron ore units, and supply hasn't been able to respond as quickly as we would like," he added.

While the short-term market was still impacted by restocking and destocking cycles, BHP's iron ore operations are producing at capacity, he added.

BHP's proposed multibillion iron ore joint venture with Rio Tinto in Australia's Pilbara region was making good progress, and the deal was in the process of moving from a non-binding agreement to a binding contract.

The deal, which BHP believes will reap US$10 billion in synergies, is on track to conclude in mid-2010.

However, clearance by the European Commission competition agency remains a potential stumbling block. Commission concerns over the proposed BHP takeover of Rio Tinto were material in contributing to the breakdown of the merger proposal last year.

"We have engaged the European Commission. We don't know if it (the iron ore JV) will be subject to merger clearance. We're not sure at this stage," said Ashby.

-By Elisabeth Behrmann, Dow Jones Newswires;

612-8272-4689, elisabeth.behrmann@dowjones.com