MELBOURNE (Reuters) - BHP Billiton Ltd cut its 2018 fiscal year iron ore output guidance on Thursday citing issues in its railroad car unloading system, while also slightly raising its copper output expectations given higher production at the Escondida mine.

The miner cut projections for fiscal 2018 iron ore production by 2 percent to between 272-274 million tonnes of iron ore from 275-280 million tonnes due to "car dumper reliability issues."

A car dumper is a machine that unloads bulk cargoes from rail road cars.

Overall, the outcome of the global miner's third quarter production was balanced as lower iron ore output and eased guidance should be broadly offset by a slight pick up in third quarter copper production and upgraded guidance, said Sydney-based brokerage Shaw and Partners in a report.

BHP narrowed its full-year copper guidance to 1.70-1.785 million tonnes from the earlier range of 1.655-1.790 million tonnes, as production at the world's biggest copper mine Escondida surged by 64 percent.

Given a boom in commodity prices, BHP is also looking at a significant uplift to earnings, the broker noted.

"The latest mark to market for BHP using spot forex and commodity prices – points to 20-30 percent earnings uplift," it said.

BHP shares rallied 3.1 percent on the Australian stock exchange on Thursday, in line with a broad rally across the mining sector after Russia sanctions disrupted the global aluminium supply chain and lit a fire under producers, particularly those making nickel, aluminium, alumina.

"The 2018 March quarterly result was softer than our estimates across the board, with the exception of the copper group, where Escondida performed solidly and improved utilization rates at Pampa Norte offset a slower than expected ramp-up at Escondida," said RBC analyst Paul Hissey in a report.

"We view BHP as fair value, and view the stock as on par with RIO," he said.

BHP said its copper production target was affected by a "slower than planned" ramp-up in production during the March quarter at its Olympic Dam facility in South Australia.

BHP's iron ore output rose to 67 million tonnes in the three months ended March 31, compared with 62 million tonnes a year ago.

BHP also noted that it had approval from regulators to increase capacity at its Port Hedland operations to 290 million tonnes of iron ore per annum which it intends to reach by the end of fiscal 2019, it said.

"BHP remains on track to achieve six per cent volume growth for the 2018 financial year," BHP Chief Executive Andrew Mackenzie said in the group’s quarterly operations review.

The miner said its decision to exit its underperforming U.S. shale oil and gas business last year was going as planned.

BHP reiterated it expected bids by June 2018 and added that transactions could be announced in the first half of the 2019 financial year.

Sky News last month reported Royal Dutch Shell Plc and U.S. private equity firm Blackstone Group LP were working on a joint $10 billion (£7 billion) bid for BHP's U.S. shale assets.

(Additional reporting by Rushil Dutta in Bengaluru; Editing by Tom Brown and Darren Schuettler)

By Melanie Burton

Stocks treated in this article : Blackstone Group LP, BHP Billiton Plc, BHP Billiton Limited