News: UPDATE 1-Port Hedland July iron ore shipments to China drop 6 pct from June

• Port Hedland iron ore shipments slip
• Both China and overall shipments down

(Adds figures, inventory data)

SYDNEY, Aug 5 (Reuters) - Iron ore shipments to China from Australia's Port Hedland terminal used by BHP Billiton (BHP) and Fortescue Metals Group (FMG), declined to 32.5 million tonnes in July from a record 34.5 million tonnes in June, port data showed.

Metals traders cited fewer cargoes of stockpiled ore at the world busiest port of its kind for the drop.

Most of the ore both companies mine is sent to China, where higher-grade imports are displacing lower quality domestic ore in Chinese steel mills.

Iron ore stocks at Chinese ports stood at 106.05 million tonnes on July 29, the highest since December 2014, according to data tracked by SteelHome consultancy. SH-TOT-IRONINV

Total iron ore shipments from the Indian Ocean port dropped to 38.7 million tonnes from 41.8 million in June, according to the Pilbara Ports Authority.

BHP expects to lift overall production in Australia in fiscal year 2017 to between 265 million and 275 million tonnes versus 257 million in the year ended June 30, 2016.

BHP, which has completed a massive expansion of its iron ore business to supply the Chinese market, said the planned growth would come from working its mines harder as part of a broader strategy to boost volumes across core commodities.

Fortescue, which saw bumper shipments of 169.4 million tonnes in fiscal year 2016, does not expect this year's figure to exceed 170 million tonnes.

Overall Port Hedland cargoes of iron ore iron should continue to rise in coming months as the new Roy Hill mine developed by Gina Rinehart's Hancock Prospecting ramps up to full operating rates of around 55 million tonnes by the end of 2016.

Rio Tinto, Australia's top exporter of the steelmaking ingredient, does not ship from Port Hedland.