Where will BHP Group’s share price go from here?

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Summary

  • The stock of BHP Group (ASX:BHP) has put up a delightful performance in 2021 amid strong base metal and crude oil rally.
  • Alliance Aviation (ASX: AQZ) has extended the air charter services contract of BHP for two more years.
  • An ease in commodities rally and increase in coronavirus cases may serve as potential threats to the company's progress in near future.

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The ASX-listed iron ore miners have benefited from the 2021 iron ore price rally. Cashing in on the same, the world's leading resource company, BHP Group (ASX: BHP) shares witnessed an all-time high during February 2021.

The company announced today that Alliance Aviation Services Limited (ASX: AQZ) has extended the air charter services contract with BHP Western Australia Iron Ore for two years.

The stock of BHP offers impressive 52-week and YTD returns of over 51.5 per cent and ~10.9 per cent (as of 7 April 2021), respectively. The company’s iron ore business was its primary earning driver for FY20, followed by the copper and petroleum streams. The leading markets for the company's business were China, Japan, and South Korea during the past financial year. The underlying return on capital increased from 15.9 per cent in FY19 to 16.9 per cent in FY20.

The primary drivers of BHP rally:

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The late February and March increase in BHP’s stock price was primarily steered by the recent crude oil, iron ore, and copper price rallies.

The production cut decisions by OPEC and faster economic recovery have resulted in crude oil prices bouncing back to the pre-pandemic levels during March. Iron ore prices traded at multi-year highs since the end of December 2020 amid robust demand from the leading steelmaker, China. Copper prices also climbed to 10-year highs during the end of February due to surging demands of the metal for electricity battery storage.

Bulls or Bears for BHP’s Business Streams?

Some market experts believe that an upturn in the US payroll numbers and robust economic growth forecast will pump up the prices of base metals and crude oil. In addition to that, Chile's move to close its international border will also create pressure on the copper's supply side in the shorter term, fuelling the copper prices.

On the flip side, other analysts believe that China's decision to curb carbon emission as a part of the country's goal to become carbon neutral by 2060 will ease the iron ore rally. The country has already banned around seven most polluting steel manufacturing companies in Tangshan last month. However, the prices of iron ore have remained buoyant at US$167.5 per tonne as of 6 April 2021. In addition to that, a recovery in iron ore production in Brazil and the third wave of coronavirus may drive the iron ore and crude oil prices in a downward direction to limit the company's earnings.

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