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Shares of BHP Group Ltd (ASX:BHP), a key player in the S&P/ASX 200 Index, are experiencing a downturn today. After closing Friday at $44.39, BHP shares have slipped 1.3% to $43.82 in late morning trade on Monday. This decline sees the mining giant underperforming the broader ASX 200, which is down by a more modest 0.4%. BHP is not alone in this struggle among ASX blue-chip stocks. Fortescue Metals Group Ltd (ASX: FMG) shares have fallen 1.9%, and Rio Tinto Ltd (ASX:RIO) shares are down 1.5%.
Factors Driving the Decline
The primary factor behind the underperformance of these major miners is a 3% drop in the iron ore price over the weekend. Despite defying bearish expectations and climbing in early July, the iron ore price has dipped back to just over US$110 per tonne.
The dip is largely attributed to concerns over China’s sluggish property market, which has yet to show solid growth. Additionally, growing iron ore stockpiles at China’s largest ports have prompted traders to sell off their holdings. Given that iron ore is BHP’s biggest revenue earner, the decline in iron ore prices has directly impacted its share price.
In the half-year to 31 December, BHP reported earnings before interest, taxes, depreciation, and amortisation (EBITDA) of US$9.7 billion from its iron ore division. For FY 2024, BHP estimated it would produce between 254 million and 264.5 million tonnes of iron ore. Therefore, any decrease in demand from China, the world’s largest consumer of iron ore, significantly affects BHP's financial outlook and share price.
Cautious Outlook
BHP has been cautious in its outlook for Chinese demand. In its half-year report released on 20 February, the company acknowledged the volatility in the Chinese economy since the easing of the zero-COVID policy in December 2022. The report stated:
"The Chinese economy has been volatile since the zero-COVID policy was eased in December 2022… Throughout the year authorities have acknowledged that additional policies will be needed to support China’s economic recovery. For the balance of FY24 and into FY25, the key question remains how effective the policy push will be. Until we see greater coherence between the policies and their effective implementation, our outlook will remain cautious and conditional."
Performance Summary
With today’s intraday moves factored in, BHP's share price is down 13% in 2024 but remains up 3% over the past 12 months. The miner continues to navigate the challenges posed by fluctuating commodity prices and economic conditions, particularly in China.
Investors will be closely watching for any signs of recovery in China's property market and subsequent demand for iron ore, which could potentially reverse the current downtrend in BHP’s share price.
