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BHP Group Ltd (ASX: BHP) shares experienced a decline on Friday, despite the absence of market-sensitive news from the company. At the time of writing, shares were trading at AU$44.26, down 1.13% from the open. This marks a continuation of a broader trend, with BHP shares having slid over 11% year-to-date.
Iron Ore Price Volatility
One of the primary factors behind the dip in BHP shares is the volatility in iron ore prices. Iron ore, BHP's main revenue driver, has seen significant price fluctuations in recent months. The price per tonne dropped from US$117 at the end of May to US$106 in June, influenced by economic weakness in China and rising inventories. As of now, iron ore is trading at US$113 per tonne, down from its peak of US$144 per tonne in January.
Citi analysts have warned that iron ore prices are likely to remain volatile, particularly ahead of China's Third Plenum meeting. The firm forecasts that prices could fall below US$100 per tonne in the coming months, maintaining a price target of US$95 per tonne. Despite a recent rally in iron ore futures, onshore steel demand in China has remained flat, and construction and infrastructure activity has slowed due to adverse weather and the typical summer slowdown.
Impact on BHP Shares
BHP shares have faced headwinds in FY24 due to the retracement in iron ore and copper prices. Copper, BHP's second-largest revenue earner, has also seen price declines in 2024. The increased steel and iron ore inventories in China, coupled with high port inventories, suggest that steel mills might reduce output, further impacting iron ore demand.
Analyst Recommendations
Despite the recent price declines, BHP continues to receive favorable ratings from analysts. Morgans, for instance, highlighted BHP's strong free cash flow generation, which supports substantial dividend payments. Morgans maintains a buy rating with a price target of $48.30 for BHP shares. They forecast fully franked dividends of approximately $2.42 per share for FY24 and $2.17 per share for FY25, translating to yields of 5.4% and 4.9%, respectively, at the current share price.
Legal Challenges
In addition to market challenges, BHP is also dealing with legal action from the Mining and Energy Union (MEU). The MEU has filed applications with the Fair Work Commission seeking pay increases for 1,700 labor-hire workers at BHP's Peak Downs, Saraji, and Goonyella Riverside coal mines. This legal action adds another layer of complexity to BHP's operational and financial outlook.
