Why is BHP’s share price continuing to fall?
Shares in the mining giant continue to fall, so what should investors do?
Shares in iron ore miner BHP have slid in early trading on Wednesday following further downgrades on the price of iron ore.
Following a tumultuous month for the mining giant, BHP has now seen its shares fall nearly 20% over the last month and by more than 30% in just 2 months.
At the time of writing, the stock had regressed 2.4% in early morning trading.
Why are BHP shares sliding?
The shares in the mining giant have continued their regression, following the price of iron ore falling from near record highs.
Shares in mining companies often mirror the prices of the commodities which they produce.
With demand for Australian iron ore collapsing, the price of BHP has crumbled with it.
What is driving the price of iron ore down?
A combination of regulation changes from Beijing to cap steel output as well as the Evergrande saga has seen iron ore prices plummet.
The price of iron ore peaked at record highs of $233 on 12 May, but since then the price has fallen off a cliff.
Following a slight rebound on Monday, the price of iron ore is down again today falling by US$6.30 or 5.3% to US$112.35 per tonne.
As such BHP’s share price has fallen in the early morning trading.
However, BHP was not alone in the market pullback.
The materials sector was down 1.9% as iron ore miners were hit by another drop in the bulk commodity’s price.
Mineral Resources declined 4.6% to $43.79, Fortescue Metals fell by 1.8% to $14.61 and BlueScope Steel tumbled 6.2% to $19.65.
Buying opportunity for investors?
Despite the demand for iron ore falling, AMP Capital’s chief economist Dr Shane Oliver recently told Finder that the price of mining stocks remain relatively low.
He highlights that the price of iron ore was always going to "fall back to earth sooner or later".
“The iron ore price has fallen from levels no one ever thought it would get to and is still very high and well in its marginal cost of production (which is around US$14 to US$30 a tonne,” he said
Following the pull back, shares in the miners remain low on a relative price to earnings (P/E) ratio.
“They were already cheap – trading on 8x forward earnings at the end of August, so after 30-40% falls they are now very cheap,” Dr Oliver said.
Considering investing in BHP shares?
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