Why the BHP Billiton Share Price Rallied

What happened to the BHP share price?

Picking a winner in the market has been tough for many investors this year. Even after the Trump-rally, the ASX 200 is barely above where it was trading at the start of 2016.

Yet shareholders in the world’s largest miner, BHP [ASX:BHP], have watched its share price rally upwards of 80% over the same time.

Why did BHP do this?

Coming into 2016, the BHP share price was heavily in decline. It was only two years prior to this that BHP was nudging $40. Yet the collapse of the record-breaking iron ore price, along with the price of oil, saw the share prices drop to just over $14 in mid-January.

But these weren’t BHP’s only problems. The tragic loss of 19 lives in the Samarco disaster, a project BHP jointly owns with Vale, saw the company charged by Brazilian regulators and it forced to make provisions upwards of $3 billion for future reparations.

Another cause for the turnaround in the share price has been BHP’s abandonment of its progressive dividend policy. The policy meant an increase in dividends each year, something the company could no longer afford.

What now for BHP?

A surge in the iron ore price lately has seen BHP and the share price of its rivals Fortescue Metals [ASX:FMG] and Rio Tinto [ASX:RIO] jump as well.

It also looks as though the oil price might finally being be stabilising, after a torrid couple of years. Although, the machinations of OPEC and other oil producers could quickly test whether this price support holds.

Being the world’s largest commodity producer means that BHP’s share price is captive to prevailing prices. Any reversal in these prices could quickly test BHP’s recent momentum.

Matt Hibbard,
Money Morning

Money Morning Australia