BHP Billiton Share Price Follows Commodity Prices Down…More Pain to Come?

This morning, BHP Billiton Ltd [ASX:BHP] dropped as much as 1.9%, to $25.62 per share.

Why did the BHP share price drop?

Along with other miners, BHP dropped as commodity prices fell overnight. Adding to that is that some investors might be taking profits before earnings results are released. That way, if any nasty surprises arise, they won’t be on the wrong side of any selloffs.

Despite its daily drop, in the last month, BHP is up 10.27%.

Commodity prices predict the future…

What happens from here will likely depend on what commodity prices do in the future. Below are some median forecasts for four key commodities taken from Bloomberg. Take these forecasts with a grain of salt. The further out the forecasts go, the less likely they are to be accurate.

Source: Bloomberg

By 2020, only crude oil is expected to rise in price substantially. This doesn’t necessarily mean BHP or other miners will be unprofitable. However, if they want to increase profits, they’ll likely need to increase production rather than relying on a rise in commodity prices.

According to analysts, this might be exactly what happens. As reported by The Australian Financial Review:

‘…good news for BHP shareholders, some analysts believe the trend will soon turn, with production growth set to resume over the next 12 months.

Shaw and Partners analyst Peter O’Connor said he was optimistic about BHP’s growth prospects in fiscal 2018 and indeed the next five years.

“BHP has a significant amount of latent capacity in almost every asset that it has,” he said.

“BHP’s copper equivalent growth, all things being equal in fiscal 2018, will be 5 per cent. That is a big year.”


Härje Ronngard,

Junior Analyst, Money Morning

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