BHP Billiton Ltd’s [ASX:BHP] share price has dropped by 2.71% in morning trading, amid a dip in energy commodity prices and concerns over an escalating tariffs battle between the US and China.
The shares of fellow energy darlings Rio Tinto Ltd [ASX:RIO] and South32 Ltd [ASX:S32] have also taken a hit, dropping by over 2% respectively, and pushing the ASX ever lower this morning.
At time of writing, BHP’s share price is sitting at $32.61.
What’s the story?
Upon hearing of US plans to tariff $50 billion of Chinese imports from July 6, China retaliated with its own fierce tariffs over the weekend. Analysts have seen the connection between the escalation and the drop in commodity prices.
Of plummeting prices in oil, gold, silver and copper, Bell Direct equities analyst Julia Lee said ‘It looks like concern around the trade war between the US and China intensifying means that we’re seeing growth being sold off so that’s why the commodities markets are off.’
In response to the US-China trade tensions, oil prices dropped more than US$2 a barrel. Ms Lee also revealed that BHP and Rio were sold off in London after Investec downgraded both stocks to a hold from a buy.
Should we be concerned about BHP?
Though today’s start to the week might be off-putting, CMC chief market strategist Michael McCarthy has said markets are likely to trade cautiously this week because of the trade tensions, despiteencouraging economic data recently.
So, on the whole, it’s not unexpected. Let us also not forget the Escondida mine strike last week, of which BHP had a large stake in.
As for the health of BHP’s stock overall, it was only on Thursday last week that BHP invested US$2.9 billion in iron ore. The Pilbara-based South Flank iron ore project is worth a total of US$3.4 billion. With an 85% stake in the project, this development doesn’t exactly spell out disaster for the mining giant.
BHP has vowed to continue to target a further US$2 billion in productivity gains by the end of the 2019 financial year.
Analysts from the Macquarie equities desk have retained their outperform rating and $36.20 price target on BHP’s shares after approving the South Flank project.
Trade wars can be risky, and it’s worth paying attention to the influence of politics, but we shouldn’t lose sight of bigger opportunities on the horizon.
Editor, Money Morning
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