Shares of mining giant BHP Group Ltd [ASX:BHP] closed down by 1.77% in yesterday’s trading.
This seems a little surprising considering iron ore recently hit a multi-year high, with prices at nearly US$130 a tonne last week.
BHP is a natural resources company that produces and extracts gas, oil and minerals. The Australian company is one of the world’s leading major commodities producers, with a market cap of $121.63 billion. Iron ore makes up a significant part of BHP’s activities.
Resource sector aside, it seems that the Australian share market has not been able to continue its building momentum from last week with the ASX dropping almost 1% (6,686.2 points) according to Yahoo Finance.
What’s caused BHP’s Share Price to fall?
BHP’s fall could be partly due to a statement made by a Chinese official Friday afternoon, confirming plans of cracking down on the excessive costs of the steel-making ingredient.
Given the fact that China is the world’s biggest steel producer, it was inevitable that there would be ripple effects from the inquiry, hitting not only BHP but also Rio Tinto [ASX:RIO], whose share price fell 0.50%. Both Aussie companies produce a lot of iron for the world market and China is one country with high demand for it.
Deputy chair of China’s Iron and Steel association, Qu Xiuli, stated on Friday that related sections were examining the latest increase in the iron ore prices.‘The drop in steel prices and the rise in iron ore prices have meant that the level of [Chinese] steel company profits has continuously declined and become hard for companies to digest,’
Is investing in BHP a good idea?
BHP is a blue chip company, which many investors see as a ‘safe’ investment. However this idea of being ‘safe’ does not guarantee anything.
The fact that it’s a resource company could be attractive to investors, as the need for iron ore likely won’t change in the near future.
With everything that has gone on, it may be wise to sit back and follow the share price alongside China’s movements and announcements, before making a move to add this company to your portfolio.
Investors should hope this situation with China doesn’t continue to affect the BHP share price!
For Money Morning
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