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Why BHP’s share price hit a 5-year low

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Share price performance

 

The graph above shows that the share price for BHP Billiton (BHP) has reached $27.42. This is the lowest price in five years.

BHP’s peers have also lost significant value since the start of the year:

  • Vale SA (VALE), 44.3%
  • Fortescue Metals Group (FSUGY), 54.6%
  • Cliffs Natural Resources (CLF), 76.5%
  • Rio Tinto (RIO), 15%

It is important to note both BHP’s absolute underperformance and its underperformance relative to its peers. Since August, BHP’s share price has tumbled 27%.

The SPDR S&P Metals & Mining ETF (XME) invests in the metals and mining sector. This ETF has also had a negative return of 18.6% YTD (year-to-date) because of weaknesses in commodity prices.

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Iron ore and oil prices

Weak iron ore and oil prices have contributed to this market decline. Oversupply from major players like BHP, Rio Tinto, and Vale SA (VALE) and weaker than expected demand growth from the largest consumer, China, are explanations that have been circulating in the market for quite some time now. The oversupply and OPEC’s decision not to cut output have sent oil prices into a tizzy. This has taken its toll on BHP’s share price because the company derives close to 22% of its earnings from petroleum products.

In this series, we’ll discuss how BHP’s assets figure into this environment of low commodity prices. We’ll also cover highlights from BHP’s second capital markets day in November. This event took place in Sydney and focused on coal and copper. Before we do those things, let’s take a look at BHP’s business and segments.

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