BHP Share Price Down on China Worries

At time of writing, BHP Billiton Limited [ASX:BHP] is down 0.7%, along with other major miners, Rio Tinto Limited [ASX:RIO], South32 Limited [ASX:S32] and Fortescue Metals Group Limited [ASX:FMG].

Of these, Rio Tinto is down the most at 1.5%, and trading at $77.24.

These price movements can be traced back to two related things — iron ore prices and cooling Chinese growth.

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Iron ore prices affecting BHP’s bottom line

Iron ore prices have fallen since last Friday, dragging the major miners down with it.

The primary factor behind iron ore’s slide is slowing Chinese growth — a fact that is underpinned by recent weak Chinese retail sales.

Stronger than expected industrial output numbers were not enough to sway investors’ opinions about Chinese growth as the output is largely a reflection of the rush to export products before US President Donald Trump imposes new tariffs.

Industrial output has been slipping for some time now, as seen in the graph below:

Source: Reuters

Additionally, since China is experiencing some of the weakest growth since the GFC, the government is rapidly pushing through new policies to prop up a wavering economy.

These policies include tax cuts, infrastructure projects and new rules forcing banks to increase lending.

But this may not stop GDP growth from dipping below 6.5% in the fourth quarter.

PMI data is also weakening, as you can see below:

Source: Reuters

Where does this leave BHP’s share price in the coming months?

It is possible that in the coming months, major Chinese infrastructure projects could drive the price of iron ore higher, bringing BHP’s share price higher with it.

It also worth noting that winter is approaching and China may cut steel production to curb pollution, driving iron ore prices down.

Eventually, the Chinese government may need to make a difficult decision about which of these two options it prefers.

The two are in many ways mutually exclusive.

Regards,

Lachlann Tierney,
For Markets & Money

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