The BHP Group Ltd (ASX: BHP) share price is under scrutiny as China adds more steel production curbs.
What’s happening to the BHP share price?
Before today’s trading, BHP shares had fallen 8% in September and almost 19% over the past month. Some of that can be explained by the resources giant going ex dividend, but since 4 August 2021 it has fallen 22%.
It’s been a wild ride for the iron ore price over the last few months. I don’t think anyone would have reasonably expected the iron price to reach US$230 per tonne. The strong iron ore price helped the FY21 result. But yesterday, the price had fallen to US$132. That’s almost US$100 per tonne!
Most commodities are at mercy to the relationship between supply and demand. Brazilian demand is reportedly rising, whilst Chinese demand is falling.
China looks to cut steel production
The economic superpower is trying to reduce its steel production, according to reporting by the Australian Financial Review. It was reported that the Chinese city of Handan is the latest place to try to slow down steel output. The official reason is that these curbs are aimed to reduce carbon emissions for environmental purposes.
The AFR said that this will close some furnaces until the end of October and lower its steel output by around 10%.
National Australia Bank Ltd (ASX: NAB) research shows that there have been reductions in the provinces of Shandong, Guangxi, Xinjiang and Sichuan as well as three others in the north east.
What to make of the BHP share price?
BHP can’t do much about the resources price. All it can do is change its production.
It seems like the best days are over for iron ore in this cycle. But, there was a bottom five years ago and it could rise again in the future – you’d need a crystal ball to know that though. Pleasingly, overnight the iron ore price 4% to US$138 per tonne.
Thankfully, BHP has a diversified portfolio of commodities. It’s divesting oil to Woodside Petroleum Limited (ASX: WPL), but it still has coal, copper, nickel and potash as other parts of the business to hopefully help stabilise and grow earnings over time.
I think the wisest time to consider a commodity business is when that resource is down a lot. Iron ore could go below US$100 per tonne, so I’m personally waiting for that before considering BHP or any of the other iron ore giants like Rio Tinto Limited (ASX: RIO).
