Could the BHP Billiton share price fall below $15?

Commodities are tanking and could have further to fall, taking BHP Billiton Limited's (ASX:BHP) share price along for the ride

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The BHP Billiton Limited (ASX: BHP) share price has struggled to recover above $19 today, currently trading at around $18.84, but could it sink further and fall below $15?

If commodity prices continue to head south, then there's every chance BHP's share price could be $14-something or lower.

Commonwealth Bank analyst Andrew Hines has told clients that he values the big miner's shares at $14.80, if "commodities process remain at depressed levels for three years before recovering to mid-cycle levels in 2025."

Hines doesn't think that's the most likely outcome, placing a $20 price target on the company's shares. Most analysts have lowered their price targets in recent times (typically following the price down).

The biggest problem for BHP is that the prices of all its major commodities of iron ore, coal, copper and petroleum have been belted in the past 12-18 months, and we may not be at the bottom yet.

Not only that, but the bottom of the commodities cycle could last many years. Iron ore traded below US$40 a tonne for more than 22 years up until 2007. Metallurgical coal could see depressed prices as demand for iron ore and steel production falls. Given the oversupply of iron ore and even more supply coming online, combined with falling steel demand and production, we are likely to see a glut of iron ore. In October, I suggested we could even see prices of between US$20 and US$30 a tonne.

Thermal coal prices may never recover if renewable energy and other cleaner fuels are adopted on a wider scale. Rio Tinto Limited (ASX: RIO) coal and copper boss Jean-Sebastien Jacques thinks prices might stay depressed for five to seven years.

No matter how far BHP goes in cutting costs out of its business, it's still highly dependent on commodities prices – and all the signs point to lower commodities prices for an extended period of time.

Foolish takeaway

At the end of the day, share prices are driven by earnings and the future outlook for earnings. If BHP can only generate small profits or reports losses, there's every chance we could see the share price sink below $15.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »