4 reasons why BHP Billiton Limited has plummeted today

Could today’s drop be just the beginning…?

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Aussie mining giant BHP Billiton Limited (ASX: BHP) has plunged in this morning’s session with its shares trading down 68c or 1.84% at $36.33. The shares have fallen heavier than shares of rivals Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) and have acted as a heavy drag on the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).

Here are four reasons the shares are biting the dust today…

  1. On Friday, the iron ore price fell to its lowest level in 20 months at US$91.80 a tonne. While BHP is still making a solid profit on its operations at this price, its margins will certainly come under pressure.
  2. To make matters worse, the price is expected to continue plunging further towards just US$80 a tonne. The likelihood of the price slipping that extensively is largely being exacerbated by the enormous increase in production by Australian and Brazilian miners, which is coinciding with slowing demand growth.
  3. BHP’s shares plunged 3.7% on the London Stock Exchange on Friday, providing a very weak lead into today’s trading session.
  4. While BHP Billiton maintains far more diversified operations than its competitors, its shares haven’t fallen anywhere near as heavily as its competitors since the beginning of the year. Thus, investors may be selling their shares out of fear of them dropping any further. Following today’s sell-off, BHP’s shares are down 4.4% so far in 2014 while Rio Tinto’s and Fortescue’s are down 13.9% and 25.5% respectively.

3 potentially safer alternatives than BHP Billiton

Although BHP Billiton maintains heavily diversified operations, I still think the volatility that continues to engulf the iron ore industry makes it an unappealing investment prospect today. In the meantime, there are plenty of great opportunities presenting themselves in other sectors (and they could reap far greater returns too)…

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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