What's happening: Shareholders of BHP Billiton Limited (ASX: BHP) can't seem to catch a break with the miner's shares falling 3.1% to a near six-year low today at $27.09.
Why's it happening: While diversification can protect a miner from a fall in any one commodity, it has little effect when each of the miner's primary commodities are plumbing multi-year lows.
While iron ore and oil account for the greatest portion of BHP's overall earnings, iron ore has halved in price since the beginning of 2014, while oil has fallen nearly 60% since June last year. Of course, the iron ore and oil crises have both been well documented, but the collapsing coal and copper prices have gained far less attention. Overnight, copper fell further below US$6,000 a tonne to its lowest level in more than five years, while coal prices are also crumbling.
What you should do: Investors need to be extremely careful of the resources sector, period. Although BHP Billiton maintains a high level of diversification and low production costs, its overall earnings will still come under significant pressure as a result of the tumbling commodity prices.
The fact is, BHP Billiton, like any other miner, has no control over the price at which it sells its products. With commodity prices tipped to fall even further over the coming 12 months, there is every chance BHP's shares could continue their descent. While it's worthy of a position on your watchlist, investors ought to steer clear for now.
