Mining heavyweight BHP Billiton Limited (ASX: BHP) somehow managed to survive a heavy sell-off in commodity prices on Tuesday, but hasn't been so lucky today. The shares have shed 2.8% of their market value, compared to a 1.6% decline for the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
BHP is one of many mining stocks falling in value today after iron ore extended its violent slide overnight. Iron ore, which is BHP Billiton's most important commodity, fell below US$50 for the first time since April as it shed 5.1%, giving it a loss of almost 25% since peaking less than one month ago.
BHP Billiton's shares are also being impacted by a fall in the price of copper (which hit a new six-year low overnight, according to the Fairfax press) as a result of the rout in China, together with bearish forecasts for oil prices.
Markets are becoming increasingly concerned about the supply and demand imbalance for oil. A slowdown in China will impact demand, while an increase in the number of rigs drilling for oil in the US, together with a pending nuclear deal with Iran are contributing to the supply-side pressure.
Although some investors might consider BHP to be good value at its current price of $25.51, investors should always remember that BHP is a price taker, not a price maker. That is, it has little control over the price at which it sells its products, meaning that further declines in commodity prices will impact its margins and overall profitability.
With further falls forecast (and likely) investors would be better off remaining on the sidelines and exploring some of the other great opportunities currently on offer.
