Mining giant BHP Billiton Limited (ASX: BHP) has been one of the market's standout performers today with its shares lifting almost 3% to trade at $26.64.
BHP Billiton has severely underperformed the broader S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) in recent years as a direct result of crashing commodity prices. As is the case with any mining corporation, BHP has little control over the prices at which it sells the commodities it mines.
The rout has only gotten worse over the last 12 months, over which time iron ore, copper, coal and petroleum prices have all plunged. Notably, they are its four major commodities, with iron ore and oil accounting for the majority of its overall earnings.
BHP's shares looked destined for even further pain as iron ore fell for 10 straight sessions to a new low around US$44 a tonne, but that stretch was broken overnight as the bulls fought back, forcing its price almost 10% higher to US$48.99 a tonne, according to the Metal Bulletin.
A 2.7% lift in the price of oil also provided a level of support as the Chinese government finally managed to gain some control over its free-falling stock market.
Although BHP Billiton remains highly diversified with lower cost operations than most of its competitors, investors need to know that it is still susceptible to negative movements in commodity prices.
Despite last night's sharp rebound, BHP's core commodities are still expected to fall in the medium term, and investors still holding the stock could be left red faced. Sure, it might be better equipped to weather the storm than BC Iron Limited (ASX: BCI), Fortescue Metals Group Limited (ASX: FMG) and even Rio Tinto Limited (ASX: RIO) (thanks to its diversification), but it will still hurt on the way down.
Rather than taking an unnecessary risk on BHP or any of the miners, for that matter, investors would be wise to simply focus their attention on other companies and industries with more favourable economics.
