On a terrible day for the Australian sharemarket as a whole, mining giant BHP Billiton Limited (ASX: BHP) has been dealt another huge blow with its shares falling 3.2%. That compares to a 2.5% fall for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
BHP Billiton's shares have come under enormous pressure in recent months. While there are huge concerns regarding the strength of the Chinese economy, commodity prices have also crumbled which will squeeze on the resource sector's overall returns. Virtually all commodity producers will be impacted by this, no matter their size or level of diversification.
While today's fall can partially be attributed to the market's general bearishness, it is also the result of a heavy fall in oil prices. As highlighted by CNBC, US oil prices fell roughly 5% on Friday upon fresh concerns regarding global demand for the resource, while some pundits are questioning the economic viability of more than a trillion dollars' worth of current and future energy projects.
While US crude oil is now hovering around the US$45 a barrel mark, some economists believe it could fall as low as US$20 a barrel. That could be catastrophic for high-cost operators in the sector, while it would also put companies like BHP Billiton, Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) under enormous pressure.
Notably, BHP Billiton maintains operations in the iron ore, copper and coal industries as well which diversifies its level of exposure to the oil sector. Unfortunately, all three of these commodities are also under fire and are ultimately impacting the miner's bottom line – its profit.
Although many would argue that now is the time to buy BHP Billiton's shares – particularly thanks to its glorious 7.1% fully franked dividend yield – investors also need to consider the headwinds facing the business itself. With commodity prices considered likely to continue falling and stay low for years, the share price could quite easily fall below its current level, offsetting the potential gains to be made from the tasty dividend.
For the record, I'm avoiding BHP Billiton's shares and am focusing instead on some of the market's other, more attractive alternatives.
