Why the BHP Billiton Limited share price has fallen again today

BHP Billiton Limited’s (ASX: BHP) share price is falling heavily again today after what was a horror night for commodities markets. The shares traded at a low of $18.33, down 2.2% for the day and just 24 cents above their seven-year low price of $18.09.

It is well known that BHP Billiton, and most other companies in the mining sector, have come under considerable earnings pressure recently as a result of crashing commodity prices. Indeed, BHP’s own profit fell more than 80% during the 2015 financial year, while cash flows also experienced significant contraction.

Although BHP Billiton remains well diversified, its two most important commodities, being iron ore and oil, have been hit particularly hard during the recent commodities rut. Overnight, those resources fell another 2.6% and 4.2% respectively.

Unfortunately for BHP Billiton, conditions are only expected to worsen from here. While iron ore is now trading for US$41.13 a tonne, according to the Metal Bulletin, most analysts expect it will fall below US$40 a tonne in the near future. Same goes for Brent oil, which is today worth just US$42.56 a barrel.

As it stands, BHP Billiton’s shares are trading near their lowest price in seven years but on a price-book ratio basis, they’re hovering near their cheapest level in 25 years, according to research from Maple Abbott and reported by the Fairfax press.

While that may be the case there’s every chance the shares could continue to fall – possibly even below $15 a share. This could happen if further declines in commodity prices do eventuate, or if BHP Billiton scraps its so-called ‘progressive dividend’ policy, which it is widely expected to do.

Shares of other miners such as Rio Tinto Limited (ASX: RIO) and South32 Ltd (ASX: S32) have also been sold off today. The duo are down 2.1% and 2.5%, respectively. Considering the risks facing the industry as a whole, investors would be wise to remain on the sidelines for now.


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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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