Where to from here for the BHP Billiton Limited share price?

The BHP Billiton Limited (ASX: BHP) has cracked through the $20 mark again, and shares are up over 1% in lunchtime trading today.

But where is the share price heading now?

Year-to-date the share price is up 13.6%, as commodity prices recovered, particularly iron ore and oil – BHP’s two most important commodities. Peer Rio Tinto Limited (ASX: RIO) has seen its share price rise just 5% since the start of this year.

Iron ore has recovered from trading below US$40 a tonne in December 2015 to trade around US$60 a tonne. In recent days the commodity has dropped to around US$55 a tonne, and the CEO of US iron ore miner Cliffs Natural Resources, Lourenco Goncalves expects prices to remain between US$50 and US$60 a tonne thanks mainly to stable demand from China.

The oil price appears to be stabilising between US$44 and US$50 a barrel too, having recovered from around US$28 a barrel at the start of this year. It is currently trading at US$46.49 a barrel. Despite moves by Saudi Arabia and Russia to stabilise the oil price, most producers seem to be

In more good news for BHP, coal prices have rocketed up. Metallurgical coal prices are up 85% in the past month and Queensland coking coal is now 160% higher that it was at the start of this year, after hitting a record low. The boost appears to have come from falling Chinese output, and an unexpected pickup in demand.

BHP’s other major mineral, copper, is still in the doldrums, trading just above US$2 a pound (lb), and has dropped around 3% in 2016, following a 26% decline in 2015. The metal is often referred to as Dr Copper as it is seen as a barometer of the health of the global economy given its widespread use in transport, electrical systems, manufacturing, construction and consumer products.

According to Reuters, 10 analysts have BHP as a hold, with 8 analysts optimistic about its future and reckon it’s a buy. Just 2 analysts have the shares as a sell. However, that probably says more about broking analysts sticking together than it does about where BHP’s share price will be in 12 months’ time.

Foolish takeaway

I wouldn’t be buying shares in BHP at the current share price – mostly because I have no idea where commodity prices will be in 12 months’ time let alone 5 or 10 years. While some advisors would recommend BHP should be in everybody’s portfolio, I’m not one of them. With many more industrial companies with better prospects to choose from, there’s no need to hold BHP shares.


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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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