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Why the BHP share price is on fire

The BHP Group Ltd (ASX: BHP) share price is up 22% over the past year while the miner has also paid out around $3.10 per share in dividends over the past 12 months to take total returns to around 35% for investors.

This is likely to especially please BHP’s army of SMSF investors who like the miner due to its market-leading nature, scale and true blue Australian reputation.

The other factor supporting the BHP share price rise recently has been the rising iron ore price as investors price in potential supply cuts after another iron ore mining disaster at the hands of Brazilian miner Vale S.A. that has resulted in the deaths of around 300 people according to a Reuters news report.

As a result of the fallout from the catastrophe iron ore prices have jumped to two-year highs with some analysts reportedly expecting the iron ore price to break US$100 a tonne due to the supply shock out of Brazil.

In effect this would be a return to ‘boom time’ prices last hit in the midst of China’s once-in-a-generation construction super-cycle that caused demand for the core steel-making ingredient of iron ore to rocket.

Over the short-term then the BHP share price and that of other producers like Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) could head higher, however, over the long term share prices could head either way.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. 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 Scott Phillips.

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