The BHP Group Ltd (ASX: BHP) share price is down 4.8%, year to date, but I think it's well-placed to climb higher in 2020.
Why the BHP share price could be set to surge
I think there are a couple of things to consider for BHP. One is the strong demand drivers that I'm seeing in the economy right now.
The coronavirus pandemic has stunted global economic growth and spooked investors. However, governments will be looking to stimulate their economies with whatever they can, and one obvious candidate is infrastructure. That's good news for BHP as a major global supplier of iron ore.
There's also the relative value argument. The BHP share price has fallen 4.8% but is still outperforming the S&P/ASX 200 Index (ASX: XJO). However, fellow iron ore miner Fortescue Metals Group Limited (ASX: FMG) has seen its shares rocket 43.9% higher this year.
It's true that Fortescue trades at a lower price to earnings (P/E) ratio than BHP. However, if we continue to see strong demand, I think the BHP share price could benefit from rising iron ore prices and the momentum factor.
Why is infrastructure good for BHP?
Infrastructure is a good fiscal stimulator given the size, value and timeline of these projects. Major roadworks, buildings, railworks projects and the like can go for years. That means plenty of money to flow through to contractors and employees, as well as downstream suppliers.
The resource-intensive nature also makes any infrastructure boom good news for the BHP share price. More infrastructure means more demand for steel, driving up iron ore demand and therefore prices.
Does that mean BHP is in the buy zone?
I think a strong blue-chip like BHP is often quite a good option for portfolios, however, the Resources sector is notoriously volatile and ultimately dependent on global commodity prices.
The BHP share price is still down in 2020, while Fortescue shares are rocketing higher and the ASX 200 looks to be moving sideways right now.
I think as governments start to plot a path towards economic recovery, we could see the BHP share price start to climb. That's particularly the case if we see a decent earnings result from the Aussie miner on 18 August.
