Iron ore bulls might want to look away following an 18% slide in the BHP Group Ltd (ASX: BHP) share price since its record open of $54.06 on 4 August.
Shares in the iron ore major have tanked to a 7-month low. This is broadly in line with the recent weakness in iron ore prices.
Iron ore spot prices are currently fetching ~US$160/tonne, losing almost a third in value since May record highs of ~US$230/tonne.
While things were going great for the BHP share price during iron ore's ascent to all-time highs, it is now unravelling.
Analysts say pressure will persist for iron ore
China's steel production mandates and commitment to decarbonisation appear to be the main drivers of weakness behind iron ore prices. As a consequence, the BHP share price also has been driven down.
Mining.com quotes Commonwealth Bank commodities analyst Vivek Dhar as saying:
The fall in prices was linked to weaker steel demand conditions in the property and infrastructure sectors in China.
Weaker demand conditions in both these crucial sectors only reaffirmed market anxieties that China's steel output cuts in H2 2021 are inevitable.
Morgan Stanley warned that iron ore could fall further due to China's weak steel demand, according to Mining.com.
Federal Reserve to tighten monetary policy
Another factor weighing on iron ore prices, and consequently the BHP share price, is commentary from the US Federal Reserve.
There are increasing concerns that the Federal Reserve might tighten its accommodative monetary policy stance in the near term.
Its most recent July meeting minutes were released on 18 August. In it, the Fed cited that "several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace…"
These expectations have lifted the US currency, which historically has an inverse relationship with commodity prices.
The value of the US dollar influences commodity prices because the dollar is used as the benchmark pricing mechanism for most commodities. Hence why we refer to iron ore spot prices in US dollars.
As dollar-denominated metals become more expensive, it could be a factor weighing on demand.
BHP share price snapshot
The BHP share price tumbled 6.35% to $44.37 on 19 August. That was the day after the Fed July meeting minutes were released. BHP's market capitalisation is currently $130.81 billion.
