The BHP Group Ltd (ASX: BHP) share price has been impacted over the course of the first quarter of FY22. Its shares have shed more than 25% in value, leaving investors concerned about the next price action for iron ore.
At the closing bell on Wednesday, BHP shares further added to their losses, registering a drop of 1.03% to $37.59.
What happened to BHP?
It's no surprise the plunging spot price of iron ore has had a detrimental effect on the miner's shares.
In May, the steel-making ingredient reached an all-time high of US$229.50 per tonne. BHP shares accelerated on the back of bumper revenues over the period.
However, a slowdown in Chinese demand amid political pressure has led iron ore prices to tumble in recent months. Currently, iron ore is fetching US$126.42, a mammoth 40% decline since the beginning of July (Q1 FY22).
As Australia's rift grows with China, its central government introduced new caps for its steel producers. These are ostensibly to achieve environmental targets but are also seen as an effort to curb reliance on Australian iron ore, boosting domestic supply and demand.
Chinese mills were instructed to limit 2021 output to no more than 2020 levels, or face big penalties.
Iron ore imports into China fell across the quarter – 8% in July, 12% in August, and another 12% in September. This translates to 95.61 million tonnes of the ingredient last month compared to 108.55 million tonnes in September 2020.
To meet its goal, steel output will have to contract another 10% for last 3 months of the year.
China has increased its efforts to close down some domestic factories to achieve carbon reduction targets. In addition, it has expanded supply sources as well as seeking alternative resources to maintain production.
BHP share price summary
Over the past 12 months, BHP shares have moved in circles to post less than a 4% gain. Year-to-date, the company's shares are down around 11%.
BHP commands a market capitalisation of roughly $111 billion, making it the third largest company on the ASX.
