Why did the BHP (ASX:BHP) share price struggle so much in 2021?

Despite a tough year in 2021, the BHP share price is starting 2022 on a high.

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The BHP Group Ltd (ASX: BHP) share price finished 2021 in the red despite a positive start and end to the year.

The mining giant’s shares shed 2% during the year, falling from $42.43 to $41.50. In contrast, the S&P/ASX 200 Index (ASX: XJO) gained around 13%.

Let’s take a look at what was behind the BHP price fall in 2021.

The year that was

BHP shares performed well up to the start of August, with the company’s share price hitting a yearly high of $54.06 on 4 August. In fact, between market close on 31 December 2020 and this 52-week high, shares increased 27%.

Iron ore prices gained 15% during this time, rising from US$158.15 to $182.51. In February, investors reacted positively to strong financial results for the first half of the 2021 financial year. The board revealed a record half-year dividend of US$1.01 per share.

In April, BHP released a well-received quarterly review showing record production at Western Australia Iron Ore. The company also delivered the best ever production at the Goonyella Riverside metallurgical coal mine in Queensland. This was followed by more record production in July in Western Australia, while Olympic Dam achieved the highest ever copper and gold production.

But then the company’s shares came crashing. The BHP share price fell 33% between market close on 4 August and 4 November. During this time, the iron ore price fell nearly 47% from US$182.51 to $97.17.

Around this time, BHP also announced it would merge its oil and gas portfolio with Woodside Petroleum Limited (ASX: WPL) to create a global energy company.

In late November and December, the BHP share price started lifting again. Rising iron ore prices likely contributed to the increase. Between market close on 17 November and 31 December, the company’s share price gained more than 15%. In the same time frame, iron ore prices increased by nearly 30% from US$92.76 to US$120.20.

In December, the company moved forward on its plan to unify its two companies structure into a single listing on the ASX. BHP’s current dual listing corporate set-up followed its amalgamation with Billiton in 2001.

Also that month, the Australian Competition and Consumer Commission (ACCC) gave the tick of approval on the sale of BHP’s petroleum assets to Woodside.

Shares also gained on news the company had pulled out of its bidding war with Wyloo Metals for nickel miner Noront Resources (TSXV: NOT).

Looking ahead

Looking ahead, Macquarie analysts rate BHP as a buy with a price target of $52. As my Foolish colleague Tristan reported recently, Macquarie believes the company’s shares are valued at under 10x FY22’s estimated earnings.

Morgans has also given BHP shares a buy rating, with a price target of $45.70. Shares in BHP have already gained more than 12% in the past month.

Share price snap shot

While the BHP share price underperformed the benchmark index in 2021, the new year is starting well for the company, Its shares are up 8.6%% so far in January.

BHP has a huge market capitalisation of nearly $133 billion based on its current share price.

Should you invest $1,000 in BHP right now?

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. 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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