South32 share price heads 8% south on high volumes, but why?

South32’s shares are heading south today. But why?

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The South32 Ltd (ASX: S32) share price has been among the worst performers on the ASX 200 on Wednesday.

In morning trade, the mining giant’s shares were down as much as 8% to $3.55.

The South32 share price has since recovered a touch but remains down 5.5% at the time of writing.

Why is the South32 share price sinking?

Investors have been selling down the South32 share price on Wednesday following a pullback in commodity prices.

Commodity prices tumbled lower overnight after recession fears intensified, sparking concerns that demand for many metals and energy products could weaken.

Among the worst performing metals were aluminium and copper which fell 3.2% to US$1.08 per pound and 4.2% to US$3.44 per pound, respectively, during overnight trade. Copper’s decline took it to a 19-month low.

This doesn’t bode well for South32, which generates significant earnings from these metals.

For example, Goldman Sachs is forecasting earnings before interest, depreciation, and amortisation (EBITDA) contributions of US$2,025 million from South32’s aluminium operations and US$678 million from its copper operations in FY 2023.

This is the equivalent of 38.5% and 12.9% of the group EBITDA of US$5,260 million Goldman is expecting for the year.

And given that Goldman is expecting an average aluminium price of US$1.70 per pound and an average copper price of US$5.53 per pound, these estimates could prove to be wide of the mark based on current prices.

In light of this, it isn’t overly surprising to see the South32 share price fall today.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 no position in any of the stocks mentioned. 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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