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Why did the BHP share price melt down on Monday?

Why did BHP shares fall out of favour with investors on Monday?

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Mitchell Lawler
Mitchell stumbled upon the concept of investing when in high school, devotedly urging his parents to put some money into a handful of technology companies with increasingly popular products among his demographic – many of which have gone on to great success. It wouldn’t be until 2017, some five years later, that Mitchell became an investor of his own money. Having studied and worked as a mechanical engineer in the building services industry, Mitchell takes a methodical and analytical approach to evaluating businesses. Rather than relying purely on numbers, Mitchell drills beyond a company’s metaphorical mantle to unearth obscure patterns or competitive advantages that would go otherwise unnoticed. His expertise resides within areas such as software, consumer goods, and building services equipment. However, his quest to find quality companies that set the industry standard and flex some degree of an impenetrable position has no limits – small cap to mega cap, cosmetics to healthcare – if it’s an exceptional business it’s on his radar.
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Key points
  • The BHP share price moved 2.3% lower to $39.09 on Monday 
  • Materials finished as the worst-performing sector on the ASX as iron ore weakened to its lowest level since November 2021 
  • Some analysts still think there is a potential upside in the BHP share price from here 

The BHP Group Ltd (ASX: BHP) share price was in a state of decline during the first trading day of this week.

As the electronic gates slammed shut on the Aussie share market this afternoon, BHP shares finished markedly lower. To be specific, the mining giant rolled its way 2.6% downhill to $39 apiece. For context, the S&P/ASX 200 Index (ASX: XJO) took a 1.4% walk into the red on Monday.

What can be attributed to this disappointing move for BHP shareholders?

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price

Image source: Getty Images

Iron ore or iron snore?

The BHP share price took a back seat on Monday as investors went cold on commodity-exposed areas of the ASX. Overall, the materials sector slipped 2.3% lower, making it the worst-performing sector.

Today's negative movement could be tied to the price of iron ore sinking to its lowest level since late 2021. According to Trading Economics, the steelmaking commodity is now fetching around US$96 per tonne, putting it on par with prices witnessed in November 2021 — as shown below.

TradingView Chart

Downward pressure on commodities, particularly iron ore, has been mounting amid tightening monetary policy. As global economies take action to try and curb inflation, commodities linked to economic growth have been caught in the crosshairs.

Notably, the fall in the BHP share price — and other ASX 200 mining shares — follows remarks out of China suggesting a sustained commitment to the zero COVID-19 policy. Hence, markets might have been nervous about the knock-on impacts on the likes of the steel industry.

Today's further degradation in iron prices marks the fifth consecutive week of declines.

Could the BHP share price be attractive?

With BHP shares trading roughly at the same price they were a year ago, some investors might be wondering whether there could be value in buying shares in the mining company now.

Well, analysts at Morgans tend to think so, with an add rating currently held on the $198 billion behemoth. Morgans believe BHP holds a low-risk profile and has strong free cash flow generation.

For those reasons, the team has a $47.40 share price target on the BHP share price.

Motley Fool contributor Mitchell Lawler 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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