The BHP Group Ltd (ASX: BHP) share price is in the red today after closing up 2.3% yesterday and posting gains of 3.3% on Tuesday.
Shares in the S&P/ASX 200 Index (ASX: XJO) mining giant closed yesterday trading for $46.88. During the lunch hour on Thursday, shares are swapping hands for $46.56 apiece, down 0.6%.
Despite today's retrace, the BHP share price is up 4% in a week and up 24% since this time last year. And that's not incorporating the $3.92 in fully franked dividends the ASX 200 miner paid to eligible shareholders over that time.
I don't imagine you'll hear any investors who bought stock in the big miner 12 months ago complaining about those returns.
But are storm clouds forming on the horizon?
Why the BHP share price could be hit with headwinds
BHP earns the majority of its revenue from iron ore, with copper coming in at number two.
As you'd expect, then, the price of these metals has a big impact on the BHP share price.
Iron ore is currently fetching US$113 per tonne. That's up from US$99 per tonne in late May. But the industrial metal may be due for a big retrace.
China counts as the world's biggest iron ore importer. And China's real estate sector accounts for some 40% of the nation's steel demand.
But the Chinese property sector has been struggling to rebound following years of COVID lockdowns. While China's top leaders flagged some support this week to boost sluggish economic growth, the Politburo meeting was short on details and made no mention of major fiscal or monetary stimulus measures.
Commenting on China's stimulus measures and the outlook for the iron ore price, and by extension, the BHP share price, Atilla Widnell, managing director of Navigate Commodities, said (quoted by Bloomberg):
Any form of stimulatory measures will experience a material time lag of two to three quarters before it trickles down through the system into real steel and underlying iron ore demand.
A two or three-quarter delay in boosting iron ore demand could see prices for the steel-making metal retrace back to their late May levels. Or below.
According to Richard Lu, a senior analyst at CRU International:
The [Chinese] property sector is really built on confidence, but we have yet to see any decent recovery, so in the second half, the recovery will unlikely be meaningful.
Lu expects the iron ore price could fall back to as low as US$90 per tonne under this "downward pressure" before finding support.
That's more than 20% below current iron ore prices, potentially flagging some headwinds on the horizon for the BHP share price.
