The ASX share market is difficult to predict what's going to happen at the best of times, but there's added complexity when it comes to commodity prices because they can be even more volatile and unpredictable.
I think two of the most important commodities for BHP shares are iron ore and copper, so let's have a look at what an expert thinks may happen with those resources.
According to Trading Economics, the iron ore price is currently sitting at around US$120 per tonne.
The broker UBS said earlier in October that it thinks the iron ore price is being supported by higher costs. It's expecting the iron ore price to stay in the current range of between US$100 per tonne to US$130 per tonne over the next six months.
It also hiked its long-term expectation for the iron ore price to US$85 per tonne, a significant increase from its former prediction of US$65 per tonne. UBS' long-term prediction is a bit higher than the consensus estimate of US$75 per tonne.
UBS thinks that more supply coming online, including from Brazil, could be a headwind for the iron ore price over the next couple of years.
The iron ore division usually makes the lion's share of BHP's profit each year. A rise in the iron ore price can largely add to the company's profit because revenue is getting boosted, but the mining costs typically don't change much.
Copper is seen as an important commodity for decarbonisation, because of its role in electric vehicles, wind turbines and electricity grids.
UBS recently increased its longer-term prediction for the copper price to US$4 per pound, up from US$3.50 per pound. The broker suggested that after detailed analysis, it thinks the current rate of capital expenditure deployment is "insufficient to match robust demand from the energy transition".
The broker is positive in the "medium-long term as supply side challenges seem never far away."
BHP recently acquired OZ Minerals, one of the larger copper miners in Australia, bulking up BHP's exposure to copper.
If the copper price were to rise to US$4 per pound, which would represent a rise of around 10%, it could be a real boost for BHP's profitability and BHP shares.
The Asian powerhouse is a key purchaser of both iron ore and copper. The economy hasn't been firing on all cylinders. Is China about to bounce back? UBS doesn't think the stimulus will help the economy:
Economic data has weakened in 2Q (after the re-opening strength in 1Q23) and, as a result, the market expects more stimulus to be announced including further property policy easing, fiscal expansion (more infrastructure investment), and additional policy rate cuts & credit support. However, household and business confidence is weak and to date delivering only a muted reaction to the aggressive property stimulus of easing house purchase rules, down payments, and mortgage rules and rates. The government remains focused on minimising speculative demand and to gradually address structural imbalances (inventory, affordability) in the property market.
BHP share price snapshot
Investor sentiment could be affected during FY24 (and beyond) by each of these factors, so a positive change for any of them could be helpful for profitability.