BHP Group Ltd (ASX: BHP) shares are joining in with the broader market rally today.
Shares in the S&P/ASX 200 Index (ASX: XJO) iron ore giant closed yesterday trading for $40.21. In late morning trade on Friday, shares are changing hands for $40.41 apiece, up 0.5%.
For some context, the ASX 200 is up 0.7% at this same time.
Still, as you can see on the above chart, 2024 has proven tough for BHP shares so far. The ASX 200 mining stock is down 20.0% year to date, compared to a 1.5% gain for the ASX 200.
It's not just BHP underperforming this calendar year, however.
So far in 2024, the Fortescue Metals Group Ltd (ASX: FMG) share price has dropped 38.5%, while Rio Tinto Ltd (ASX: RIO) shares have dropped 15.7%.
Why have BHP shares come under selling pressure?
Rio Tinto, Fortescue and BHP shares all derive the bulk of their income from iron ore. BHP's second biggest revenue earner is copper.
Over the six months to 31 December, BHP produced 129 million tonnes of iron ore. Underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) from the steel-making metal came in at US$9.7 billion. That represents 68% of the miner's underlying earnings.
As for copper, BHP produced 894,000 tonnes of the red metal in H1 FY 2024. Underlying EBITDA from copper for the six months was US$3.5 billion, representing 25% of underlying earnings.
Over the full 2024 financial year (ending 30 June), BHP reported achieving higher average realised prices for copper and iron ore than it received in FY 2023.
FY 2024 iron ore production was up 1% to a record 260 million tonnes. Management expects FY 2025 iron ore production to be between 255 and 265.5 million tonnes.
Total copper production in FY 2024 was up 9% to 1.87 million tonnes. Copper production for FY 2025 is expected to be between 1.85 and 2.05 million tonnes.
So why have BHP shares come under pressure in 2024?
Well, iron ore kicked off the year trading for US$144 per tonne.
Overnight, that same tonne dipped below US$100.
The copper price has been in fast retreat as well. The red metal is currently trading for US$8,795 per tonne, down 19% since 20 May.
And there could be more pain to come for BHP shares and its rival iron ore miners like Rio Tinto and Fortescue.
Headwinds blowing out of China
China's steel-hungry, sluggish real estate markets have been among the biggest drags on the iron ore price.
And China's government has so far held off on any massive stimulus packages to get its property sector back on track, instead focusing on increasing consumer spending to spur the domestic economy.
In a sign that BHP shares could face ongoing pressure from weak steel demand in China, Wei Ying, an analyst at China Industrial Futures, said (quoted by The Australian Financial Review):
Steel demand is really poor. With highly indebted provinces focusing on deleveraging, plus a lack of good projects, infrastructure spending is less than ideal.
Tomas Gutierrez, an analyst at Kallanish Commodities, forecasts that the demand for steel from China's construction sector will drop by 10% this year.
"There are not many positives for steel, and the housing downturn has years to go yet. It's been clear for a long time that the government views stimulus very differently now," Gutierrez said.
Of course, the industrial metals markets have always been cyclical.
Should lower iron ore and copper prices pull BHP shares down further, I suspect this would present an excellent long-term buying opportunity when demand once again outpaces supply.
