The BHP Group Ltd (ASX: BHP) share price has declined by close to 20% in 2024 to date. After such a large drop, it's well worth asking whether the mining giant is good value to buy today.
As the chart above shows, BHP's current valuation is fairly low compared to the last five years.
However, a lower share price doesn't necessarily mean the business is better value if the earnings outlook has worsened.
Firstly, let's consider the most recent development out of China, a key global buyer of commodities, particularly iron ore.
China commits to more stimulus
As covered by various news organisations, including Trading Economics, China recently held its annual economic planning conference led by President Xi Jinping.
This meeting reaffirmed the Chinese government's decision to support the country's economy more, but didn't provide much detail on the scale of the financial stimulus measures.
Trading Economics reported that the Chinese government has outlined plans for "proactive fiscal policy and moderately looser monetary policy, including increasing the deficit, issuing more ultra-long bonds next year, and lowering interest rates."
Amid this backdrop, the iron ore price is currently sitting at around US$105 per tonne.
Is the BHP share price appealing?
There's more to BHP than iron ore, though it typically generates the lion's share of profit. The miner's portfolio includes other commodities such as copper, coal and potash.
BHP's copper division has grown in recent years thanks to acquisitions, with expansion in both Australia and South America.
I'll quickly note that not only is there constant uncertainty about resource prices, but the company is also facing a headwind of cost inflation, which is a challenge for profitability.
But, an even greater worry for investors is the possibility of tariffs and a trade war between China and the United States, which could impact BHP shares and the dividend.
UBS had this to say about whether a trade war would hurt commodity demand:
Probably not. The US is likely to impose some tariffs in 2025, but the magnitude and timing remains uncertain with recent threats (10% China, 25% Canada/Mexico from 20-Jan) materially different from previous suggestions (60% China, 10% all imports). A trade war is negative for industrial metals, as it drives weaker global growth/commodity demand and a stronger US dollar.
However, in our opinion, the impact is likely to be less bearish than in 2018 as: (i) China is more prepared with material domestic stimulus initiatives already in place that are likely to be scaled up quickly to offset pressure on exports; (ii) Supply chains have already partially adapted with the 2018 tariffs starting a broader trend of deglobalisation/reshoring, and the 'shock' is likely to be lower; (iii) Energy transition (renewables, EV & supporting grid infrastructure) is now a material demand driver that should part offset downside risk to global trade/IP/GDP.
In our opinion, base metals (Cu, Al [copper and aluminium]) are better positioned vs steel/iron ore/coal (especially given relatively tighter physical markets).
UBS said the outlook for commodities "has deteriorated since November (and major commodities have all retraced) on concerns that Trump's proposed tariffs will drive lower global growth and a stronger US dollar".
China's stimulus has/will continue to underwhelm in our view and there is significant uncertainty on the impact of the tariffs and magnitude of China stimulus going into 2025. As a result, we think it is too early to turn positive on all industrial commodities.
We prefer commodities which are underpinned by compelling supply dynamics, including copper and aluminium, as well as gold which benefits from lower real rates and geopolitical uncertainty.UBS currently has a neutral rating on BHP shares with a price target of $43.
I agree with that. The ASX mining share doesn't seem cheap enough to be a good buy, but it's not expensive enough to sell shares, either. BHP shares would start to interest me if they fell below $40.
