What a difference a week can make. Last Monday, shares of BHP Group Ltd (ASX: BHP) were riding high, minting a fresh new record high of $59.39 and clocking a 12-month gain of over 50%. Not bad for one of the largest shares on the S&P/ASX 200 Index (ASX: XJO). BHP stock is in a very different position today.
Sure, the mining giant is in full recovery mode this Tuesday, up a healthy 2.7% at the tie of writing. But that doesn't take away from the fact that BHP is still down by double-digits from last Monday's high. Yep, at $51.42 a share at present, BHP has lost 13.1% over the past eight days.
This has been an exceptionally wild ride for any ASX investor who owns the Big Australian in their ASX portfolios. More so than most other ASX blue chip shares. To illustrate, the Commonwealth Bank of Australia (ASX: CBA) share price has dropped by just 0.4% since last Monday. Woolworths Group Ltd (ASX: WOW) is down by about 3.8%, while Telstra Group Ltd (ASX: TLS) has drifted 1.15% lower.
With this in mind, many ASX investors might be wondering why BHP stock has born so much of the sell-off brunt over the past week. This is particularly beguiling, given that BHP divested most of its energy assets years ago, so, at least in theory, is somewhat insulated from the oil supply fears that have so rattled markets over the past week.
Well, it's hard to know for sure what has gotten the bees in investors' bonnets with BHP stock. But I'm guessing it comes down to a handful of factors.
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Why has BHP stock plunged 13% since Monday?
Firstly, BHP stock arguably had a lot of empty air under it a week ago. As we've already touched on, the stock had topped out after an incredible run in recent months. But BHP's profits are always subject to rapid change, given the company's underlying reliance on volatile commodity prices.
It was probably primed for a correction anyway, and the rapid change in the global geopolitical environment no doubt helped trigger that correction.
Secondly, the argument can be made that, although BHP wasn't directly in line to be impacted by oil supply shock, it was still highly vulnerable to its consequences. For one, fuel inputs like diesel form a massive part of BHP's cost base. It takes a lot of fuel to drive the mining equipment and transportation infrastructure that allows BHP to ship its iron ore and run its copper mines. A potential disruption to its fuel supply would be catastrophic for the miner.
Further, the largest customers of the oil and oil by-products that come out of the Strait of Hormuz are in Asia. Particularly India and China. These countries are some of BHP's largest customers. And if steel mills and refineries in China lose access to energy, one of the first companies they will call to cancel shipments of raw materials like iron ore and copper would probably be BHP.
So with this in mind, it's perhaps no surprise to see BHP shares lose so much value over the past week. Let's see if today's recovery can go the distance.
