It was another red day for shareholders of resources company BHP Group Limited (ASX: BHP), with the BHP share price finishing the day nearly 7% lower.
This now means that the BHP share price has lost over 20% of its value over the past month. This is on the back of a falling iron ore price and a recently announced merger between BHP and Woodside Petroleum Limited (ASX: WPL).
Here’s a deeper look at what’s been affecting the BHP share price recently.
Iron ore price tumbles
BHP chief financial officer David Lamont recently said that he believes the fall in the iron ore price has been the main driver behind the downturn.
The spot price for iron ore is currently around USD$143 per tonne, down from nearly USD$220 per tonne in July. The connection between the iron ore price and BHP’s share price is fairly straightforward.
BHP must accept the market rate for what it sells, similar to other price-taking commodity businesses. A weaker iron ore price will negatively impact how much revenue it can generate.
Woodside merger
But the drop in BHP’s share price might also be explained by the recently announced merger between Woodside and BHP’s oil business.
BHP’s shares listed on the London Stock Exchange didn’t experience the same drawdown, so perhaps some investors perceived that it the deal represents better value for BHP’s London shareholders.
Credit rating agency S&P Global recently threatened to downgrade BHP by two notches. It said that the deal would reduce the diversification of its portfolio and increase its dependency on a single asset.
Rival rating agency Moody’s Investor Services had a different view, however. It said that the Woodside deal would boost BHP’s credit rating as it will score higher on ESG grounds.
Whatever the case, the proposed merger is a fairly big deal. As such, the market might not have had the time to fully understand what the changes will be. This might’ve caused some investors to hit the sell button recently.
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