BHP Billiton Struggles Amid A Downturn In Iron Ore
BHP Billiton has been having an incredibly hard time in the market, and has been for quite some time. As you can see from the chart above, the downtrend has been happening for more than 6 months. So, what's causing the value of the company to decline? Ultimately, it's the downturn we've seen in the value of metals like iron and steel. Today, we'll talk about why iron and steel have seen such a dramatic decline in their values, how long declines are likely to last, and what we can expect to see from BHP Billiton moving forward.
Why We've Seen Big Declines In Iron And Steel
The declines in the value of iron and steel are for a very good reason. The reason is economic conditions. If you look around the world, it becomes clear that global economic conditions are on the brink of disaster. Europe, Japan, Brazil, and most importantly for this particular story, China are all on the brink of disaster. There are two reasons China is so incredibly important for this story. First and foremost, China is the world's second largest economy. So naturally, when China isn't doing well economically, we can expect to see declines around the world. Another, perhaps more important fact about China is that it is the world's largest producer of raw materials. This means that when China isn't doing well, steel and iron, metals that are mined by BHP Billiton aren't in as high of a demand in the country; leading to declines in the values of these economies and BHP Billiton as a result.
How Long Are The Declines Likely To Last?
While I'd like to say that we've reached the end of the issue, I have to be honest here, that simply doesn't seem to be the case. The reality is that the declines are rooted in fundamentals, not sentiment. When declines are rooted in fundamentals, it's usually a sign that they are going to last for quite some time, and this case is no different. As mentioned above, the declines on the stock are being caused by economic conditions and the drag these conditions are causing on commodities. While several economies play a role, China is the leading driver of the downward movement. Looking at market and economic conditions in China, it's clear to see why I'm not expecting to see much by way of improvements.
Last year, we saw quite a bit from China as the country's economy started to spiral out of control. To solve the problem, China surprisingly reduced the value of its currency. At this point, many experts expected that the move would work to stimulate economic growth. However, that's not what happened at all. In fact, from there, things got worse. Since then, the People's Bank of China has made several moves to no avail.
What We Can Expect From BHP Billiton Moving Forward
Moving forward, I'm not expecting to see much by way of positive activity out of BHP Billiton. Unfortunately, the commodities market is in the dumps at the moment, and given the fact that the company deals in mining, the stock is likely to feel the pain. The reality is that the declines, rooted in fundamentals and based on economic conditions aren't going to end in the commodities market any time soon. As a result, we simply can't expect to see much from BHP.
What Do You Think?
Where do you think BHP Billiton is headed moving forward? Let us know your opinion in the comments below.