It has been a mixed year for the BHP Group Ltd (ASX: BHP) share price. In 2021 to date, BHP shares have dropped by 4% to around $41.
However, BHP shares have fallen as low as approximately $35 and gone as high as $54 this year. Considering how big BHP is, that is a large valuation change over one year. Indeed, both the high and the low were felt in the second half of the year.
But what could happen to the BHP share price in 2022?
Brokers are somewhat mixed on the business’ prospects over the next year.
For example, analysts at UBS currently rate the business as ‘neutral’. However, the UBS price target of $37 is actually 10% lower than where it is today, suggesting a sizeable decline over the next 12 months.
UBS has noted the plan by BHP to unify its Australian and UK companies under the Australian business. The cost to do this is lower than it used to be and it will simplify the structure of the business, making it easier to do transactions such as the divestment of its oil business to Woodside Petroleum Limited (ASX: WPL).
The broker thinks that divesting the oil business is a good move because of the possibility of a future de-rating because of environmental concerns.
But at the positive end of various broker opinions, Macquarie Group Ltd (ASX: MQG) thinks that it is a buy. Macquarie’s price target on the resources giant is $52, which is 26% higher.
Based on Macquarie’s earnings projections, the BHP share price is valued at 9x FY22’s estimated earnings and 13x FY23’s estimated earnings.
Macquarie thinks that steel demand is rising again in China over the last several weeks whilst inventory of steel drops.
Macquarie notes that BHP’s profit is reliant on commodity prices.
What is the resources outlook?
Macquarie has already mentioned that things are looking a bit better for iron ore, in the shorter-term at least. However, some brokers like UBS have said that they expect the iron ore price to settle lower over the next couple of years.
BHP itself said in August that it was anticipating a continuation of strong end-use demand conditions in China for steel and ongoing recovery in the rest of the world over the course of FY22. Iron ore has been a substantial influence for the BHP share price over the last year.
Copper prices have been strong and the short-term outlook for demand was “constructive”. In the longer-term, BHP said that both demand and supply factors indicate that copper is an attractive avenue for future growth.
BHP is also expecting nickel prices will benefit substantially from the global electrification mega-trend.
Potash prices are rising from both “favourable farm economics” and constrained supply. Over the longer-term, management expect that potash will benefit from the trends of rising population, changing diets and the need for sustainable intensification of agriculture.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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