Is it wise to buy BHP shares amid falling iron ore prices?

The iron ore price has been tumbling lately, so are BHP Group Ltd (ASX: BHP) shares still worth buying?

BHP shares are up 1.07% today, trading at $39.51 apiece at the time of writing. For perspective, the S&P/ASX 200 Index (ASX: XJO) is up 1.38% so far today.

Let’s check the outlook for BHP shares.

Iron ore prices fall amid China Covid-zero policy

BHP is a major iron ore producer. In fact, iron ore accounted for more than half of BHP’s total earnings in FY22. BHP also explores copper, potash, and coal, among other commodities.

The iron ore price closed down 1.55% overnight, fetching US$95 a tonne, Trading Economics data shows. It’s the lowest level since November last year. Iron ore was trading at around US$160 a tonne in March and for almost US$230 a tonne in May 2021.

Iron ore prices are continuing to fall amid news China is maintaining its COVID-19 zero strategy, curtailing the nation’s economic growth prospects. China is the largest iron ore importer in the world. In a research note, ANZ economist Felicity Emmett said:

China has reiterated it will adhere to its COVID policy, and things were further complicated by the recent surge in cases. Negative margins and production curbs to reduce air pollution are leaving more downside for steel production.

Meanwhile, Commonwealth Bank of Australia (ASX: CBA) analyst Vivek Dhar said China easing its COVID-19 policy would have been “potential salvation” for commodities, the Australian Financial Review reported.

However, despite the macro headwinds, some analysts have recently seen potential upside for the BHP share price.

Macquarie placed an outperform rating with a $45 price target on BHP shares in early October. Goldman Sachs also recently maintained a buy rating on BHP shares with a $40.50 price target. Meantime, Morgans has an add rating on BHP shares, however, the broker has cut its price target on the company’s shares to $47.40.

Share price snapshot

BHP shares have risen 13% in the past year, while they are up nearly 7% year to date.

For perspective, the ASX 200 has lost nearly 9% in the past 12 months.

BHP has a market capitalisation of more than $200 billion based on the current share price.

The post Is it wise to buy BHP shares amid falling iron ore prices? appeared first on The Motley Fool Australia.

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More reading

• Why did the BHP share price melt down on Monday?
• Opportunities across the mining sector: Expert names ASX 200 shares to buy
• Top brokers name 3 ASX shares to buy next week
• If I’d invested $5,000 in these 5 ASX shares five years ago, here’s what I’d have now
• Do you want the good news or the bad news on the iron ore price?

Motley Fool contributor Monica O’Shea 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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