Why did the BHP share price dive 6% in April?

a female miner looks straight ahead at the camera wearing a hard hat, protective goggles and a high visibility vest standing in from of a mine site and looking seriously with direct eye contact.a female miner looks straight ahead at the camera wearing a hard hat, protective goggles and a high visibility vest standing in from of a mine site and looking seriously with direct eye contact.

The BHP Group Ltd (ASX: BHP) share price sank 6% in April, marking a difficult month for the ASX mining share. It performed worse than the S&P/ASX 200 Index (ASX: XJO) which went up 1.8%.

Considering what a sizeable influence BHP has on the ASX 200’s overall return, it’s quite interesting there was such a divergence in performance between BHP shares and the ASX 200.

Still, it was a decent month for a number of the other large ASX blue-chip shares such as Westpac Banking Corp (ASX: WBC), CSL Limited (ASX: CSL), Telstra Group Ltd (ASX: TLS), and National Australia Bank Ltd (ASX: NAB).

So what went wrong?

Iron ore price sinks

The iron ore price had been trading at around US$120 per tonne in the first half of the month and had reached above US$130 per tonne in March.

But, towards the end of the month, the price sank and that seemingly caused the BHP share price decline. At the time of writing, the price of iron ore is sitting at around US$105 per tonne so, overall, there was a rapid US$15 per tonne drop.

The price of the commodity can play a big part in how much profit BHP can make. Mining 10 million tonnes of iron typically comes with the same costs month to month, so any extra revenue for that production is largely extra profit, aside from paying more to the government.

But it’s the opposite when the iron ore price goes down – a reduction of revenue almost entirely hurts profit. That’s essentially what’s happening now.

Iron has been BHP’s biggest profit generator by some margin in recent years. But the business is on the way to acquiring OZ Minerals Limited (ASX: OZL), which would hopefully grow its copper earnings and diversify it away from iron ore.

What happens next for the BHP share price?

Things may be very unpredictable for BHP from here. It’s difficult at the best of times to know what the iron ore price is going to do in the short term.

The Australian Financial Review recently reported on a Citi note that suggested that the iron ore price could keep dropping to US$100 and then US$90 per tonne where it sees “meaningful cost support”.

This probably won’t be good news for the BHP share price.

As reported by Reuters last week, the Chinese economy has not yet returned to strong economic growth after its COVID lockdowns. So, it may take stronger demand from the Asian powerhouse to lift BHP and investor sentiment.

BHP share price snapshot

Since the start of the year, BHP shares are down by around 2%.

The post Why did the BHP share price dive 6% in April? appeared first on The Motley Fool Australia.

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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 positions in and has recommended CSL. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Westpac Banking Corporation. 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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