As we delve into the performance of BHP Group Ltd (ASX: BHP) shares at the beginning of 2024, it's evident that they've encountered a mixed journey. Since the onset of the year, there has been a notable 12% decline in the BHP share price, as indicated by the chart below. However, a slight recovery of almost 6% from the low recorded on March 13, 2024, offers a glimmer of hope.


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Predicting the trajectory of ASX company share prices, especially in the short term, is fraught with uncertainties. Thus, it becomes imperative to dissect the various factors that could influence the performance of this prominent iron ore mining giant, weighing both the potential opportunities and pitfalls.

Challenges Impacting BHP Shares:

Recent data from Trading Economics reveals a concerning trend as the iron ore price dipped to a 10-month low of US$102 per tonne, attributed to subdued demand in China amidst ample supply. Given that iron comprises 62% of BHP's FY24 first-half earnings before interest and tax (EBIT), any downturn in iron ore prices could significantly impact future profitability.


Ongoing worries surrounding Chinese construction activity, intensified by the debt crisis among major developers, are heightening concerns. Reports suggest a slowdown in steel blast furnaces and smelters, resulting in decreased purchases of iron ore inputs. This, along with an increase in iron ore exports from Australia, has contributed to a rise in ore inventories at major Chinese warehouses. These dynamics are impacting ASX mining stocks as well.


Adding to the challenges, broker UBS forecasts a potential decline in BHP's profits over the long term. Net earnings, which stood at US$12.9 billion in FY23, are projected to decrease to US$12 billion in FY26, further dropping to US$9.7 billion in FY28. Such forecasts inevitably influence investor sentiment and, subsequently, the BHP share price.


Moreover, BHP continues to grapple with the aftermath of the Samarco disaster in Brazil, with recent provisions totaling US$3.2 billion after tax, earmarked as the "best estimate" of settlement costs with public authorities, according to UBS.

Potential Positives:

Despite the prevailing challenges, there are glimpses of optimism. Analysts' predictions are not infallible, and the iron ore price, in particular, has defied expectations in the past. A potential resurgence in Chinese demand could reverse the current downturn.


Intriguingly, UBS forecasts an increase in BHP's profit for FY24, reaching US$13.5 billion, which translates to a relatively low forward price/earnings (P/E) ratio of around 11. This modest earnings multiple could pave the way for an attractive dividend yield, with UBS estimating an annual dividend of US$1.47 per share for FY24, representing a grossed-up dividend yield of 7.2%.


Moreover, BHP is actively expanding its exposure to 'green' commodities, aligning with global efforts towards decarbonization. With copper playing a crucial role in electrification and potash emerging as a greener alternative in fertilizers, BHP's diversification strategy could tap into growing market demand in the sustainable energy sector.


In conclusion, while challenges loom on the horizon, BHP Group Ltd remains poised to navigate through turbulent waters, leveraging its strengths while adapting to evolving market dynamics.