Following a heavy selloff on the London Stock Exchange overnight, BHP Billiton Limited's (ASX: BHP) shares have crashed through the $20 mark, falling 3.8%. That compares to a 2.2% decline for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) so far.
BHP's shares are now trading at their lowest price in seven years at just $19.81. They've fallen 14.9% over the last week, erasing billions of dollars of shareholder value, while they're down more than 37% over the last 12 months.
Unfortunately, there are a multitude of factors contributing to the stock's weakness. Today's fall, however, is likely due to continuing falls in commodity prices, including iron ore, oil and copper – 3 out of 4 of BHP's primary commodities.
According to data from The Metal Bulletin, iron ore, which is BHP's most important commodity, fell 1.6% overnight to just US$47.81 a tonne, dragging Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) into the red as well.
Copper also hit a fresh six-year low while oil prices slid below US$42 a barrel.
As is the case with all miners, BHP Billiton relies on strong commodity prices to achieve earnings growth. Its profit took a huge hit in the 2015 financial year (FY15) with all four of its "pillar" commodities under enormous pricing pressure, and looks almost certain to do the same in the current year, FY16.
Investors are also left to consider the enormous impact the Brazilian mine disaster, which occurred on Friday last week, could have on the business. While tragic from a human and environmental perspective, the financial (and reputational) damage to BHP could also be huge, likely ranging in the hundreds of millions of dollars.
This could then put even further pressure on BHP's progressive dividend policy, which was already widely considered to be unsustainable prior to the incident. With fears that conditions could worsen considerably from here, there's no reason why BHP's shares won't continue to fall further.
