The BHP Billiton Limited (ASX: BHP) share price has struggled to recover above $19 today, currently trading at around $18.84, but could it sink further and fall below $15?
If commodity prices continue to head south, then there's every chance BHP's share price could be $14-something or lower.
Commonwealth Bank analyst Andrew Hines has told clients that he values the big miner's shares at $14.80, if "commodities process remain at depressed levels for three years before recovering to mid-cycle levels in 2025."
Hines doesn't think that's the most likely outcome, placing a $20 price target on the company's shares. Most analysts have lowered their price targets in recent times (typically following the price down).
The biggest problem for BHP is that the prices of all its major commodities of iron ore, coal, copper and petroleum have been belted in the past 12-18 months, and we may not be at the bottom yet.
Not only that, but the bottom of the commodities cycle could last many years. Iron ore traded below US$40 a tonne for more than 22 years up until 2007. Metallurgical coal could see depressed prices as demand for iron ore and steel production falls. Given the oversupply of iron ore and even more supply coming online, combined with falling steel demand and production, we are likely to see a glut of iron ore. In October, I suggested we could even see prices of between US$20 and US$30 a tonne.
Thermal coal prices may never recover if renewable energy and other cleaner fuels are adopted on a wider scale. Rio Tinto Limited (ASX: RIO) coal and copper boss Jean-Sebastien Jacques thinks prices might stay depressed for five to seven years.
No matter how far BHP goes in cutting costs out of its business, it's still highly dependent on commodities prices – and all the signs point to lower commodities prices for an extended period of time.
Foolish takeaway
At the end of the day, share prices are driven by earnings and the future outlook for earnings. If BHP can only generate small profits or reports losses, there's every chance we could see the share price sink below $15.
