The BHP Group Ltd (ASX: BHP) share price fell more than 2% today after the ASX mining share suffered amid a fallback of the iron ore price.
The company has gone backwards over the past couple of weeks, following the fifth straight day of declines for the iron ore price. But, keep in mind BHP shares are still up more than 7% since 31 October 2023.
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Why is the iron ore price going backwards?
According to Trading Economics, the iron ore price has fallen back to close at US$140 per tonne after hitting a 20-month high of US$145 per tonne on 4 January. Trading Economics said:
Decreasing margins for Chinese steel mills raised expectations of lower input buying. Persistent macroeconomic headwinds for the country and uncertainty over demand for construction materials in the year ahead tempered iron ore demand from steel mills and countered added buying activity in their usual restocking season.
Still, expectations of added economic stimulus from Beijing refrained prices from falling more after their rally since November.
Iron ore is usually the biggest profit generator for the company by far, so whatever happens with the iron ore price is key for profit, the BHP dividend and often the BHP share price.
Greener steel?
One of the things that could help BHP shares in the future is if its customers are able to make low-carbon steel, resulting in lower carbon emissions.
In December, BHP signed an agreement with Chinese business HBIS Group, one of the world's largest steelmakers, to trial direct reduced iron (DRI) production and utilisation of BHP iron ores in blends and progress a separate enhanced lump stage 2 trial aimed at lowering blast furnace carbon emissions.
The DRI plant uses hydrogen-rich gas byproducts in the steelworks to convert ore into a metallic iron product that is further refined for steel, according to BHP.
BHP's latest collaboration agreement with HBIS will tap into the investment of up to US$15 million over three years proposed by BHP and HBIS in an earlier memorandum of understanding (MoU) signed in 2021.
The BHP chief commercial officer, Vandita Pant, said:
DRI is an important element of our pathways to near-zero-emission steel production and in the decarbonisation journey of the steel industry.
We are working with HBIS Group to demonstrate the use of BHP iron ores in DRI production trials. Together with other collaborations we have underway, including electric smelting furnace (ESF) development, the outcomes are expected to provide pathways to reduce carbon emissions from steel production using BHP's products.
BHP share price snapshot
Over the past 12 months, BHP shares are almost exactly where they were a year ago. But, in 2024 to date, they are down over 4%.
