The BHP Group Ltd (ASX: BHP) saw its share price soar in late October through the end of 2023 as shares in the S&P/ASX 200 Index (ASX: XJO) iron ore miner rocketed 17% to $50.72 apiece. This was driven by a surge in iron ore prices, the largest source of revenue for BHP. The prices for iron ore leaped from US$114 per tonne in late October to trade for US$140 per tonne at the beginning of 2024. 

Since then, the price of iron ore has trended lower, dropping to US$98 per tonne in late March 2024 before rebounding to US$102.80 per tonne. The big drop in prices has put pressure on BHP’s share price and the ASX 200 miner is down 12.4% in 2024. While BHP’s revenue relies on copper alongside coal and uranium, mining’s price performance and future dividend payouts are linked to iron ore prices. 

Structural Drivers of BHP Share Price

Electric vehicle adoption is accelerating copper demand and Citi’s latest copper analysis shows strong demand for automotive (electric vehicles), industrial products, and transport services. Electric vehicles use more copper than combustion engines and the 20% increase in the first months of the year will support medium-term demand and price dynamics. In the second half of 2023, BHP announced the underlying attributable profit of US$ 6.6 billion for the first half of the year, with an estimated dividend of 72 US cents per share, bringing the total to US$3.6 billion, equating to a payout ratio of 56%. 

Potential Correction Territory Ahead

Although BHP could perform strongly in the coming months, Bain forecasts that iron ore will fall to  US$85 per tonne by year-end. That is largely due to the expectations of weak demand from China and the rest of the world. Meanwhile, as steel makers in the U.S. plan to expand output, total demand could be weaker and China will not offer any meaningful demand as its steel sector continues to suffer. However, the expected correction in the steel and construction sector is inevitable and may only be delayed through policy support as property activity will halve in the absence of a more profound stimulus. Steel demand could rebound if global growth is estimated at 2.6% in 2024 and 2.7% in 2025. 

The deficit in the copper market could boost Copper Stocks and BHP 

There is an ongoing deficit in the copper sector and the Lisbon-based International Copper Study Group (ICSG) found that the shortfall was estimated at 475,000 tonnes last year after a 484,000t shortfall in 2020. Strong copper demand from China likely drove copper prices 4.4% higher in the first two months of 2024. Rising production costs are equally a significant headwind for future revenue growth.

There is also concern that Chile could introduce new laws that make the country less attractive as a mining destination. However, BHP is considering a US$10 billion investment designed to expand its operations in China, but only with legal certainty. 

Electric Vehicles Accelerating Copper Demand

Citi Bank’s China Copper End-Use Tracker finds strong demand in automotive (electric vehicles), industrial, and transport sectors. As the importance of EVs copper demand has grown more important in EV supply chains, this could ultimately boost demand for copper and iron ore supporting BHP’s share price over the medium term. As a large producer, BHP has the potential to cut costs and benefit from rising copper demand, but its cash cow is iron ore, and weaker Chinese growth and rising U.S. steel capacity suggest moderately average performance.