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Fade Coronavirus With BHP Group - A Scale-Down Opportunity In The Commodity Giant


  • Risk-off hits commodity prices.
  • China is ground zero for the virus.
  • China is the demand side of the fundamental equation.
  • BHP is a diversified producer.
  • The dividend is high, and the shares are near the 52-week lows - a scale-down buying opportunity for the long term.
  • Looking for more stock ideas like this one? Get them exclusively at Hecht Commodity Report. Get started today »

The risk-off conditions over the spread of the coronavirus around the world are hitting the global supply chain like a ton of bricks. Commodities are global assets, so a worldwide recession can wreak havoc with prices. Commodities can be a highly volatile asset class. Raw material prices can double, triple, or halve in value based on changes in the macro supply chain, or the individual supply and demand factors for each market. This week, the price of crude oil plunged to its lowest level since 2016, as OPEC could not agree on a production cut to address falling demand on the back of the spread of the virus around the world. The Saudis decided to flood the market with oil as Russia refused to cooperate with a reduction in output.

Supply and demand factors in commodity markets can cause sudden and violent price moves, but the population growth is a factor that underpins prices. At the turn of this century, six billion people inhabited the earth. Two decades later, the number has risen by 27.3% to 7.635 billion. More people, with increasing wealth in the world, means that the competition for finite raw materials is growing. BHP Group (BBL) is a diversified producer of a host of natural resources. The Australian company is a world leader in the commodities business.

Risk-off hits commodity prices

Falling interest rates and a weaker dollar in the United States are typically bullish factors for commodities prices. The dollar is the world's reserve currency and the benchmark pricing instrument for most raw materials. A decline in the value of the US currency tends to be highly supportive of commodity prices as strength in other foreign exchange vehicles often leads to increased demand at lower costs in other currencies.

Source: CQG

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The Hecht Commodity Report is one of the most comprehensive commodities reports available today from the #2 ranked author in both commodities and precious metals. My weekly report covers the market movements of 20 different commodities and provides bullish, bearish and neutral calls, directional trading recommendations, and actionable ideas for traders. I just reworked the report to make it very actionable!

This article was written by

Andrew Hecht profile picture
Weekly commodities commentary and calls, from a Wall Street veteran
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.

Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.

Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.

Today, Andy remains in close contact with sources around the world and his network of traders.

“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”

His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.

Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website about.com and blogs on his own site dynamiccommodities.com. He is a frequent contributor on Stock News- https://stocknews.com/authors/?author=andrew-hecht

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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