Wondering about ways to invest in iron ore? Here’s a brief overview of the market, including supply and demand dynamics and investing options.
With strength and malleability on its side, iron ore has many industrial applications and is one of the world’s most important materials. However, its main use by far is in the production of steel.
Prices for iron ore have suffered in recent years, but some investors remain optimistic about this important industrial metal. And for good reason — while much of the base metals sector suffered under the weight of the COVID-19 pandemic in 2020, iron ore was able to overcome downward pressure.
“The steel industry came roaring back in 2021 after bearing the brunt of the pandemic last year, taking succor from a strong revival in end-market demand and an upswing in steel prices,” states Zacks Investment Research. “Strong demand across major markets aided by higher industrial activities, still-elevated steel prices, and a sizable infrastructure investment augur well for the industry heading into 2022.”
How can investors gain exposure to the iron ore market? Read on for a look at ways to invest in iron ore.
Ways to invest in iron ore: Supply and demand
Australia is the largest producer of iron ore by far, with Western Australia’s Pilbara region being a notable hotspot for the commodity. The country’s iron ore production came in at 900 million metric tonnes (MT) of usable iron ore in 2021, or 560 million MT of iron content, according to the US Geological Survey.
Other major producers in the iron-mining industry include Brazil, China and India.
Most iron ore trades under contracts in which major counterparties negotiate annual price changes. In recent years, oversupply, paired with lower-than-expected demand from the Chinese steel industry, has made things difficult for the iron ore market and has put major pressure on the iron ore price.
Activity in China has traditionally been the key driver of global iron prices, given that it is the world’s largest producer, user and exporter of steel products. Along with concerns about China’s economic growth, ongoing and seemingly escalating global trade disputes have weighed on the price of iron.
However, there are signs of economic recovery in China. The government committed in early 2022 to fast tracking more than 100 major projects, many of them focused on housing, transportation, logistics and other infrastructure priorities. This large-scale infrastructure spending bodes well for steel demand and the iron ore market.
Aside from recent developments, in the long run there is no doubt that there will always be demand for steel. The metal alloy is necessary to economies worldwide that want to build out and maintain their infrastructure, transportation and manufacturing industries.
Ways to invest in iron ore: Consider stocks
Investing in iron-producing companies is the main way investors can gain exposure to the iron market.
Smaller iron-focused mining and exploration companies are an option, but many have struggled to stay afloat in recent years due to low prices for the commodity — taking this route requires more research.
These circumstances have caused many investors to gravitate toward the world’s largest iron-mining companies, such as Vale (NYSE:VALE), Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO), BHP (ASX:BHP,LSE:BHP,NYSE:BHP) and Fortescue Metals Group (ASX:FMG,OTCQX:FSUGY).
For those considering iron investment opportunities, these majors may be a good place to start.
This is an updated version of an article originally published by the Investing News Network in 2017.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
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