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 has many industrial applications and is one of the world’s most important materials. However, those looking for ways to invest in iron ore should that know 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 the 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.
“Demand strength in China on surging crude steel production has … propelled iron ore prices to their highest level in six years recently,” reported Zacks Investment Research in Q3. “A recovery in China is driving demand for the steel-making commodity, as reflected by rising imports.”
How can investors gain exposure to the iron ore market? Read on to learn more about the space and how to start investing 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 930 million metric tons (MT) of usable iron ore in 2019, or 580 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, and this move is expected to continue. The Chinese government committed in 2020 to investing roughly $500 billion to stimulate the country’s economy, with a heavy focus on infrastructure projects. This large-scale infrastructure spending bodes well for steel demand and the iron 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 an iron-producing company is the main way investors gain exposure to the iron market.
In recent years, smaller iron-mining operations and exploration companies have struggled to stay afloat due to low prices for the commodity.
As a result, investors have gravitated 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), when purchasing iron stock.
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.