Learn How to Trade Iron Ore

Iron Ore Trading

Why is Iron Ore Valuable?

Iron ore is a rock from which the metal iron is extracted. About 98% of the world’s iron is used to produce steel.

Pure iron is an element and a soft grayish-white metal. Other than meteorites that fall from the sky, iron is never found by itself in nature.

Most iron is part of minerals that contain other elements. Iron oxide is the most common of these minerals. Rocks that contain high concentrations of iron minerals are generally found near the surface of the earth. Commercial producers mine and process those minerals for their iron content.

Historians believe the ancient Egyptians may have worked with small amounts of iron found in meteorites. However, the first successful mining of the metal probably occurred with the Hittite culture around 1,500 BC.

Until this time, ancient peoples constructed metals from bronze. The Hittites perfected stronger iron weaponry, which led to successful military campaigns and ushered in the Iron Age.

Although early civilizations in China, India and Japan produced weaponry and implements from iron, Europeans didn’t perfect ironworking until the 1700s. The reasons for this time lag were regional differences in the way iron was mined and a lack of understanding of its chemical properties.

Specifically, early Asian and Middle Eastern iron contained carbon, which gave the metal its hardness. When Europeans began working the metal, their processing methods removed the element. The result was a soft metal that could be shaped, or wrought by hammering. This came to be known as wrought iron.

In 1740, a breakthrough by English inventor Benjamin Huntsman led to the production of a stronger iron alloy. Huntsman used charcoal to introduce carbon to the production process, and in doing so, discovered one of the most important advances in modern steel production.

Today mines worldwide produce more than 2.2 billion metric tons of usable iron ore, which contain about 1.4 billion metric tons of iron. With steel being a critical material in buildings, infrastructure, mechanical equipment and automobiles, iron ore is an important global commodity.

How Is Iron Ore Produced?

Iron derives primarily from ores containing iron oxide. Examples of these iron ores include magnetite, hematite and limonite, although other ores also may contain iron.

Iron Ore in the Mountains of Peru

Iron Ore in the Mountains of Peru – Image via Pixabay

The iron contained in these ores can range from between 20% to as much as 70%. These iron yields are important in determining how profitable mining is. In fact, statistics on iron production generally break out usable iron ore and iron content into separate categories.

The production of iron takes place in three steps:

  1. Extraction
  2. Refining
  3. Manufacturing


Iron Ore Manufacturing

Crude Ore Being Loaded Onto Trucks – Image via Wikimedia

Most iron ore mining takes place in surface or open pit mines. Usually, heavy machinery removes the top layer of the ground over a wide area and exposes the iron ores. In some cases, miners dig shafts into the earth with side tunnels that allow them to follow the layer of ore.

Miners load the crude ore into trucks and dump the material into pit crushers.


Pit-crushing machines pulverize the ore and separate the iron from impurities such as sand and clay. The best grades of ore contain close to 70% iron and usually require less processing.

Lower-grade ores may require further refining methods known as beneficiation:

  • Further crushing and washing the ores to remove more sand and clay
  • Magnetic separation of the iron from sand and clay
  • Pelletizing – a process of converting iron into pellets
  • Sintering – a process of heating iron ores into a semi-molten mass

As more of the global iron ore supply gets depleted, beneficiation becomes more critical for obtaining higher purities of iron.

Trains or ships transport refined ore to blasting furnace sites.


Iron manufacturing takes place in tower-shaped, brick-lined steel structures called blast furnaces.

Blast Furnace

Blast Furnace – Image via Pixabay

Iron ore, coke, sinter and limestone are poured into the top of the furnace, and hot air is blasted into the bottom of the furnace. Hot air reacts with the carbon in the coke to produce carbon monoxide. The carbon monoxide then reacts with the iron ore to produce pure iron and carbon dioxide.

Melted iron sinks to the bottom of the furnace, while slag formed from limestone reacting with the remaining impurities in the ore floats to the top. The iron and slag are removed separately from the furnace.

The melted iron is either alloyed with other metals or cast into ingots called pigs, while the slag is discarded.

The hot gases remaining in the furnace are drawn off, cleaned, scrubbed and returned to the furnace.

Blast furnaces typically operate around-the-clock for several years before they require maintenance.

The US Geological Survey (USGS) collects statistics for both usable iron ore production and actual iron content. In recent years, some sources listed China as the largest producer of iron ore. However, this calculation was based on crude iron ore production. Since much of this crude ore production is low-grade and not usable, reliable sources discount it. As a result, China is the third largest producer of usable iron ore.

World's Biggest Iron Ore Producers

Top 10 Usable Iron Ore Producing Countries

RankFlagCountryMillions of Metric Tons
#1Flag of AustraliaAustralia825
#2Flag of BrazilBrazil391
#3Flag of ChinaChina353
#4Flag of IndiaIndia160
#5Flag of RussiaRussia100
#6Flag of South AfricaSouth Africa60
#7Flag of UkraineUkraine58
#8Flag of CanadaCanada48
#9Flag of USAUnited States of America41
#10Flag of IranIran26

Which Countries Have the Most Iron Ore?

These are the reserves of crude iron ore for each country as reported by the USGS:

RankFlagCountryMillions of Metric Tons
#1Flag of AustraliaAustralia52,000
#3Flag of BrazilBrazil23,000
#4Flag of ChinaChina21,000
#5Flag of IndiaIndia8,100

In addition to steel, iron ore plays an important role in the creation of several products.

5 Main Uses of Iron Ore

Office Icon
About 98% of iron ore production goes to making steel. Tools, automobile parts, buildings, bridges and ships are a few of the many items made from steel.
Iron Chloride
Livestock Icon
Iron chloride is an important compound in many applications:
  • Sewage system treatment
  • Cloth dye
  • Coloring agent for paints
  • Animal feed
  • Manufacturing circuit boards
  • Iron Sulfate
    Medical Icon
    Uses for this iron compound include treating anemia and treating sewage particles in water tanks.
    Iron Hydroxide
    Water Icon
    This iron compound is found in water purification systems.
    Iron Arsenate
    Insect Icon
    This important iron compound is used to make insecticides.

    What Drives the Price of Iron Ore?

    The price of iron ore is driven mostly by these five factors:

    1. Steel Demand
    2. Chinese Supply
    3. Chinese Demand
    4. Steel Scrap Supplies
    5. Input Prices

    Steel Demand

    As the nearly exclusive user of iron ore, steel plays an important role in determining iron ore prices.

    Steel is used in many areas of the economy, but construction and the automotive sector are the two biggest consumers. These industries are highly sensitive to macroeconomic factors such as unemployment, interest rates and GDP. When the economy is strong, companies need more office buildings, factories require more machines and consumers buy more automobiles.

    Vehicle Assembly Line via Pexels

    Vehicle Assembly Line – Image via Pexels

    Infrastructure projects play another important role in steel demand. If the United States embarks on large-scale projects to repair crumbling bridges, railroads and airports, steel demand could rise and iron ore prices could move higher.

    Essentially, the health of the overall economy is a good barometer of steel demand, and steel demand determines iron ore demand.

    Chinese Supply

    The Chinese play an important role on the supply side of the equation for iron ore.

    A key factor impacting iron ore output in China is the country’s increasing environmental crackdown on mining. Poor air quality has forced the government to take a harder look at the industry as a contributor to pollution. This has led to an accelerating rate of iron ore mine closures.

    The remaining iron ore mines in China are mostly low-grade mines that produce ores with only 20 to30% iron content.

    At the same time, China’s demand for steel remains robust. If Chinese iron ore supplies remain constrained, then prices could rise. On the other hand, if China reopens mines and resumes production, then prices could fall.

    Chinese Demand

    In recent years, China has been importing over a billion metric tons of iron ore annually to support its steel industry. A large percentage of these imports come from Brazil and Australia, which have been ramping up production to meet Chinese demand.

    An important question for traders is what China is doing with all of the steel it produces. In the past, when domestic demand declined, China dumped its steel at low prices on international markets. However, during periods of robust growth, China used the iron ore to produce steel for its own consumption.

    Strong domestic economic growth in China is likely to sustain demand for iron ore, while weak growth could lead to a drop-off in demand and lower prices.

    Steel Scrap Supplies

    Steel scrap and iron scrap are sources of steel production that compete with iron ore. Therefore, cost and availability of scrap metal affect demand for iron ore.

    Scrap Metal

    Cars Are a Huge Source of Scrap Steel – Image via Pixabay

    The automobile industry is a major supplier of scrap steel. In recent years, the scrap industry recycled more than 14 million tons of steel from vehicles. As this and other industries such as construction grow bigger in China, the supplies of scrap steel could skyrocket. These developments could depress iron ore demand.

    Input Prices

    Iron ore occurs in rocks that have to be extracted and refined. Mining is an energy-intensive activity that uses large amounts of oil and electricity. The cost of these and other inputs can influence the price of the commodity.

    4 Reasons You Might Invest in Iron Ore

    Investors should consider buying iron ore for the following reasons:

    1. Bet on Steel Demand
    2. Bet on Resurgent Chinese Growth
    3. Inflation and Weak US Dollar Hedge
    4. Portfolio Diversification

    Bet on Steel Demand

    There are many reasons to be optimistic about future steel demand.

    Emerging markets will need the material for important infrastructure projects such as buildings, airports and bridges. Also, as these economies grow, demand for automobiles should grow as well.

    Global Infrastructure via Pixabay

    In developed economies such as the United States, steel demand should benefit from infrastructure needs and economic growth. If steel demand remains strong, then iron ore prices should benefit.

    Bet on Resurgent Chinese Growth

    The Chinese economy has experienced a slowdown in recent years, although some signs suggest that the economy is strengthening again. Essentially, investing in iron ore is a bet on a resurging Chinese economy.

    In response to its surging growth and mounting pollution problems, Chinese officials have begun cracking down on mining. These developments have the potential to be very positive for iron ore prices. Demand for iron ore in steel production remains strong in China even as domestic sources of supply diminish.

    Inflation and Weak US Dollar Hedge

    Investing in iron ore is a way to bet on a weak US dollar and higher inflation.

    Iron ore is priced in US dollars, so the performance of the American economy can impact its price. The US Federal Reserve Bank has kept interest rates low and the US dollar weak for many years.

    US central bankers are likely to continue these policies to support consumer borrowing and spending. These conditions are likely to be very beneficial for commodity prices.

    A weak dollar could stoke inflation concerns. There is a limited supply of iron ore, and producing it is an energy-intensive endeavor. The price of the commodity would likely benefit from fears of inflation.

    Portfolio Diversification

    Most traders have the vast majority of their assets in stocks and bonds. Commodities such as iron ore provide traders with a great way to diversify and reduce the overall risk of their portfolios.

    Should I Invest in Iron Ore?

    Investors should consider purchasing iron ore as part of a basket of commodities that includes base metals (i.e., copper, lead, nickel and tin), precious metals, agricultural commodities (i.e., dairy, meats and grains) and energy commodities such as crude oil.

    Purchasing a basket of commodities helps protect traders from the volatility of any individual commodity. It also adds overall diversification to a stock and bond portfolio.

    There are three specific trends that could raise iron ore prices in the years ahead:

      1. Chinese Demand: China is the top consumer of iron ore, and demand for its use in steel should grow if the Chinese economy rebounds.
      2. Infrastructure Demand: The United States is expected to embark on major infrastructure projects over the next several years. Bridges, railways, airports and other projects require major upgrades. All of these projects will require significant amounts of steel. Iron ore prices could benefit if these projects more forward.
      3. Mining Challenges: Higher energy costs and pollution concerns make mining an increasingly challenging business.China’s crackdown on mining and the difficulty of the mining business could lead more iron ore mines to close or consolidate. This could produce higher iron ore prices.

    However, traders should also consider the risks of investing in iron ore:

    1. A global recession could weaken Chinese demand.
    2. Abandonment of infrastructure projects in China or the United States could depress demand for iron ore.
    3. Higher US interest rates and a stronger dollar could weaken commodity prices in general.

    What Do the Experts Think About Iron Ore?

    Iron Ore Experts

    Many analysts agree that demand from China ultimately determines iron ore prices. One analyst sees the country’s insatiable demand for the commodity in steel production as a reason for optimism.

    Steel output continues to be on the rise, which will boost consumption of iron ore. Mills are making chunky profits, so they’re firing up production.

    – Zhao Chaoyue, analyst at China Merchants Futures Co,

    However, another leading iron ore analyst sees reasons for caution. He believes that cheap supplies of iron ore from Australia and Brazil are likely to overwhelm Chinese demand:

    It is all about supply, the supply of ore in the seaborne trade from both Australia and Brazil, as well as some of the smaller producers, continues to grow and as such, will continue to enter the Chinese markets…rather than suggesting that demand for imported ore is strong, I would argue to suggest that supply is growing again.

    – Justin Smirk, a senior economist at Westpac Banking.

    How Can I Invest in Iron Ore?

    Investors have several ways to invest in iron ore:

    Iron Ore Trading Methods Compared

    MethodComplexity (1 = easy, 5 = hard)Storage CostSecurity CostExpirationManagement CostLeverage
    Iron Ore Futures5NNYNY
    Iron Ore Options5NNYNY
    Iron Ore ETFs2NNNYN
    Iron Ore Shares2NNNNY
    Iron Ore CFDs3NNNNY

    Iron Ore Futures

    Both the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (“ICE) offer contracts on iron ore futures.

    The CME offers two 62% iron content contracts and a third contract based on ore with 58% iron and low alumina. Each contract settles into 500 dry metric tons of iron ore.

    The contracts trades globally on the CME Globex electronic trading platform and have a variety of expiration months.

    The ICE offers four contracts based on 62% iron content. They are also financially settled, and each contract size is 1,000 dry metric tons.

    Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are financially settled.

    Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

    Iron Ore Options on Futures

    The CME offers two average price options contract on iron ore futures.

    Options are also a derivative instrument that employs leverage to invest in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

    Options buyers pay a price known as a premium to purchase contracts. An average price option is where the payoff is determined by the difference between the strike price and the average price of the underlying asset.

    Iron Ore ETFs

    These financial instruments trade as shares on exchanges in the same way that stocks do.

    There are no ETFs that are pure-play investments in iron ore. However, there are several popular ETFs that invest more broadly in companies in the industrial metals sector:

    SPDR S&P Metals and Mining ETFiShares MSCI Global Select Metals & Mining Producers ETFVanEck Vectors Steel ETF

    Shares of Iron Ore Companies

    There are many publicly traded companies that have various levels of exposure to iron ore prices. While investing in companies can be a leveraged way to gain exposure to iron ore prices, many of these companies have some exposure to other metals and minerals. In addition, these shares can react to factors such as regional demand for their products, competition, production costs and interest rates. Finally, factors such as company management and the overall stock market can also affect these investments:

    Top 4 Iron Ore Mining Stocks

     Current PriceOverviewListingsFoundedNumber of EmployeesInteresting Fact
    Rio Tinto 

    UK metals company that mines, processes and markets mineral resources.New York (NYSE)
    London (LSE)
    Sydney (ASX)
    187350,000The Rio Tinto (Red River) mines in Spain, date back to about 750 BC and once supplied the civilizations of Ancient Greece and Rome.
    Vale SA
    Vale SA Logo
    Brazilian company engaged in the production and sale of iron ore and iron ore pallets for steelmaking. New York (NYSE)194276,500+Vale is the world's largest producer of nickel and iron ore.
    BHP Billiton
    BHP Logo
    Australian company that acquires, develops and markets natural resources worldwide.New York (NYSE)1885 65,000BHP Billiton is the world's second-largest mining company by revenue.
    Cleveland-Cliffs Inc.
    Cleveland-Cliffs Logo
    US mining and natural resources company that produces and supplies iron ore.New York (NYSE)18463,000Cleveland-Cliffs is the oldest and largest iron ore mining company in the United States of America.


    A popular and easy way to invest in iron ore is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of iron ore and iron ore shares. The value of a CFD is the difference between the price of iron ore (or shares) at the time of purchase and its current price. plus500 screenshot of website

    Many regulated brokers worldwide offer CFDs on iron ore and iron ore shares. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that trader can have exposure to iron ore prices without having to purchase shares, ETFs, futures or options.

    Start Trading Iron Ore

    Plus500 logo

    One of the leading brokers for trading metals, like iron ore, is Plus 500. Here’s why:

    • No commission on trades (other charges may apply)
    • Free demo account
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    Start Trading at Plus500.com Important: Your capital is at risk. CFD services are suitable for experienced traders only.

    Further Reading

    Lawrence Pines is a Princeton University graduate with more than 25 years of experience as an equity and foreign exchange options trader for multinational banks and proprietary trading groups. Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts.
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