Iron ore trading: Everything you need to know about iron ore

Discover the history of iron ore trading, the market events that affect its price and how to trade it.

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Iron ore refers to the iron compounds found in age-old rocks, from which iron can be extracted for steelmaking, and is a widely-traded asset in the derivatives industry. Find out the history of iron ore trading, the market events that may affect its price, and how to trade iron ore today.

What is iron ore trading?

Iron ore trading is the practice of speculating on the price of iron ore in order to make a profit – usually via futures, options, spot prices or shares and exchange-traded funds (ETFs), and using CFDs.

As with other derivatives, the aim of iron ore trading is to predict the direction the market will move. The further the market moves in the direction you’ve predicted, the more you’d profit and the more it moves against you, the higher your losses.

Why trade iron ore?

When it comes to the reasons to trade iron ore, the commodity differs to more valuable metals like gold and silver in that its price is linked more to its utility in steelmaking than its inherent value. Therefore, traders may choose to be bullish on iron ore in conjunction with a generally optimistic outlook on economic growth and GDP, which is often conducive to increased industrial activity and demand for steel.

On the flipside, those speculating on iron ore should be aware of the risk of economic contraction hitting demand and causing price to fall. Also, iron ore supplies are finite, meaning future pressures on supply may be another reason for prices to spike – although this may not be a factor for many decades yet. 

World’s biggest iron ore producers

The world’s biggest iron ore-producing countries are Australia, Brazil, China and India, with a large gap to Russia in fifth. In terms of companies, Brazilian miner Vale leads the way with 300 million tons produced in 2020, followed by Anglo-Australian operator Rio Tinto at 286 million, and Australian giant BHP at 248 million.

The following table shows the largest producers by country in 2020. Source: US Geological Survey.

Country

Production

Percentage of global production

Remaining crude ore reserves

Australia

900 million tons

37.5%

50 billion tons

Brazil

400 million tons

16.7%

34 billion tons

China

340 million tons

14%

20 billion tons

India

230 million tons

9.6%

5.5 billion tons

Russia

95 million tons

4%

25 billion tons

South Africa

71 million tons

3%

1 billion tons

Ukraine

62 million tons

2.6%

6.5 billion tons

Canada

57 million tons

2%

6 billion tons

USA

37 million tons

1.5%

3 billion tons

Sweden

35 million tons

1.4%

1.3 billion tons

History of iron ore trading

The history of iron ore trading may go back as far as 2,000 BC, when some believe the first extraction of iron from its ores happened. However, it wasn’t until the 19th century when the large-scale mining of iron ore for industrial steel production began.

Fast forward to the modern day, and steel is used in a wide variety of industries, the largest being buildings and infrastructure, but also in mechanical equipment, automotive and domestic appliances. In more recent years, iron ore hit a high in 2011 as supply was disrupted in major exporter India, and steelmakers in China rushed to buy ahead of Chinese New Year. The price would fall steadily over the following years as Chinese demand waned, but rallied again in 2016 as global appetite for the metal warmed up again.

In 2020, iron ore prices surged as a Chinese government stimulus following the coronavirus pandemic spurred infrastructure spending.

Most recently, in May 2021 iron ore prices again surged, this time more than 10% as hopes that the global economic recovery from Covid-19 would extend beyond China and assist commodity markets.

But prices would fall again towards the end of the month, in part down to Beijing’s intervention to boost domestic supply and curb speculation.

Iron ore price history

Take a look at the below chart, which shows the iron ore price history over the last ten years or so, and discover the fundamental factors that contributed to the fluctuations in value seen by the metal.

History of iron ore price

What affects iron ore prices?

There are a variety of fundamental factors that affect the price of iron ore, and they should all be taken into consideration before trading the commodity. Knowing the likely drivers of the price will enable traders the information to inform their decisions in this market. These include economic prospects, the housing and construction industries, and supply issues.

Economic prospects

When economic prospects are good, the demand for iron ore may increase. Since the vast majority of iron ore is used to make steel, increased construction, infrastructure and industrial development will often create a high demand for the raw material, potentially pushing its price up. Naturally, a subsequent oversupply of the asset may correct this price rise. Conversely, when economic activity is subdued the demand for steel may fall in line, pushing down the iron ore price.

Housing markets and construction

Particularly in booming economies like China, expanding construction in housing can create a high demand for steel, and therefore iron ore. Steel is used widely in housing, as well as across construction as a whole, due to its strength, its ability to bind to concrete and its relative cost-effectiveness. This demand can serve to push up the price of the raw material.

Supply issues

When it comes to supplying the world with iron ore, the largest global producers such as Vale in Brazil and Rio Tinto in Australia enjoy economies of scale that means lower costs and more reliable production than smaller competitors.

However, supply can still be forced down by unfavourable fundamental conditions. For example, seaborne iron ore supply in Australia and Brazil during Q1 is often affected by seasonal bad weather, Vale’s slow recovery from a dam accident in 2019 meant production decreased, and production hindrances were compounded in 2020 by the coronavirus outbreak.

How to trade iron ore

Iron ore will soon be available to trade with us, but there are a range of other commodities to trade in the meantime, including gold, silver, oil, copper, and even agricultural commodities like soybeans. Follow these simple steps and kickstart your commodities trading experience today.

  1. Open an account, or log in if you’re already a customer 
  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

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