What are ASX iron ore stocks?
Mining companies producing and refining iron ore are known as iron ore shares or stocks.
They are typically miners that already operate projects producing iron ore but can also include development or mineral exploration companies seeking to establish new mining projects.
Iron 'ores' are deposits of rocks and other minerals that contain metallic iron. The iron ore is then smelted in a blast furnace, converting it into a crude form known as 'pig iron'. Pig iron is the primary raw material steel mills use to make steel.
Steel is an alloy made mostly of iron, with small amounts of carbon and other elements added to improve the metal's strength and durability. These improved characteristics make steel ideal for everything from large infrastructure projects like the Golden Gate Bridge in San Francisco in the United States to the stainless steel pots and pans in your kitchen.
Australia is one of the largest exporters of iron ore in the world. This makes it easy for Australian investors to gain exposure to the iron ore industry, with ASX-listed mining giants like BHP Group Ltd (ASX: BHP) among the world's biggest producers.
Iron ore shares can include pure-play companies like Fortescue Metals Group Ltd (ASX: FMG) that focus exclusively on iron ore production, or diversified mining companies like BHP or Rio Tinto Ltd (ASX: RIO) that also produce a range of other metals and minerals in addition to iron ore.
Whether you choose to invest in a pure-play iron ore company or a diversified mining company will depend on the degree of exposure you want to the price of iron ore.
Why invest in ASX iron ore shares?
Iron ore is part of the bedrock of the Australian economy, making up roughly 30% of the nation's total global exports1. And, given iron ore's importance for steel production, investors can be confident that demand for the mineral will remain high.
Considering how much iron ore our country exports, it probably goes without saying that some of the world's largest iron ore producers are based in Australia and trade on the ASX. This means you have some world-class investment options available to you right here at home.
Top iron ore stocks on the ASX
Shares in iron ore form part of the materials sector, which includes some of the largest companies listed on the ASX. Materials companies produce and refine raw materials like metals, lumber, and oil. Besides miners, the materials sector comprises companies operating in the chemicals, construction, packaging, and timber industries.
As the world's second-largest producer of iron ore and the largest company on the ASX by market capitalisation, BHP naturally sits atop the list of iron ore shares to buy. However, plenty of other ASX iron ore stocks are in the mix.
| Company | Description |
| BHP Group Ltd (ASX: BHP) | The world's second-largest iron ore miner and currently the largest company on the ASX |
| Fortescue Metals Group Ltd (ASX: FMG) | Largest pure-play iron ore company on the ASX |
| Rio Tinto Ltd (ASX: RIO) | Owns and operates significant iron ore assets in the Pilbara region of Western Australia |
BHP
BHP is currently the largest mining company in the world and the largest company listed on the ASX in terms of market capitalisation.
A global mining company with a diverse portfolio of mining assets, BHP is the world's second-largest iron ore producer behind Brazil's Vale SA (NYSE: VALE). The miner is also the world's largest coal producer and a leading producer of copper and nickel.
A little over 45% of BHP's total FY23 revenue came from iron ore, with significant contributions from copper and coal. This means that investing in BHP gives you exposure to multiple commodity markets in a single trade.
Fortescue
Fortescue is a top option for investors seeking exposure to the price of iron ore. It is the largest pure-play iron ore company on the ASX and operates large-scale mining projects in the Pilbara region of Western Australia.
Fortescue is also making significant steps toward becoming a "global green energy and resources company". It is targeting net-zero scope one and scope two emissions by 2030 and net-zero scope three emissions by 2040. This makes Fortescue a good choice for investors seeking some iron ore exposure without increasing their carbon footprint.
While scope one and two emissions include those produced by the business during its regular operations and energy consumption, scope three emissions include those made by other entities in Fortescue's value chain. This will require Fortescue to work closely with its stakeholders to decarbonise the entire steel production line.
Rio Tinto
Often the bridesmaid to the BHP bride, Rio is the second-largest mining company in the world by global market capitalisation (it is dual-listed) and is among the largest companies listed on the ASX.
Like BHP, Rio is a diversified mining company with operations across the globe. Iron ore remains, by far, its biggest money-earner, accounting for around 90% of total underlying earnings from its reported segments in 1H23 (for the six months ending 30 June 2023).
However, Rio also produces aluminium, copper, and other minerals (including diamonds). This means that, just like BHP, it exposes investors to the prices of other metals and minerals commodities, not just iron ore. This makes it another lower-risk option for investors seeking exposure to a basket of commodities.
What might the future hold for Australia's iron ore industry?
Despite steel's ubiquity in construction and engineering, iron ore prices have been particularly volatile recently. Major global macro events, such as the COVID-19 pandemic, weakness in the mainland China property market, runaway inflation, and the ongoing Russia-Ukraine war, have caused huge swings in the price of iron ore over the past few years.
Unfortunately, many companies have to deal with a much more uncertain economic outlook than before the pandemic. Inflation remains stubbornly persistent in many economies, interest rates are higher than they've been for years, and global conflicts continue to upend commodity markets and disrupt supply chains.
As central bank interest rate hikes begin to bite, economic growth may stagnate, and demand for raw materials like iron ore could dry up. This may continue to drive volatility in the iron ore price over the near term.
However, this shouldn't necessarily detract from iron ore's value as a longer-term investment. As economies throughout Asia grow, steel demand in our region of the globe will likely continue to increase.
Not only that, but steel is also a necessary material in many renewable energy systems (especially wind turbines), which could make iron ore companies an unlikely green energy play.
Benefits of investing in iron ore shares
As we've just discussed, there are many benefits to investing in iron ore, particularly over the longer term. We provide just a couple below:
High demand: Iron ore is essential for the construction industry because it is used to make steel. As economies grow and expand, they will launch new infrastructure projects to modernise their cities and support larger populations.
Developing economies in our region, like Vietnam and Indonesia, should keep steel demand – and, thus, iron ore – high in coming years. And China continues to remain the largest importer of iron ore in the world.
Supports the green energy transition: Iron ore shares may also be a somewhat surprising option for climate change investors. Although steel production does account for a large percentage of global emissions (5% in 2022),2 steel is still a key material required to build things like wind turbines.
Balancing out their significant carbon emissions with the benefits steel can deliver to the transition to green energy will be a crucial focus for many iron ore companies in the future. Fortescue, for one, is already keenly aware of this and is investing heavily in reducing its carbon emissions.
The transition to green energy could boost the demand for iron ore well into the future, especially if more countries commit to using renewable energy sources.
And the cons?
As with any investment, there are also some risks that you should be aware of before buying ASX iron ore stocks. We have already touched on some of these, but we'll go into a little more detail below.
Heavy reliance on China: China is the biggest consumer of iron ore on the planet and buys most of Australia's iron ore exports. This makes the value of iron ore highly dependent on the strength of the Chinese economy.
China is currently suffering through a property crisis. While most other economies raise interest rates to curb inflation, the Chinese central bank keeps interest rates low to prop up the real estate market.
While a Chinese economic recovery will be a boon for iron ore stocks, further downgrades will continue to hurt the industry. If the bottom drops out of the Chinese property market, new construction projects will dry up, and demand for iron ore could plummet.
Impact of Russia-Ukraine war: The ongoing war in Ukraine may also contribute to volatility in iron ore prices. Ukraine and Russia produce about 65 million tonnes of iron ore each year. While this pales compared to the 871 million tonnes Australia exported in the 2021 financial year, a sudden removal from the global supply would still be enough to cause some disruptions.
Are ASX iron ore shares a good investment?
Iron ore is one of Australia's most significant exports. The iron ore industry has helped advance the Australian economy, with some of the world's largest iron ore miners listed right here on the ASX. This makes it incredibly easy and affordable for Australian investors to access the iron ore market.
Whether iron ore shares are right for you depends on your risk tolerance, investment objectives, and possibly even your opinion on climate change. The steel industry creates a large chunk of global carbon emissions, which might turn you off investing in iron ore shares.
However, the world is still heavily reliant on steel and will likely remain that way for the foreseeable future. Even constructing large-scale renewable energy projects will likely require a lot of steel. This means the shift toward renewables may prop up the price of iron ore for years, making it an attractive investment.
Frequently Asked Questions
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We use iron ore to create steel, the most in-demand raw material for the construction and infrastructure industries. As developing nations in our region (like Vietnam and Indonesia) modernise their economies, they will need steel for large city construction projects. Australian iron ore producers, like BHP and Fortescue, are uniquely positioned to supply the Asian market. Although steel production creates high pollution levels, iron ore is an unlikely green energy play. Steel is also required to build renewable energy systems, especially wind turbines. This means demand for iron ore may remain high even as more nations decarbonise.
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Iron ore stocks aren't falling. The share prices of major ASX iron ore producers like BHP, Fortescue and Rio Tinto are all trading close to multi-year highs. Despite troubles in the Chinese property market, demand from the world's largest iron ore importer remains strong, thanks to other sectors of the economy, like electric vehicles, wind farms and infrastructure. Nevertheless, there is still the fear that higher interest rates in many economies could dampen global demand for iron ore. This is because large corporations may forego launching new projects now and instead wait until borrowing costs are cheaper in future. A slowdown could lead to lower iron ore prices and profits for producers – although that hasn't happened so far.
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Persistently high inflation, high interest rates, and uncertain demand from China could all cause near-term volatility in the iron ore price - which could, in turn, cause large swings in the share prices of ASX iron ore companies. However, long-term demand for iron ore will likely remain elevated as it is a critical raw material used in the construction and infrastructure industries. And, despite the pollution created by steel production, it remains a necessary component in green energy systems, particularly wind turbines. Companies like Fortescue are leading the way in reducing the pollution caused by the iron ore and steel industries. Making the steel production process more environmentally friendly will also ensure high demand for iron ore, even as more economies decarbonise.
