Why you need iron ore in your investment portfolio

Australians can cash in on the China-driven iron ore boom without even having to buy the commodity used to make steel.

Iron ore prices on Tuesday surged to a record high of $US193 a metric tonne, data from S&P Global Platts showed.

The record was reached before the Australian Bureau of Statistics on Wednesday revealed a record $14billion worth of iron ore was exported in March – up $2.5billion or 21.7 per cent from February thanks to strong demand from China, Australia’s biggest trading partner.

Investors can cash in on the iron ore boom by buying exchange traded funds linked to the iron ore price, which has more than tripled since April last year with Brazil still yet to recover from the Vale tailings dam collapse two years ago.

Australians can cash in on the China-driven iron ore boom without even having to buy the commodity used to make steel. Iron ore prices on Tuesday surged to a record high of $US193 a metric tonne, data from S&P Global Platts showed. Pictured is Fortescue Metals chairman Andrew Forrest with Prime Minister Scott Morrison at Karratha in Western Australia

CommSec market analyst James Tao said the prospect of iron ore prices possibly rising above the $US200 a tonne mark made exchange traded funds linked to commodity prices something worth considering. 

‘It will certainly track the price of commodities, those mining exposed assets certainly will benefit from commodity prices increasing,’ he told Daily Mail Australia.

Mr Tao said there was a good chance iron ore prices could rise higher, having this week surpassed previous record highs of a decade ago after the Global Financial Crisis, as China bought more iron ore from Western Australia’s Pilbara region.

‘China is a big buyer of our iron ore, they continue to develop post-Covid, a lot of that is going into steel and construction,’ he said.

‘Steel margins in China remain very strong which continues to give signs you’ll see the price of iron ore remain elevated for some time.

‘We’ve seen the price of iron ore certainly moving in that direction – if it continues, you can certainly imagine it over that $200 mark.’  

The record was reached before the Australian Bureau of Statistics revealed a record $14billion worth of iron ore was exported in March – up $2.5billion or 22 per cent from February thanks to strong demand from China, Australia’s biggest trading partner. Pictured is Chinese President Xi Jinping

 Sean Crick, the ABS’s head of international statistics, said iron ore exports underpinned Australia’s trade surplus in March. 

‘Iron ore is the foundation of Australia’s export strength, accounting for 39 per cent of all March exports,’ he said.

Since the start of 2021 mining stocks, known as the materials sector, have climbed by 8.5 per cent compared with 7 per cent for the broader Australian Securities Exchange.

This has seen mining giants BHP and Rio Tinto, and pure iron ore player Fortescue pay out record dividends to shareholders.

CommSec market analyst James Tao said the prospect of iron ore prices possibly rising above the $US200 a tonne mark made exchange traded funds linked to commodity prices something worth considering. Pictured is the Australian Securities Exchange in Sydney

‘Those particular stocks have seen quite an incredible improvement in the last 12 months,’ Mr Tao said.

Despite the good news on iron ore, the Fortescue Metals share price fell 1.2 per cent to $22.69 as of 2.40pm AEST on Tuesday. 

Mr Tao said investors had already priced in the good news on iron ore prices. 

The benchmark S&P/ASX200 was up 0.4 per cent to 7,064.10 points.