Why now is the perfect time to invest in iron ore

With iron ore markets under pressure and miners cutting dividends, investors are retreating, making it an opportune time to invest in the commodity.

Major miners are having to scale back dividends because of a drop in profits derived from lower iron ore prices, which have decreased by 25 per cent since January 2024.

Weakened demand from China and fears of oversupply have also contributed to the sell-off. Fortescue is down 4.2 per cent in the past five days to $18.65 after declaring an interim dividend of $0.50 per share in the first half (H1) of the 2024–25 financial year (FY25) – down from $1.08 per share in H1 FY24.

Mineral Resources is down 16 per cent in the past five days to $26.66 after announcing a statutory net loss after tax of $807 million in H1 FY25.

While the sell-off is real, not all is lost in the iron ore market.

Historically, commodity dips create buying opportunities for those willing to weather the cycle.

China’s property sector remains a key driver of iron ore demand, and the country has ramped up stimulus efforts, including infrastructure spending.

China is currently looking to build 50,000km of high-speed rail lines by 2025. To achieve its goal the country needs to add approximately 3800km between now and next year.

This ambitious expansion indicates sustained demand for steel and, consequently, iron ore.

Global steel demand is forecast to grow by 1.3 per cent a year from 2024 to 2026, according to the Resources and Energy Quarterly for December 2024.

While oversupply concerns persist, strategic investments by key industry players highlight confidence in the iron ore sector’s future.

Mitsui & Co.’s recent acquisition of a 40 per cent stake in the Rhodes Ridge iron ore project in Western Australia underscores a long-term positive outlook.

This project, operated by Rio Tinto, is expected to commence production by 2030, with a initial mine production of 40 million tonnes per annum.

Such investments reflect a belief in sustained demand, particularly from Asian economies.

Additionally, global demand for high-grade iron ore is expected to rise as steelmakers push towards greener production methods, favouring premium ores from Australia.

Fortescue, BHP and Rio Tinto remain among the lowest-cost producers globally, meaning they are well-positioned to withstand price volatility and maintain profitability even at lower iron ore prices.

Investors dumping iron ore stocks now may be acting out of fear, overlooking long-term fundamentals.

For those with a longer investment horizon, the current weakness in the sector could present an attractive entry point before the next upswing.