Market Overview

The Best ETF For Rising Iron Ore Prices

The Best ETF For Rising Iron Ore Prices

With the global economy looking poised to rebound, iron ore prices are sure to benefit. In fact, they already are. Iron ore is a key ingredient in the steel making process, so it is no understatement to say that iron ore prices are intimately tied to the health of the economy at large.

Investors looking for a way to play this trend may turn to a steel-specific ETF such as the Market Vectors Steel ETF (NYSE: SLX). That's a decent way to play iron ore, but there is a better way to get direct iron ore exposure.

The ETF is the iShares S&P Global Materials ETF (NYSE: MXI). Given that MXI is a commodities ETF and what stocks are found among its top-10 holdings, it is surprisingly thinly traded. That said, there is no denying this the "iron ore ETF."

BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RTP) and Vale (NYSE: VALE) are the three largest iron producers in the world and those stocks account for roughly 20% of MXI's weight.

One drawback to MXI is that the ETF is not optionable, but that's a small price to pay for being involved with this ETF.

The trends are undeniable. BHP and Rio Tinto may be able to force Chinese steel producers to pay 50% more for iron ore this year than they paid last year. Even if the 50% increased isn't seen, iron ore prices will higher.

BHP and Rio Tinto are trying to get steel firms to pay the spot price for iron ore, but even if they're not successful in that move, Reuters reported the companies may still be able to enact 80% price increases. And that makes a very bullish case for taking a look at MXI.


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