The iron ore price is up on last quarter as China’s imports remain strong despite its steel production falling below 1 billion metric tons in 2025 for the first time since 2019. Its anti-involution campaign is reducing overcapacity, mainly via the closure of smaller, less efficient steelmakers.

Why it matters: We update our iron ore miners for our latest commodity price assumptions.

  • We now assume iron ore averages about USD 100 per metric ton from 2026 to 2028 based on the futures curve, up from around USD 95. After rolling forward our midcycle price to 2030, from 2029, we assume around USD 75 then based on our estimate of the long-run marginal cost of production.

The bottom line: Higher near-term iron ore and copper prices drive no-moat Anglo American’s (LSE:AAL) fair value estimate up 7% to GBX 2,200. With Canadian regulators approving its proposed merger with no-moat Teck (TSX:TECK.B), we now assume a 100% chance it closes, up from 50%, but the additional accretion to Anglo is modest.

  • Teck’s fair value estimate rises 9% to USD 35. No-moat BHP Group (ASX:BHP) and Rio Tinto’s (ASX:RIO) fair value estimates rise 5% to $44 and 4% to $125, respectively, on higher iron ore, copper—and for Rio, aluminum—prices, partially offset by a stronger AUD/USD.
  • No-moat Vale’s (NYSE:VALE) fair value estimate increases 2%, to USD 15. The impact of stronger iron prices is broadly offset by currency movements since our last update for no-moat Deterra (ASX:DRR) and Fortescue (ASX:FMC), whose fair value estimates remain $4.40 and $16.60, respectively.

Long view: Vale and Deterra shares are fairly valued but our other iron ore miners are overvalued by up to 50%, likely due to them also having exposure to copper, which is now trading near historical highs at about USD 6 per pound.

  • We think this is due to near-term supply shortages and optimism over rising demand for use in electrification and decarbonization. Traders are also moving copper to the US on fears of higher tariffs on imports, creating a shortage elsewhere as US-based copper inventories rise.

Anglo American and Teck shares are the most expensive under our iron ore coverage, by around 50%, likely on investor excitement over their pending merger and the combined group’s greater exposure to copper compared with more iron-ore-focused Vale, and to a lesser extent, Rio and BHP. Rio and BHP shares trade 18% and 12% above our fair value estimates, respectively.

Fortescue shares trade 37% above our intrinsic assessment. Despite nascent efforts to move into copper production, its earnings are likely to be driven by iron ore for the foreseeable future. As such, we think the premium is driven by its greater operating leverage to changes in the iron ore price, which at around USD 110 per metric ton remains materially above our USD 75 midcycle assumption. After adjusting for the discount Fortescue receives to the 62% benchmark price due to its lower grade ore—averaging around 57%-58% iron content—the miner is located around the 75th percentile on the iron ore industry cost curve. This compares with the first quartile for BHP, the second quartile for Rio, and around the middle of the cost curve for Vale.

Rio Tinto

Rio Tinto is one of the world’s largest miners with operations in iron ore, aluminum (including bauxite and alumina), copper, and minerals (mineral sands, borates, salt, diamonds). Commodity demand is tied to global economic growth, China’s in particular. Rio Tinto benefited greatly from the China boom over the past two decades. The firm’s largest customer by far is China, with about 60% of sales in 2024. We think the outlook is for earnings to materially decline with demand for many commodities likely to soften with the end of the China boom, particularly iron ore which has disproportionately benefited from the boom in infrastructure and real estate investment.

Rio Tinto has a large portfolio of long-lived assets with low operating costs, meaning it is one of few miners profitable through the commodity cycle. Most revenue comes from operations located in the relatively safe havens of Australia and North America. The invested capital base was inflated by substantial procyclical investment during the height of the China boom, including overpaying for Alcan. The subsequent iron ore expansion was also made when unit capital costs were high. These factors diluted returns to the point where we struggle to justify a moat. As a commodity producer, Rio Tinto is a price-taker, with the lack of pricing power reflecting in cyclical commodity prices.

The recent focus has been to run a strong balance sheet, tightly control investments, and return cash to shareholders. Rio Tinto is also focused on winning back the trust of investors and other stakeholders such as regulators and the indigenous peoples on whose lands many of Rio’s mines are located after the destruction of the caves at Juukan Gorge in 2020. The company’s major expansion projects are the Oyu Tolgoi underground mine and the expansion of the Pilbara iron ore system’s capacity from 330 million metric tons to between 345 and 360 million metric tons. Those projects are expected to complete in the next few years. Otherwise, the focus is on incremental expansions through productivity and debottlenecking initiatives. These will be small but capital-efficient and should modestly improve unit costs and returns.

BHP Group

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

Commodity demand is tied to global economic growth, particularly China’s. BHP benefited greatly from the China boom over the past two decades. China is BHP’s largest customer, accounting for roughly 60% of sales in fiscal 2025. With demand for many commodities likely to soften as the China boom ends, particularly iron ore, which has disproportionately benefited from the boom in infrastructure and real estate investment, we think the outlook is for earnings to decline.

Its generally low-cost, high-quality assets mean BHP is likely to be one of the few miners that remain profitable through the commodity cycle. Much of the company’s operations are located close to key Asian markets, particularly the low-cost iron ore business, providing a modest freight cost advantage relative to some producers such as those in Africa and South America.

BHP correctly values a strong balance sheet to provide some stability through the inevitable cycles and derives some modest benefit from commodity and geographic diversification. Much of its revenue comes from assets in the relatively haven of Australia. The development of Jansen in Canada is BHP’s major expansion project, with the company also pursuing modest expansion of its Western Australia Iron Ore operations above 290 million metric tons (100% basis) per year.

The good times during the height of the China boom saw significant capital expenditure, notably on iron ore and onshore US shale gas and oil. Overinvestment in the boom diluted returns to the point where we struggle to justify a moat. As a commodity producer, BHP lacks pricing power and is a price taker.

Fortescue

Fortescue is the world’s fourth-largest iron ore exporter. Margins are well below industry leaders BHP and Rio Tinto, and some way behind Vale, meaning Fortescue sits in the highest half of the cost curve. This is a primary driver of our no-moat rating. Lower margins primarily result from price discounts from selling a lower-grade (57% to 58% iron) product compared with the 62% iron ore benchmark. The lower grade is effectively a cost for customers through a greater proportion of waste to transport and process, additional energy/coal per unit of steel and lower blast furnace productivity. This results in a lower realized price versus the benchmark. In the 10 years ended June 2025, the company realized an approximate 22% discount versus the 62% benchmark.

Fortescue increased production rapidly thanks to favorable iron ore prices, aggressive expansion, and historically low interest rates. Expansion from 55 million metric tons of capacity in fiscal 2012 to around 195 million metric tons by 2025 is unprecedented. It built much of its capacity around the China boom peak and baked in a higher capital base than peers. This means returns are likely to lag the industry leaders who benefited from building significant capacity when the capital cost per unit of output was lower.

Fortescue has done an admirable job of reducing cash costs materially versus peers. However, product discounts remain a competitive disadvantage. The addition of about 22 million metric tons a year of iron ore production from the 69%-owned Iron Bridge joint venture allows Fortescue blending options. Iron Bridge grades are much higher, around 67%, meaning Fortescue could blend most of its iron ore to increase its average grade to between 58% and 59%.

Fortescue is a China fixed-asset investment play, with practically all of the company’s iron ore sold there. In the long term, we see demand for steel in China declining as the country’s stock of infrastructure matures and with the rate of urbanization past its peak.

The company’s strategy is to transform into a diversified iron ore and clean energy company. Its green energy initiatives are at an early stage, but it has big ambitions in the space.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.