Hematite submicron particles were synthesized using oil-contaminated ferric oxide precursor obtained from the hot-rolled steel industry in Colombia. The samples received are difficult to recycle for the steel industry, which, due to their poor disposal, causes irreparable environmental damage. Here we propose a synthetic route to obtain functional magnetic particles with this residue. First, a series of washes with solvent and alcohols were proposed, thus achieving the total removal of the oil. X-ray diffraction and Mössbauer spectroscopy show that the as received sample consists of different iron phases, with wüstite being the majority phase. After the synthesis process, the hematite phase was present as the majority phase with ∼92 wt%. FTIR, UV–Vis, and SQUID measurements was carried out to study the structural, optical and magnetic properties of the samples. This methodology is a viable alternative to give added value to this waste to improve the management of this by-product.