Aside from the fact that 'Organic Iron' is a contradiction in terms, I see what you're getting at. Toady doesn't use the [USE_MATERIAL] token anywhere in the raws, so I have no examples to give you, it may be a deprecated token for all I know. What you want to do, however, is easy. You can define a material template in the raws as you stated, but instead of calling it "Dwarf Iron" you call it "creature iron."
Then, in the dwarf (or other creature) you can alter properties of the material (including the name of the material) on the fly to suit the specific creature you're making, without changing the rest of the properties. If the material is very simple, you can just define it on the fly in the creature raw.
For working examples of the first way, look at how milk works in any milkable creature.
[USE_MATERIAL_TEMPLATE:MILK:MILK_TEMPLATE]
[STATE_NAME:ALL_SOLID:frozen donkey's milk]
[STATE_ADJ:ALL_SOLID:frozen donkey's milk]
[STATE_NAME:LIQUID:donkey's milk]
[STATE_ADJ:LIQUID:donkey's milk]
[STATE_NAME:GAS:boiling donkey's milk]
[STATE_ADJ:GAS:boiling donkey's milk]
[PREFIX:NONE]
For working examples of the second way look at this excerpt from the vanilla ELEMENTMAN_GABBRO
[TISSUE:ROCK]
[TISSUE_NAME:gabbro:NP]
[TISSUE_MATERIAL:INORGANIC:GABBRO]
[MUSCULAR]
[FUNCTIONAL]
[STRUCTURAL]
[RELATIVE_THICKNESS:1]
[CONNECTS]
[TISSUE_SHAPE:LAYER]
[TISSUE_LAYER:BY_CATEGORY:ALL:ROCK]
In the first example, the material template MILK is already present in the raws. By using the template, toady takes all the properties of the material from the template, and then changes the name of the material to suit the creature in question. In the second example, there is no material or tissue named ROCK with the properties of Gabbro present in the raws, so he makes a very simple one up on the fly (and copies the properties of gabbro using the [TISSUE_MATERIAL:INORGANIC:GABBRO] token) to suit his purposes. He could have easily changed the name to "Gabbro-Man Gabbro."
It should also be noted that there is also a [USE_TISSUE] token, which is also not used anywhere in the raws. I suspect you haven't been able to get the [USE_MATERIAL] token to work because you're trying to use it to define tissues, when its meant to be used to define non-tissues, like creature extracts. But I have no idea what the proper syntax should be, as there are no examples in the raws.