Iron ore swap volumes are growing steadily but future growth will depend on whether the China Iron and Steel Association gives domestic steelmakers consent to use swaps in order to hedge their iron ore purchases, Raymond Key, the global head of metals trading at Deutsche Bank said.

"The real watershed event for iron ore swaps will be the eventual backdown by CISA from its anti-iron ore swap stance so that domestic Chinese steel mills can take advantage of the swaps," Key told Dow Jones Newswires in an interview.

CISA, an influential trade body, has in the past discouraged its members from using iron ore swaps. Even the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters advised its members against trading cash-settled swaps on grounds that they carry higher risks than more traditional over-the-counter market products.

Iron ore swaps are over-the-counter derivative contracts used by steel producers and other iron ore market participants to hedge against volatility in the physical iron ore spot market. The swaps are settled against indexes from Metal Bulletin and The Steel Index.

 
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-By Alex MacDonald, Dow Jones Newswires; +44 (0)20 7842 9328; alex.macdonald@dowjones.com