The involvement of large iron ore producers in the iron ore swaps market is set to grow, although they are unlikely to become major players in the derivatives markets, the chief executive of London Commodity Brokers told Dow Jones Newswires.

"We will see more of them than at the moment, but I doubt they'll be dominant players," Clive Murray said in an interview during the London Metal Exchange's annual industry week. "Whether they come in and dominate swaps, I doubt it. Each mining house wants to be a bit more flexible than the next, and they don't want to be seen influencing the market. They have to please shareholders," he added.

An iron ore swap is a cash-settled derivative contract that involves buying or selling at a fixed price against a floating price, like an index. Swaps can be used by mining companies, steel producers and other market participants to hedge against volatility in the physical iron-ore spot market.

However, the financial products, which were pioneered by Credit Suisse (CS) and Deutsche Bank AG (DB) a couple of years ago, initially struggled with low liquidity and have seen a slow uptake from large iron ore producers.

London Commodity Brokers, an over-the-counter brokerage firm that specializes in physical and derivatives broking of commodities such as coal and iron ore, has sent brokerage bills to over 40 different entities in the past three years, including 13 different banks and producers such as Glencore International PLC (GLEN.LN) and BHP Billiton Ltd (BHP), according to Phil Simms, manager of London iron ore swaps for London Dry Bulk, the company's iron ore arm.

"New people are coming to the table when they see other players getting involved," said Simms. "Because there are more players there is more liquidity, and more confidence even at far end of the curve. People can now trade years ahead," said Simms.

While banks played a big part in the early adoption of iron or swaps, London Commodity Brokers is also seeing increasing interest from European and Asian traders, said Simms.

Activity is growing apace, and open interest in iron ore swaps on the Singapore Exchange (SGX) hit a new record high of 9,799 lots, or 4.9 million tons in September, according to The Steel Index, one of several information providers that generates indexing for iron ore prices. Trading volumes in iron ore derivatives were strong in September, with over 4.3 million tons cleared for the third consecutive month. This took the total volume cleared in third quarter of this year to over 15 million tons, according to TSI.

-By Francesca Freeman, Dow Jones Newswires; +44 (0)20 7842 9412; francesca.freeman@dowjones.com