Goldman Sachs started to trade iron ore swaps earlier this year and is preparing to enter the physical iron ore market, market sources said. Growing liquidity levels in the iron ore swaps market attracted many banks to invest in it and some have also decided to set up physical iron ore desks to strengthen their positions.

An iron ore swaps broker said that "Some of the banks are looking at getting more involved on the physical side, which further enhances their trading opportunities in the paper market.”

Brokers said that the volume of iron ore swaps cleared on the Singapore Exchange in May reached a record at 3.5 million tonnes, up from 1.6 million in April and it is on track to hit a new record at 4 million tonnes in July.

Mr Colin Hamilton analyst of Macquarie said that "It is always good to have physical positions to back your financial positions but it's always going to take some time.”

(Sourced from Umetal)