Reuters citing Mr Kees Gerretse group director of procurement as saying that India steelmaker TATA Steel is investigating the use of iron ore derivatives but will not use these financial instruments unless the market attracts more liquidity.

He said that "We are investigating it (iron ore derivatives) as a trend but we don't do actual hedging at the moment. He added that iron ore (swaps) is not a liquid market. It is only (a few) million tonnes on trades and our consumption is already 27 million tonnes per year."

If liquidity improved however, TATA Steel could start using iron ore swaps, a financial instrument which allow producers, consumers and financial market participants to hedge or bet on prices in the future.

Mr Gerretse said "Depending on our selling strategy, if we have long term (sale) contracts we can always link our hedging position to the customers. We do that in zinc. We do that in aluminium."

As iron ore pricing becomes more flexible, steelmakers are pushing for shorter steel pricing mechanisms.

(Sourced from Reuters)