Reuters reported that Chinese state owned steelmakers are preparing to enter the Singapore-based iron ore swaps market, in a move that could boost liquidity in iron ore derivatives as firms look to hedge volatile prices.

The step is another in the evolution of iron ore trading, where benchmark prices were set by annual talks just four years ago, and a further sign Beijing is relaxing its tight grip on trading offshore commodities futures contracts.

Baosteel, China's third largest steelmaker by output, and Valin, the listed unit of the tenth-biggest steelmaker Hunan Valin Group, have both won approval to trade iron ore futures overseas.

Mr Wang Jun vice president of state-owned Hunan Valin Steel Co said that "There have always been arguments over whether steel mills should trade futures for hedging or not. We don't want the market to become overly speculative, but when the trend is happening, we might have to face it and do it.”

Brokers said that Chinese privately owned steelmakers and iron ore traders have already been increasing their use of iron ore derivatives this year, accounting for up to a third of the volume on the Singapore Exchange's swap contracts in some months.

Liqudity jumped rapidly to 136 million tonnes in the first half of 2013, traders estimate, compared with 110 million tonnes in all of 2012, but is still dwarfed by the 1.1 billion tonnes of physical seaborne iron ore traded each year.