A unit of the Bank of China (BOC) is arranging to enter the iron ore swaps business next year to exploit the growing demand for hedging from steel mills and traders.

BOC International, the state-owned bank's investment banking arm, will provide brokerage services, proprietary trading of iron ore swaps and physical trading, Reuters sources said.

"The bank plans to start an iron ore swaps business in the first half of next year, with the aim of providing hedging services for domestic players first," one of the sources said, adding plans to apply for clearing membership in the Singapore Exchange (SGX) next year are also underway.

Moreover, the BOC International has also applied for category two membership on the London Metal Exchange (LME).

Launched in mid 2008, iron ore swaps businesses are cash-settled contracts that allow steelmakers and traders to evade price risks.

The BOCI had been approved as a clearing member of CME Group in March. The CME and SGX both offer clearing of iron ore swaps.

BOCs foray into the iron ore swaps business signals Beijing's bid to play a bigger role in setting world prices for the raw material primarily boosting its fast-growing economy.

Chinese regulators had allowed three of its futures brokerage firms this year to participate on overseas commodity exchanges.

Iron ore global demand had increased in recent years, especially when pricing scheme shifted from annual contracts to quarterly. This encouraged some Chinese mills to consider hedging risks via swaps.