* Volume in CME iron ore futures triples in H1
* Funds lured by incentive fee cuts, lower margins
* Singapore, Dalian exchanges still dominant
* Graphic on volumes: link.reuters.com/fun35w (Adds link to graphic)
By Maytaal Angel and Eric Onstad
LONDON, July 30 (Reuters) - Rising volumes in U.S.-based iron ore contracts are starting to create a credible alternative to trading in Asia for the raw material to make steel, industry sources said.
While iron ore prices rallied and then tumbled to record lows in recent years, trading volumes on Asian exchanges have soared, while those in Europe and the United States struggled.
Miners and industrial consumers in Asia piled in to lock in prices, while speculators take advantage of volatility, with big Western steel producers largely shunning the contracts.
Iron ore derivatives traded on the Singapore Exchange (SGX) have roughly doubled in volume each year since their launch in 2009 and are expected to reach about a billion tonnes this year.
But rising activity in iron ore on the Chicago-based CME Group Inc, the world's largest futures exchange operator, is starting to attract attention.
"I've been asked by a few people to trade iron ore on the CME and I was worried because of liquidity, but now that volumes have increased I'll consider it," said Antonio Novi, director at Levmet, a metals trader that also provides hedging services to industrial companies.
Volume on the CME's 62 percent iron ore futures contract (TIO) has more than tripled in the first half to 55,849 lots compared with the same period last year.
The last few months have been especially strong, with June volume at 12,906 lots, a rise of more than tenfold over the same month in 2014.
The jump in U.S. iron ore trading comes from a low base, however, which still leaves the SGX and China's Dalian bourse as dominant players in the commodity.
"The rising volumes on CME is good for the market because it means more competition, which lowers the overall transaction costs and improves further the overall service to the trading and investment community," said Georgi Slavov, head of research at broker Marex Spectron.
"In turn, this normally attracts even more big players."
Established Asian players are not complacent. SGX, which clears more than 90 percent of globally traded iron ore swaps, plans to add two more low-grade iron ore derivatives early next year.
In June, tonnage traded in SGX iron ore futures was 42.07 million tonnes and in swaps was 15.46 million compared with CME iron ore futures at 6.45 million tonnes.
The CME's success in increasing volumes is at least partly due to an incentive programme, which was launched in December.
"My understanding is it's cheaper to trade on CME versus SGX and the incentive plans are more attractive," said Jean-Luc Fiorenzoni, founding partner at Commos Consulting, which trains and advises firms on how to manage commodities risk. (Reporting by Eric Onstad; editing by Susan Thomas)