LONDON (Reuters) - Deutsche Bank (>> Deutsche Bank AG) is moving its steel derivatives business away from the London Metal Exchange (LME) billet contract to U.S. rival CME Group (>> CME Group Inc.), a market source said on Friday, threatening the existence of the steel futures.

The source said that the German bank "is now supporting the CME steel swap, including the CME billet and scrap swaps".

Deutsche Bank, which declined to comment, was one of the main supporters and users of the four-year old LME steel billet contract. The decision to abandon it comes after problems that have prompted users to demand an overhaul or creation of a new product.

The London exchange is going through a transition period after the Hong Kong stock exchange agreed to buy it for 1.4 billion pounds ($2.2 billion).

This means that the LME will not probably be unable to implement changes quickly enough to avoid losing business to other bourses, traders said.

Chris Evans, head of business development at the LME, said on Friday: "The sale shouldn't have any effect on the running of the market. We are in a constant dialogue with the market to ensure the relevance of the contract and we are looking at what we can do to make improvements.

"Clearly there are many parties involved but we will move as soon as we can."

CME Group said this week that it plans to launch a U.S. steel scrap contract to expand its offering of ferrous derivatives, aiming to cash in on growing interest in price-risk management in the sector.

Industrial players including Whirlpool (>> Whirlpool Corporation), the world's largest appliance maker, and financial players such as JPMorgan (>> JPMorgan Chase & Co.) are keen users of the CME steel swaps and think they will grow in the future.

(Editing by David Goodman)

By Silvia Antonioli