Friday was the first day for cash trading in silver futures on the LME - the world's largest industrial metals market - and saw the silver contract sliding further into backwardation.

The contract was re-introduced on May 10 after a 10-year absence but dealers reported scant interest since. ``Basically the contract is illiquid, to be honest we have no interest in it,'' one dealer said. With no silver yet registered for delivery in LME-approved warehouses, dealers have to find metal to cover their positions before they mature next week.

They can do this by borrowing silver, at a premium, from another trader who expects to have silver in a LME warehouse when the position matures.

Silver's cash/threes spread was showing a 20/25 cents backwardation from five cents on Thursday. Onthe LME floor, silver cash for a day traded at 10 cents backwardation and cash to September 15 at 12 cents backwardation. A backwardation occurs when a spot price exceeds a futures price, pointing to supply difficulties. Traders said only four 5,000-ounce lots of silver were traded on Thursday, reflecting the thin volumes in the contract.