Japan Q4 aluminium premiums mostly set at record high $420/T -sources

* Premiums for Oct-Dec shipments up 3-5 pct from Q3

* Record (LSE: REC.L - news) high premiums reflect high spot U.S., Europe rates

* Asia supply is not as tight as the rest of the world (Adds details, comments, background)

By Yuka Obayashi

TOKYO, Sept 19 (Reuters) - Japanese aluminium buyers will mostly pay record high premiums of $420 per tonne over London Metal Exchange (LME) prices for October-December shipments, up 3-5 percent from the prior quarter, five sources directly involved in the talks said.

The rise from the third-quarter premium of $400-408 (PREM-ALUM-JP), which was the previous record high, follows a spike in spot premiums in the United States and Europe triggered by smelter shutdowns that have squeezed metal supplies.

Japan is Asia's biggest aluminium importer and the premiums for primary metal shipments it agrees to pay each quarter over the LME cash price set the benchmark for the region.

An end-user source said deals were done at $420 with three aluminium producers, with the premiums rising for a fourth straight quarter, while another source at a trading house said most shipments were booked at the same price. Negotiations are still continuing between some global miners and buyers.

The latest quarterly pricing talks began last month between Japanese buyers and global miners, including Rio Tinto Ltd (Xetra: 855018 - news) , Alcoa Inc (NYSE: AA - news) , BHP Billiton (NYSE: BBL - news) and United Company Rusal Plc (HKSE: 0486.HK - news) .

Behind the record premiums, which are up about 70 percent from a year ago and have nearly quadrupled from four years ago, is tight physical metal supply, producer sources said.

Many aluminium producers, including Alcoa, have cut loss-making capacity or shut down completely as they struggle with rising costs and a flood of new Chinese capacity. The aluminium market is seen tightening significantly in 2015 to show a 4,444-tonne deficit, a Reuters poll in July showed.

Premiums to obtain physical aluminium in Europe's spot market surged in September to record highs of $460-480 a tonne for duty-paid material in Rotterdam, while in the U.S. Midwest too premiums are at record highs of 21 cents/lb..

Healthy demand for aluminium by Japanese fabricators, backed by economic stimulus, also underpinned premiums, producer sources said.

PREMIUMS AT LOW END OF OFFERS

The premium, which covers the cost of freight and insurance and reflects regional demand and supply, came in at the low end of the $420-$460 range offered by some of the big miners while exceeding $400-$415 that buyers were expecting.

"The supply in Japan and the rest of Asia is not as tight as the United States and Europe, due mainly to slowing demand in South Korea and Southeast Asia," a trading house source said.

Aluminium stocks held at three major Japanese ports were 294,800 tonnes at the end of August, up 7.4 percent from 274,400 tonnes a month earlier, trading house Marubeni Corp said last week.

"Some metal is flowing into Japan from other parts of Asia as demand is relatively solid in Japan," the source said.

According to three sources, some buyers, including major rolling mills, agreed earlier this month to pay Rio a fourth-quarter premium of $420 per tonne, while Alcoa and BHP lowered their offers recently to $420 from the initial $435-440 level.

Some buyers and producers will continue talks in Abu Dhabi next week where an aluminium industry meeting will be held.

Rio, BHP, Alcoa and Rusal were not immediately available for comment.

LME aluminium prices are currently trading around $1,980 per tonne, up from a low of $1,671 hit in February.

(Editing by Himani Sarkar)