Japan's aluminium buyers to pay record high Q1 premiums of $425/T -sources

* Premiums for January-March shipments up 1.2 pct from Q4

* Driven by persistently high U.S. spot premiums (Adds comments, details on premiums, background)

By Yuka Obayashi

TOKYO, Jan 20 (Reuters) - Japan's aluminium premiums were mostly set at a record high of $425 per tonne for January-March deliveries, rising for a fifth straight quarter as overseas rates remained persistently high, five sources directly involved in the talks said.

Japan is Asia's biggest importer of the metal and the premiums for primary metal shipments (PREM-ALUM-JP) it agrees to pay each quarter over the London Metal Exchange (LME) cash price set the benchmark for the region.

Two end-user sources and two trader sources said most deals were done at $425, while a source at one of the producers said more than 90 percent of the deals were booked at $425. Another end-user source said at least one deal was agreed at $422.5.

This is as much as 1.2 percent more than the fourth-quarter premium of $420 per tonne, also the previous record high.

Negotiations are still continuing between some suppliers and buyers. The talks began late November between Japanese buyers and global miners, including Rio Tinto Ltd (Xetra: 855018 - news) , Alcoa Inc (NYSE: AA - news) and BHP Billiton (NYSE: BBL - news) .

It is unusual for the two sides not to reach an agreement before the start of the quarter, but talks have dragged on this time as buyers in Japan remain unwilling to boost premiums given a pile up of metal at the country's ports.

"The talks have been held up for way too long. We've made a compromise to settle in about middle of producers' offers and our bids," a trader source said.

Three producers had initially asked for premiums as high as $435-$440 citing soaring U.S. spot premiums, which hit a record top at around 24 cents/lb ($529 per tonne) this month as strong demand and smelter shutdowns squeezed metal supplies.

Japanese buyers had bid for around $390-$400.

Aluminium stocks at three major Japanese ports rose for a ninth month, hitting a record high at the end of December, as imports rose and demand at home and elsewhere in Asia weakened.

"Given that ingots are tight in the Western world, we believe Asian inventories will be adjusted during this quarter," a producer source said.

Global aluminium premiums are seen reaching record highs by mid-2015 on a supply deficit in the United States and Europe, a Reuters survey shows.

Japanese trading house Marubeni has forecast that the supply squeeze could push up premiums in Japan to as much as $480 this year. (Editing by Himani Sarkar)