* Premiums for July-September shipments up 8-12 pct from $365-$370 in Q2
* Metal supply tight due to financing demand and smelter shutdowns
* High premiums also reflect healthy domestic demand (Adds details of premiums, quotes from sources)
By Yuka Obayashi
TOKYO, July 1 Japanese aluminium buyers will mostly pay record high premiums of $400-$408 per tonne over London Metal Exchange prices for July-September shipments, up 8-12 percent from the previous quarter, four sources involved in the negotiations said.
The jump from the April-June premium of $365-$370 PREM-ALUM-JP, which marked the third straight quarterly gain, comes as smelter shutdowns and financing deals have squeezed metal supplies.
Japan is Asia's biggest aluminium importer and the premium for primary metal shipments it agrees to pay each quarter over the LME cash price sets the benchmark for the region. It imported 1.8 million tonnes of primary aluminium ingot in 2013.
An end-user source said most deals were done at $405-$408, while another end-user source said most deals were booked at $400-$405.
A source at one of the producers said most shipments were booked at $407-$408, with some deals done at $410, while another producer source said most deals were agreed near $405.
The latest quarterly pricing negotiations began in May between Japanese buyers, which comprise trading houses and manufacturers, and global suppliers including Rio Tinto Ltd , Alcoa Inc, BHP Billiton and United Company Rusal.
Behind the record premiums, which have nearly doubled from two years ago and risen five-fold from five years ago, is tightness in physical metal supply, higher overseas spot premiums and healthy domestic demand, producer sources said.
Many aluminium producers have cut loss-making capacity or shut down completely as they struggle with low LME prices, high energy costs and a flood of new Chinese capacity.
That includes Alcoa's shutdown of Point Henry in Australia, its Massena East smelter in New York with combined capacity of 315,000 tonnes as well as closures of another 147,000 tonnes of capacity at two smelters in Brazil.
Persistent appetite for financing deals backed by aluminium supplies and logjams in releasing metal from storage have also kept supplies tight.
LME stocks MALSTX-TOTAL are still at above 5 million tonnes although they are close to 20-month lows.
Premiums to obtain physical aluminium in Europe's spot market rose to record highs of around $410 for duty-paid material while the rates in North America have been hovering at 19.50-19.75 cents per lb ($430-$435/tonne), a trader said.
"Producers were bold this time as they can otherwise deliver the metal to other regions where they can get higher premiums," an end-user source said.
Healthy demand for aluminium by Japanese fabricators also supported the higher premiums, producer sources said.
Japan's demand for aluminium rolled products is expected to rise 0.6 percent this business year to March 2015 from a year earlier to 2 million tonnes on robust export demand to China and Southeast Asia, the Japan Aluminium Association said in March.
The premium, which covers the cost of freight and insurance and reflects regional demand and supply, came mostly in line with offers from some of the big producers of $400-$410 while exceeding the $380-$390 level that some buyers were expecting.
Some buyers, including a major rolling mill, agreed to pay BHP a premium of $400 per tonne in early June, but the talks with other producers dragged on till this week as there was a gap between users' bids and producers' offers, three buyer sources said.
"The negotiations went on longer than expected as we were talking about the highest rates in history and a producer was insisting on high prices," said a source at a trading firm.
Some buyers are still continuing talks, aiming to come to an agreement this week.
Graphic on Japanese aluminium premiums and LME prices:
Rio Tinto, BHP and Rusal declined to comment on the negotiations, while Alcoa was not immediately available for comment.
LME aluminium prices are currently trading around $1,884 per tonne, sharply below recent highs of $2,800 in May 2011.
"Basically the LME prices are not reflecting demand and supply as financial deals have distorted the pricing mechanism," a source at an end-user said. "I am afraid that we may see another rise in the October-December quarter," he said. (Additional reporting by Susan Thomas in LONDON and Melanie Burton in SYDNEY; Editing by Muralikumar Anantharaman)