UPDATE 1-Some Japan aluminium buyers agree Q4 premium at $88/T, up 11% on qtr-sources

* Producers initially sought $95-98/T for Q4 premiums

* $88/T marks first quarterly increase in five

* Negotiations will continue to later this month (Adds details and comments)

TOKYO, Sept 4 (Reuters) - Some Japanese aluminium buyers have agreed to pay an $88 per tonne premium for October-December shipments, up 11% from this quarter, as industrial demand recovers from the COVID-19 pandemic, four sources directly involved in the pricing talks said on Friday.

The figure is higher than the $79 per tonne premiums paid this quarter and marks a first quarterly increase in five.

Producers had originally sought premiums of $95-$98 per tonne, according to the sources.

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

The latest quarterly pricing negotiations began late last month between Japanese buyers and global suppliers including Rio Tinto and South32, and are expected to continue to later this month.

“We have agreed with a producer at $88 a tonne this week,” a source at a Japanese end-user said.

The higher premium from this quarter came as demand from automobiles and electronics began picking up although the recovery pace is still slow in Japan, he said.

“We were surprised to see a supplier coming down from its initial offer of $98 a tonne to $88 fairly quickly,” another source at a Japanese trading house said, adding that the recent rally in aluminium prices may prompt a quick compromise by the producer.

The sources declined to be named due to the sensitivity of the talks.

Benchmark aluminium on the LME has recovered more than 20% since hitting this year’s low in early April after the pandemic-led collapse in demand from manufacturing and construction segments.

“Next focus is whether other suppliers would follow the peer at a time when the U.S. and European premiums are much higher,” the third source at another trading house said. (Reporting by Yuka Obayashi; Editing by Muralikumar Anantharaman and Shailesh Kuber)