RPT-UPDATE 1-Japan Q3 aluminium premium drops 14% to $148/T amid weak demand -sources

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* Initial offers made by producers were $172-$177/T

* Third straight quarterly price fall

* Stocks in major Japanese ports at highest since 2016

* Russian supply to Japan has been steady

By Yuka Obayashi

TOKYO, July 4 (Reuters) - The premium for aluminium shipments to Japanese buyers for July to September was set at $148 a tonne, down 14% from the previous quarter, to reflect weak demand for automobiles and rising local inventory, five sources directly involved in pricing talks said.

The figure is lower than the $172 a tonne paid in the April-June quarter and marks a third consecutive quarterly drop. It is also below initial offers made by producers of $172-$177.

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

"The premium dropped because demand from automakers and parts makers slumped as they had to slash output due to the global supply chain crunch," a source at a Japanese trading house said.

Japan's Toyota Motor has repeatedly cut production this year due to shortages of key chips and components as well as supply disruption due to COVID-19 containment measures in China.

"Rising inventory was also behind the weaker premium," the source said, pointing to an increase in Japan's imports of the metal from Russia as buyers prepared for a possible supply disruption.

Aluminium stocks at three major Japanese ports rose to 359,400 tonnes at the end of May, the highest since 2016, according to Marubeni's data.

"Stocks are piling up at other minor ports," another source at a producer said.

But Russian supply to Japan has been steady, and premium agreements were made on an assumption that the current conditions will continue, the sources said.

The latest quarterly pricing negotiations, which began in May between Japanese buyers and global suppliers such as Rio Tinto and South32, have dragged on longer than usual as it took time to close a huge gap between buyers and sellers' views.

The sources declined to be identified because of the sensitivity of the discussions. (Reporting by Yuka Obayashi; editing by Jason Neely)

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