PREVIEW-Japan Q4 aluminium buyers to battle high premiums

* Three-figure spot premiums could influence term talks * Rusal's threat of output cut after dam accident a worry By Miho Yoshikawa TOKYO, Aug 19 (Reuters) - Japanese aluminium buyers are gearing up to fend off expected demands for a sharp hike in premiums to their highest in more than a decade when talks begin next week for fourth-quarter supplies of primary aluminium. Industry officials worry that spot premiums, which were quoted at more than $100 per tonne this month, will have an undue influence over negotiations for the purchase of cargoes for the October-December quarter. Such a level would represent a rise of more than 30 percent compared with the Q3 premiums mostly set at $75. "I think the negotiations will be fought over whether it is a three-figure premium or not," an official with a Japanese end-user said. A trading house official involved in the talks said premiums probably last rose to three figures in the early 1990s. Japanese industry officials say a premium of more than $100 cannot be justified as domestic demand, while showing signs of a recovery, still has to find its feet. "There is no way we can accept this level," the trading company official said. Global demand for aluminium has plunged due to the economic crisis which caused major users, such as the automobile and construction industries, to cut consumption. The high spot premiums despite the continued weakness in demand, are seen by some as the result of a disruption in the balance of supply and demand in the market. Aluminium stored in LME warehouses is at record high levels, around 4.5 million tonnes, but most is believed to be tied up in deals to release cash for producers. So these stocks are not readily available. "This means that if you base your price on the premium for (LME) warrants, then you get a three-figure number for CIF aluminium supplies to Asia or Japan," the trading company official said. Warrants are traded documents that entitle holders to a particular metal cargo. Aluminium on the LME is trading at around $2,000 per tonne. RUSAL, THE WILD CARD Russia's UC RUSAL, the world's largest aluminium producer, recently told Japanese firms it had metal it could supply in the next quarter in a bid to reassure customers after its surprise suspension in the third quarter. Japanese buyers are unconvinced. The unilateral notice shocked Japanese buyers into scrambling for supplies and accepting a 30 percent hike in third-quarter premiums. "We have not included supplies from Rusal in our programme for Q4 supplies," an official with a second end-user said. Next week's talks may not escape being influenced by Rusal, however, after a company director said this week that it could potentially lose at least 500,000 tonnes of aluminium production following a power plant accident. Two of Rusal's Siberian smelters received power supplies from Russia's largest hydroelectric power plant, the site of the fatal accident that killed 12. The trading company official said: "We will not want for cargoes as sellers will be lined up at our door with premiums at these high levels." Industry officials worry, however, that the news will be a factor used to support a hike in premiums. Japanese officials say they may have been too aggressive in using up aluminium stocks, which ballooned to alarming levels after the economic slump caused metal demand to nosedive. Not content with just using up stocks, Japanese firms also sharply reduced imports, which fell 38 percent on the year in the first half of 2009. Aluminium stocks at key Japanese ports plunged to the lowest since records started 14 years ago, trading house Marubeni Corp said last week. Industry officials say, however, that demand, though better, remains weak compared to year earlier levels. "We continue to hold a conservative outlook about demand as seasonal demand such as for cans will not continue...and we cannot yet count on the return of solid demand from the auto industry," the trading company official said. (Editing by Clarence Fernandez)