* Q2 aluminium premiums unlikely to top Q1's $128-$130/T
* Japanese demand outlook uncertain, stocks inching up
By Chikako Mogi
TOKYO, Feb 25 (Reuters) - A lack of compelling incentives for both Japanese primary aluminium buyers and producers may help to cut the premium for second-quarter supplies slightly from a 14-year high set for the first quarter, industry sources said.
Aluminium term talks started this week but suppliers have not made concrete offers, the sources said. The talks are held between the suppliers, which include mining giants such as BHP Billiton and Alcoa Inc , and Japanese buyers, such as trading houses and aluminium mills.
There is generally no sense of supply tightness, globally or domestically, while Japan's demand outlook remains uncertain, with the economy facing deflationary pressures.
At the same time, demand prospects for aluminium, used in products from computers to airplanes, are improving elsewhere, unperpinned by expectations for growth in India and China.
"There doesn't appear to be a strong incentive to raise the premiums," said one end-user. "There isn't a feeling that deals have to be made at higher premiums," he said.
Another end-user said supply tightness felt late last year, which led to the hike in first-quarter premiums, had eased.
"We hear we can get supply at spot if needed, unlike late last year. There is no reason why buyers need to settle above last quarter's extraordinary levels, so we are looking for premiums to ease," the second end-user said.
Japan's primary aluminium buyers agreed to roughly 7-13 percent hikes in premiums for January-March to a 14-year high, with the bulk set from $128 to $130 a tonne, up from $115-$120 for the fourth quarter last year.
Demand for other industrial metals, such as copper, is also slack, staying below levels before the global economic crisis.
"We may avoid a double-dip recession but Japan's economic outlook is still very uncertain, making our demand estimate conservative," said one buyer.
Rising stocks also ease pressure to procure the metal aggressively.
Aluminium stocks held at three major Japanese ports have been rising since late last year and stood at 199,200 tonnes at the end of January, a level that is not too high but still in surplus as demand is now back to just about 80-85 percent of a typical year.
Japan, which must buy virtually all the metal it needs, imports about 2 million tonnes of primary aluminium every year.
A trader said producers may have to rely more on buyers outside China as the country can meet its own demand, given that its aluminium industry faces severe overcapacity.
"We want to review the historically high premium. If we let this level stay just because there are no strong incentives either way, that could set a bad precedent," the trader said.
Some Korean buyers are hoping to ink the second-quarter premiums at about $10 per tonne below the first-quarter levels, while some said the premiums could be agreed at similar levels to the previous quarter due to a recovering economic outlook.
"Currently spot premiums are traded lower than the first-quarter premiums, and we expect such premium levels will be reflected in the second-quarter premiums," a Seoul-based trader said. "In the domestic markets aluminium is in surplus now."
"Korean buyers follow Japan in premium levels," a second Korean trader said. "From the buyers' perspective, premiums are aimed at $10 per tonne lower than the previous quarter."
Premiums are charges paid by the consumer, on top of the London Metal Exchange cash price , to cover the costs of shipping and delivering the metal.
LME aluminium inventories are near record levels of 4.6 million tonnes, but about 70 percent of that stock -- around 3.15 million tonnes -- is tied up in financing deals until May 2010.
(Additional reporting by Cho Mee-young in Seoul) (Editing by Clarence Fernandez)
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