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 set the benchmark for the region.

For the July-September quarter, Japanese buyers agreed to pay a premium of $108 per tonne , up 3% from the prior quarter, marking a second straight quarterly increase.

The latest quarterly pricing negotiations began this week between Japanese buyers and global producers, including Rio Tinto and South32 Ltd, and are expected to continue until later next month.

Another increase in the premiums would be the third quarterly increase in a row.

The producer said the higher offer reflected tighter shipments as some supplies from Australia might continue heading to the United States as Australia is exempted from the 10% import tariffs on the light metal imposed by Washington in March 2018, one of the sources said.

Buyers view the offer as too high as demand in Asia is weakening amid prolonged U.S.-China trade war while there are enough supplies in the region, the sources said.

Aluminium stocks held at three major Japanese ports at the end of July rose 2.9% to 308,800 tonnes from the previous month, according to Marubeni Corp.

"We will ask for lower premiums, like between $90 and $100 per tonne, as there are abundant supplies and demand is softening in China and the rest of Asia, including Japan amid a slower economy," a source at a trading house said.

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

(Reporting by Yuka Obayashi; Editing by Tom Hogue)

By Yuka Obayashi