India's product has generally not been regarded as high enough quality by Japan's demanding buyers, who have preferred top-tier producers like Rio Tinto, Alcoa and South32 as well as United Company Rusal.

However, imports of aluminium ingot from India doubled in the first eight months of 2018 from a year ago, Japanese trade data shows, while imports of alloy - which include higher-value products - surged 11-fold off a tiny base.

"Because of the sanctions, consumers would like to ensure some security of supply, so they'd like to prefer multiple suppliers instead of one supplier," Samir Cairae, chief executive of Vedanta's diversified metals business in India, told Reuters.

Ja
pan's aluminium imports from India & Russia -

The increased trade is a blow to Rusal, the world's second-biggest aluminium maker, which accounted for about 20 percent of Japan's imports of both aluminium ingot and alloy in 2017, but which has been hit by U.S. sanctions.

Customers globally have had to scramble to find alternative sources of metal even after the United States eased sanctions restrictions for some customers, and they were likely to permanently diversify supply chains, said a source at a Japanese trading house.

"Many of their customers are reluctant to order the same amount of supplies that they have bought in past years for next year even if the U.S. sanctions are lifted," the trader said.

Japanese trading houses such as Mitsubishi Corp have been aggressively importing supplies from India as well as other countries to help customers diversify supply, trading sources said. Mitsubishi declined to comment.

Ja
pan's aluminium imports from India & Russia -

Products from India are mainly refined ingots rather than value-added products such as billets and slabs, said a second trading house source. Substitute material for Rusal's higher quality products has come from the Middle East and Malaysia.

However, Indian metal was winning growing acceptance and was also being sold at a discount to traditional suppliers.

"Japanese buyers are getting Indian metal for cheap," the source said.

IMPORTS SWELL

Japan took 59,545 tonnes of aluminium ingot in the eight months to March, double a year ago, while material from Russia fell 21 pct to 175,694 tonnes, Japanese trade data showed.

Imports of aluminium alloy from India jumped to 3,008 tonnes over the same period, while Russian imports fell 10 percent to 185,685 tonnes.

The U.S. trade actions - 10 percent import tariffs on the light metal from March and sanctions against Rusal from April - sent shockwaves through the market, boosting aluminium prices to seven-year highs and pushing up costs to obtain physical metal in the U.S. domestic market.

"Stronger U.S. premiums have become incentives for smelters in Australia, which is exempted from the duties, to ship more products to the United States," said a third trader, who saw Indian products filling the supply gap left by Rusal in Asia.

Vedanta, India's largest producer of aluminium, sees a big opportunity in Asia including Japan and Korea.

Cairae said the company is focussing on ramping up exports of its value-added products such as billets, which can be used in the transport, construction and packaging industries, and wire rods.

    Hindalco did not immediately respond to a request for comment.

(Reporting by Yuka Obayashi in TOKYO and Sudarshan Varadhan in NEW DELHI, Additional reporting by Melanie Burton in MELBOURNE, editing by Richard Pullin)

By Yuka Obayashi and Sudarshan Varadhan