* Q4 premiums fall for a third quarter
* High inventories and weak overseas rates put weigh
* Producers forced to slash offers from initial proposals (Adds comments, details)
By Yuka Obayashi
TOKYO, Sept 30 (Reuters) - Japan's aluminium premiums for October-December shipments were set at $90 per tonne, down for a third straight quarter due to higher domestic inventories and weaker overseas rates, five sources directly involved in the talks said on Wednesday.
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 CMAL0 set the benchmark for the region.
Two end-user sources and two buyers at trading houses said all deals were done at $90, while a source at one of the producers said most shipments were booked at $90.
The fourth-quarter premiums marked a 10 percent drop from $100 per tonne PREM-ALUM-JP paid in the July-September quarter. Premiums hit a record high of $425 in January-March.
The latest quarterly pricing negotiations began late last month between Japanese buyers and global miners, including Rio Tinto Ltd RIO.AX RIO.L , Alcoa Inc (NYSE:AA) AA.N and BHP Billiton's spin-off South32.
Major producers had initially offered metal to Japanese buyers at $110 premiums, but high level of local inventory and weakening spot aluminium premiums in Asia, the U.S. and Europe forced them to reduce offers, traders said. ID:nL4N112564
"With abundant inventory in Japan and a continued downtrend of spot premiums worldwide, buyers wanted to take time to get better deals," an end-user source said.
In Japan, aluminium stocks held at three major ports rose 1.4 percent at the end of August from a month earlier to 497,700 tonnes, nearing a record high of 502,200 tonnes hit in May, trading house Marubeni Corp 8002.T said earlier this month. ID:nL4N11L3GE
Faced with growing output from China, the world's top consumer of industrial raw materials, LME prices CMAL3 languish at six-year lows, while premiums AL-PREM have fallen at an unprecedented rate to their lowest in 3-1/2 years.
"We've tried to bid at $85, but we figured this week that producers would not come below $90 this time. Plus, we wanted to settle by the end of this month," another end-user said.
A global glut of aluminium, which has depressed prices, led Alcoa to decide to break itself in two, separating a faster growing plane and car parts business from traditional aluminium smelting operations. ID:nL1N11Y0HZ