* Japan buyers looking to purchase more aluminium in spot markets
* Spot premiums have been lower than those set quarterly via talks
* Some could also push for annual deals based on premium benchmark
By Yuka Obayashi
TOKYO, Sept 6 (Reuters) - Japanese aluminium buyers are looking to crimp the amount of the metal they purchase via annual contracts, instead turning to spot markets where premiums have in recent months dropped to their lowest in over seven years amid a persistent supply glut.
Most aluminium buying by Asia's biggest importer of the metal is carried out through annual contracts, with premiums for delivered metal set each quarter via negotiations that act as a benchmark for the region.
But with spot metal premiums falling since hitting this year's highs around March, sources at buyers said quarterly negotiations had locked them into prices well above those in the market.
"Lots of inventories are out there and we can get better deals if we buy them in spot," said a source at a fabricator, adding that the company would likely buy less via annual contracts in 2017. He declined to be identified due to the sensitivity of the issue.
Aluminium stocks at three major Japanese ports slid to about 300,000 tonnes in July from a record above 500,000 tonnes in May 2015, but that is still above 230,000-270,000 tonnes in early 2014.
Less contract purchases could be a blow to suppliers such as Rio Tinto RIO.AX RIO.L , Alcoa (NYSE:AA) AA.N and South32 S32.AX as they would likely lose guaranteed sales. Rio declined to comment on the issue, while Alcoa and South32 did not immediately respond to requests for comment.
Japanese contract premiums are expected to hit the lowest in seven years in October-December, with key producers offering $80-82 per tonne, down 9-14 percent from the previous quarter. But buyers are seeking even lower levels, bidding for the low $70s given weakening spot premiums at around $70, according to sources. are paid over the London Metal Exchange cash price CMAL0 .
Major Japanese buyers include traders like Marubeni 8002.T and Mitsubishi 8058.T and fabricators such as UACJ 5741.T and Kobe Steel 5406.T .
"We intend to ask smelters to change the way we do business," said a source at a Japanese trading house that was hit by heavy losses on aluminium inventories in the last financial year.
But a producer warned that "without annual deals, buyers may not get as much metal as they want at a time they want if supply gets tighter".
A Singapore trader who deals into Japan said that the country was likely to shift to greater spot purchases gradually, at first buying only limited amounts via spot.
Meanwhile, a few buyers said they could push for prices under annual contracts to be based on a spot premium index, removing the need for quarterly negotiations that have been used for decades.
But most suppliers and buyers said such a shift would be difficult as finding an index that accurately reflected the state of Japanese markets could be tricky.
Japanese buyers and global producers are poised to start negotiations over 2017 contracts in November.