TOKYO, June 17 -- Term premiums for primary aluminium shipments to Japan for July-September were mostly agreed at $120 per tonne, down from $122-$124 per tonne in the April-June period, traders said on Tuesday.

The level was at the lower end of earlier deals set at $120-$122 per tonne. A few were done at $121 and $122 but the bulk were at $120 with none seen below $120 so far, traders said.

Premiums fell for the second time in a row from historic highs earlier in the year, and traders expect a further drop in the fourth quarter barring any unexpected disruptions in production given a lack of tightness in the Asian market.

Japanese traders had expected July-September premiums to ease again after their first fall in a year for the current quarter, but said slowly rising demand could limit the size of the drop.

"We decided on $120 for the bulk of our deals, the lower end of a range people were talking about," said one enduser. "I expect premiums to ease further in the fourth quarter because they are still sustained at an artificially high level."

Aluminium term talks started about three weeks ago between suppliers, including mining giants such as BHP Billiton and Alcoa Inc , and Japanese buyers such as trading houses and aluminium mills.

The premiums are over the London Metal Exchange cash price, and include insurance and freight costs.

Aluminium on the LME ended at $1,994 on Monday, down 20 percent from the 2010 peak of just below $2,500 hit in April.

"All our deals were settled at $120 and there was no offer in the $110s," said a trader at another end-user. "It's well above the level we had anticipated earlier this year for the third quarter and we think it's still abnormal."

Japanese buyers cited new sources of supply and a lack of strong Chinese demand -- unlike late in 2009 when the term premium shot up due to worries that UC RUSAL would not sell metal into Asia and China aggressively imported the metal.

State-owned Emirates Aluminium (Emal), a joint venture between Dubai Aluminium Co and Mubadala Development Co, expects to hit its production target of 700,000 tonnes per year by December at its new Abu Dhabi aluminium smelter.

An official at Itochu Corp , which acts as a sales agent in Japan for Dubai Aluminium, said the trading firm began handling Emal's aluminium exports from its February shipments, and hopes to sell at least 30,000 tonnes to Japan and other Asian countries in the current fiscal year, ending next March 31.

Russia's RUSAL, the world's biggest aluminium producer, has said it expects sales in Asia to reach 30 percent of its total sales this year, up from 20 percent last year.

RUSAL also said it would have metal to offer to Asia for third- and fourth-quarter shipments.

Japanese traders expect about 300,000 tonnes or more to be offered in 2010 to Japan, which imports about 2 million tonnes of primary aluminium every year. China posted a record level of primary aluminium output in May, but a slower rate of production is expected in June as low prices spur cuts by smelters.

"Overall supply is loose in Asia, but the drop in premiums for Japan was moderated because it is difficult to push for a huge cut when premiums elsewhere are rising, even if that rise didn't reflect the real demand/supply balance," a trader at a third company directly involved in the talks said.

Structural factors remained in place, slowing the flow of the metal to the market, such as the ongoing buildup in inventories at London Metal Exchange warehouses tied up by financial deals, and firming premiums in Europe and the United States.

Japan's primary aluminium buyers agreed to roughly 7-13 percent hikes in premiums for the first quarter, with the bulk of the premiums for January-March settled from $128 to $130 a tonne, a 14-year high.