TOKYO, Aug 2 (Reuters) - Asahi Kasei Corp plans to close a naphtha cracker with annual capacity of 504,000 tonnes in 2016 as part of operational consolidation it has been discussing with Mitsubishi Chemical Holdings Corp, the two firms said on Friday.

Japanese chemical companies have been shutting down ethylene plants as they face declining domestic demand and stiff competition from Asia and the Middle East, where new large-scale ethylene plants are still being built.

Mitsubishi Chemical and Asahi, which jointly operate the two crackers in the same industrial complex in Mizushima, with total capacity to make 997,000 tonnes per year of ethylene, have been considering the integration for several years.

The closure plan will be finalised by next March, along with details of formation of the joint operation, according to the two companies.

'Through this integration, we can reduce operation cost by half and improve our profitability. We take this step positively as we believe our petrochemical business will be stronger,' Yuji Kobayashi, president of Asahi Kasei Chemicals Corp, a unit of Asahi Kasei, told a news conference in Tokyo.

The two companies said operation cost in Mizushima, western Japan, will be cut by 10 billion yen ($100.78 million) in total after the integration.

Asahi's facility can make 504,000 tonnes per year of ethylene, accounting for about 6 percent of Japan's current ethylene making capacity of 8 million tonnes per year.

Earlier this year, rival Sumitomo Chemical Co Ltd. said it will shut its sole 415,000 tonne-per-year Chiba naphtha cracker by September 2015 due to falling domestic demand and cheap imports from Asia.

Mitsubishi Chemical said in June 2012 it would close one of two naphtha crackers in Kashima, northeast of Tokyo, in May-June 2014.

Japan is braced for further cutbacks in capacity as its ethylene output fell 8.1 percent to an 18-year low of 6.15 million tonnes last year as a higher yen made imports cheaper.

Hiroaki Ishizuka, president of Mitsubishi Chemical Corp, a unit of Mitsubishi Chemical Holdings, said the recent fall in the yen against the U.S. dollar had not changed the tough operating environment.

'Cheap imports keep coming in. We will face fierce competition from the Middle east, China, and the United States where shale gas revolution is helping. A weaker yen alone does not solve our structural problem,' he said.

Even after the announced consolidations take place by 2016, Japan's ethylene capacity would still exceed domestic demand of about 5 million tonnes, he added.

'We hope our integration plan in Mizushima will become a model case for future consolidations (of naphtha crackers) in Japan,' Ishizuka said.

($1 = 99.2250 Japanese yen)

(Reporting by Osamu Tsukimori and Yuka Obayashi; editing by James Jukwey) Keywords: NAPHTHA MITSUBISHI/ASAHI

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