-- Idemitsu to permanently close 120,000 B/D CDU

-- Plans to keep operating petrochemical factory

-- Shutdown unlikely to solve oversupply problem

(Adds company's plan to keep operating its petrochemical factory, analyst's comments, background)

TOKYO (Dow Jones)--Idemitsu Kosan Co. (5019.TO) said Tuesday that it will permanently close a 120,000-barrel-a-day crude distillation unit at its Tokuyama refinery in western Japan in March 2014, to meet a government regulation that encourages refining capacity cuts amid falling local demand.

Idemitsu's oil refining capacity will fall 18% to 520,000 barrels a day from 640,000 barrels a day now.

The Japanese refiner will continue to operate a 620,000 metric-ton-a-year ethylene production unit at the site, importing all the feedstock naphtha needed, Shunichi Kito, director of Idemitsu's accounting department, said.

The problem of excessive oil refining capacity in the country "won't be solved any time soon," unless other refiners join the efforts, Nikko Cordial Securities Inc. analyst Hidetoshi Shioda said.

Akihiko Tembo, chairman of Idemitsu Kosan and the Petroleum Association of Japan, has said that Japan's excess crude refining capacity is roughly 1 million barrels a day. Its total capacity is 4.33 million barrels a day.

Although crude runs have averaged 3 million-3.5 million barrels a day for months, there has been no increase in crude-oil imports, data from PAJ and the government show.

The Ministry of Economy, Trade and Industry set rules in July 2010 requiring refiners to raise residual cracking capacity to a designated percentage of crude refining capacity, as calculated by a formula, by March 2014.

In response, Showa Shell Sekiyu KK (5002.TO) permanently closed its 120,000-barrel-a-day Ogimachi crude distillation unit near Tokyo on Sept. 20.

JX Nippon Oil & Energy Corp., the largest refiner by capacity, plans to permanently shut 200,000 barrels a day of crude refining capacity by the deadline. However, the company hasn't decided which facility it should shut.

Cosmo Oil Co. (5007.TO) and TonenGeneral Sekiyu KK (5012.TO), Exxon Mobil Corp.'s (XOM) downstream unit, haven't disclosed any plans as of Tuesday.

Japanese refiners have been hit by low refined product margins in the past few years due to excess capacity and rapidly falling demand, amid the adoption of energy-efficient technologies such as hybrid vehicles.

-- By Mari Iwata, Dow Jones Newswires; 813-6269-2798; mari.iwata@dowjones.com