TOKYO (Bloomberg) -- Nippon Oil Corp. and Nippon Mining Holdings Inc., set to merge in April, will shut three oil refining units and cut capacity at another plant by March 2011 as fuel demand shrinks in the world’s second-biggest economy.

Nippon Oil will close three crude distillation units in Japan with a combined capacity of 204,000 barrels a day, the company said in a statement released in Tokyo. Nippon Mining will also reduce capacity at a plant in Kashima, near Tokyo. The cuts amount to about 20 percent of overall capacity.
The two companies aim to shed 600,000 barrels a day, or about one-third of capacity, by March 2015 and save 100 billion yen ($1.1 billion) a year. Demographic changes such as an ageing population and a move to energy conservation have driven down fuel demand, making one-third of the country’s refining capacity surplus, according to the trade ministry.
“We hope our decision to make the closures will inspire other refiners to take similar steps,” Nippon Oil’s Chief Financial Officer Shigeo Hirai told reporters.
Nippon Oil shares rose 0.7 percent to close at 417 yen in Tokyo, and Nippon Mining gained 1 percent to 387 yen. The benchmark Topix index slipped 0.5 percent.
Nippon Oil will shut a 110,000 barrel-a-day crude distillation unit in Mizushima, southwestern Japan; a 70,000 barrel-a-day unit in Negishi, near Tokyo; and a 24,000 barrel-a-day unit in Oita, southern Japan, according to the statement. Nippon Mining will cut capacity at a refinery in Kashima, Ibaraki prefecture, by 21,000 barrels a day.
---------------Workers’ fate undecided
Idemitsu Kosan Co., Japan’s second-biggest refiner, and Cosmo Oil Co. have said they are also considering shutting plants and reducing capacity.
Nippon oil and Nippon Mining haven’t decided whether to cut jobs, Hirai said. The merger will mean about 1,000 out of a total of 8,000 refining workers will be superfluous, Hirai said.
“We are still considering what to do,” he said. “Options include relocating workers to other divisions.”
Also the companies said Japan’s regulators view their planned merger as posing no anti-trust risk if proposed “remedial measures” are taken.
The Japan Fair Trade Commission said only the needle coke operations may threaten competition, according to a joint statement to the Tokyo Stock Exchange. Nippon Oil and Nippon Mining have proposed keeping their needle coke businesses separate and selling one of them to a third party. The effect on overall business will be “very slight,” the companies said.
Needle coke is petroleum coke that’s been heated until it forms a needle-shaped carbon material, commonly used for the production of electrodes in iron manufacturing, according to the statement.