* Japan to shut three naphtha crackers from 2014 to 2016
* Some 3 mln T of naphtha demand to be wiped out in 3 yrs
* Current naphtha outlook positive but may change next yr
SINGAPORE/TOKYO, May 9 (Reuters) - A series of Japanese petrochemical plant closures starting this month will crimp demand for naphtha in the world's No.3 economy, dragging on regional markets for the plastic-making ingredient just as supplies are increasing.
Oil-based naphtha can be used to make ethylene, a basic feedstock for petrochemicals that are processed into products such as plastics.
But about 1.3 million tonnes of ethylene capacity, around a sixth of Japan's total, will be permanently closed over the next two years amid a broad fall in sales of cars and other goods as the country's population dwindles.
Japan's ageing crackers, used to produce petrochemicals from naphtha, have also been struggling to compete with newer rivals in South Korea and Singapore.
Traders say that would wipe out a total of some 3 million tonnes of Japanese demand for naphtha between 2014 and 2016.
The country's total naphtha consumption in the year ended March was around 31 million tonnes, trade ministry data showed, with imports making up close to 60 percent of that.
"Japanese domestic demand is part of the reason (for cracker closures), but the bigger issues are high costs and a lack of competitiveness," said Singapore-based Alex Yap, a senior consultant at energy research company FGE.
Declining Japanese appetite for naphtha, along with a surge in supply as Middle Eastern refining capacity expands, could rein in prices that, for now, are expected to stay strong for a third year on demand from China, Asia's top petrochemicals consumer.
Profits from processing a barrel of crude into naphtha ended 2013 at a three-year peak of $115.52 a tonne and traders and analysts expect 2014 to see similar levels. <NAF-SIN-CRK>
The impact of higher supplies will be felt from 2015, after cracker shutdowns announced by petrochemical firms gather momentum.
The permanent closure of a 392,000 tonnes per year (tpy) cracker owned by Mitsubishi Chemical in east Japan on May 3 is expected to have limited impact on naphtha imports initially as the effects will be offset by reduced domestic supply of naphtha as crude refineries go offline.
Traders said the country is expected to keep its monthly imports of naphtha used to feed crackers at about 1.2 million tonnes this year. That would be the second largest in Asia after South Korea, which raised its cracker capacity between 2010 and 2012.
But the impact will be increasingly felt as two more Japanese crackers go offline in the next two years.
Sumitomo Chemical plans to permanently shut a 415,000 tpy cracker in Chiba near Tokyo in May 2015, while Asahi Kasei will close a 504,000 tpy cracker around April 2016.
SUPPLIES ON THE RISE
Fading demand in Japan would come against a background of growing naphtha supplies from the Middle East and parts of Asia.
Abu Dhabi Oil Refining Co (Takreer) is expected to finish doubling the capacity of its 415,000 barrels per day refinery by the end of the year.
That would boost Abu Dhabi's annual naphtha exports to over 10 million tonnes per year from around 7.5 million now, traders said.
And South Korea's Samsung Total, SK Energy and Singapore's Jurong Aromatics are expected to start commercial operations at condensate splitters in the second-half of 2014. Naphtha usually accounts for about half the products churned out by these facilities, which 'split' very light oil into different components.
Meanwhile, worries over additional supply of finished petrochemicals from the United States are mounting, with China's top refiner Sinopec Corp scaling back billions of dollars in petrochemical investments despite resilient demand for plastics in the country.
U.S. shale gas crackers can produce ethylene at less than half the cost of the naphtha-fed crackers typical in Asia, industry experts have said.
(Editing by Joseph Radford)