UPDATE 1-Cosmo Oil, Hyundai plan $1 bln paraxylene venture

* Cosmo, Hyundai to build world's biggest paraxylene unit

* Cosmo to build 300,000 tpy mixed-xylene distillation unit

(Adds details, background)

TOKYO, June 9 (Reuters) - Japanese refiner Cosmo Oil Co (5007.T) and South Korea's Hyundai Oilbank will form a joint venture to build the world's biggest paraxylene-making facility in 2013, at Hyundai's Daesan refinery, Cosmos said on Tuesday.

The aim is to target growing petrochemicals demand in China.

Total investment in the project will be about 100 billion yen ($1.02 billion), Cosmo's President Yaichi Kimura told reporters. The unit will produce 800,000 tonnes per year of paraxylene.

Cosmo also said it would build a new mixed xylene distillation unit at its Yokkaichi refinery in 2011 for about 5 billion yen and use the output for the new paraxylene unit.

For Cosmo, the new unit will reduce ample supplies of gasoline distillates at a time when domestic Japanese oil demand has been in steep decline and boost its profitability by establishing a system to produce petrochemical feedstock paraxylene from its mixed-xylene output.

The two companies plan to set up a 50-50 venture in September and take control of Hyundai's naphtha-derived paraxylene-making facilities, including a 55,000 barrels per day naphtha splitter, a 24,000 bpd naphtha desulphurisation unit and benzene-toluene-xylene (BTX) facility with capacity to produce 380,000 tonnes per year (tpy) of paraxylene.

Cosmo's new mixed xylene distillation unit, which extracts mixed xylene from gasoline components, will have capacity to produce 300,000 tonnes per year of mixed xylene and is set to be completed in November 2011.

This unit's operations will use 600,000 kilolitres (3.8 million barrels) of gasoline a year, while creating light naphtha output, the company's executive officer in charge of corporate planning, Hiroshi Kiriyama, told Reuters.

Cosmo and Hyundai are partly owned by the Abu Dhabi government's investment arm, International Petroleum Investment Co (IPIC), and the two companies had been considering areas of cooperation after they signed a broad agreement last April.

The venture is expected to post annual revenues of around 200-300 billion yen and earn 10 billion to 30 billion yen in profit after the paraxylene unit begins operations, Kimura said.

Many global energy firms have cancelled or delayed projects since last year and several Japanese firms have halted domestic production of paraxylene.

But Cosmo Oil officials said the margins for paraxylene are expected to improve between now and 2013. China and other Asian nations are expected to be the main export market. (Additional reporting by James Topham, editing by Anthony Barker) (Reporting by Osamu Tsukimori, editing by Anthony Barker)