UPDATE 1-Chennai Petroleum starts maintenance at Manali refinery

(Adds details, comments from spokesman)

SINGAPORE, July 26 (Reuters) - Chennai Petroleum has started planned maintenance at its 190,000 barrels per day (bpd) Manali refinery in Chennai, south India, a spokesman of parent company Indian Oil Corp said on Thursday.

He said one of three crude distillation units (CDU) is in the process of being shut and will be down until the end of September.

He dismissed market rumours of a fire at the plant.

Traders based in India said the capacity of the unit being shut is about 70,000 to 85,000 bpd, but this could not be confirmed.

Chennai Petroleum owns 2 refineries in southern Tamil Nadu state with a combined capacity of 230,000 bpd. The other smaller refinery is located at Nagapattinam.

The Chennai plant has a majority of distillates yield, which means parent company IOC could likely enter the spot market to import diesel to plug the shortfall in the domestic market, one of the traders said.

If this happens, it will could boost premiums for the low sulphur diesel grades, imported by India, as supply has been tight in Asia amid refinery maintenance in Singapore and Japan, two major exporters of the product in Asia.

The shutdown of the crude unit is unlikely to have a major impact on parent company IOC's overall naphtha supplies.

IOC exports from Chennai only when there is a surplus of volumes, traders said.

"I think the shutdown of a unit is not going to affect naphtha supplies that much. We are talking about one medium-range cargo for export at most a month," said a Singapore-based trader.

Since the start of the year, IOC has sold 35,000 tonnes per month of naphtha out of Chennai in January, March, April and June. (Reporting by Jessica Jaganathan and Seng Li Peng, editing by William Hardy)