SK, GS warn investors of pro-labor law's impact on petrochemical sector

GS Caltex's mixed feed cracker in Yeosu, South Jeolla Province / Courtesy of GS Caltex

Major conglomerates operating petrochemical plants have urged investors to brace for possible negative effects from the revised pro-labor act, widely known as the “yellow envelope law,” which will take effect next year.

The warnings come as the struggling petrochemical industry pushes to reduce the nationwide output from naphtha cracking centers (NCCs) by up to 25 percent, or 3.7 million tons. Last month, the government asked petrochemical firms to submit self-rescue plans by the end of the year, before seeking regulatory relief and financial support.

SK Inc., the holding company of SK Group, Korea’s second-largest conglomerate, mentioned the amendment of the Trade Union and Labor Relations Adjustment Act in its prospectus released Thursday, explaining its planned restructuring at SK Geo Centric, its second-tier subsidiary producing chemical materials.

“Approved by the National Assembly on Aug. 24, the yellow envelope law may influence the petrochemical industry’s efforts to reorganize and streamline, as this law justifies worker protests against business decisions that affect workplace conditions,” SK Inc. said. “Since it may negatively impact the petrochemical industry’s restructuring and affect the business environment surrounding SK Geo Centric, we urge investors to be cautious.”

SK Geo Centric's naphtha cracking center in Ulsan, which has been idle since 2020 / Courtesy of SK Geo Centric

GS Energy, the parent company of GS Caltex, an oil refiner that also cracks naphtha, shared similar concerns in a registration statement Friday, noting that the amended law could negatively affect the sector’s ongoing restructuring.

“Industry restructuring is still in its early stages, and it is difficult to gauge the amended Trade Union Act's impacts on the petrochemical sector at this time,” GS Energy said. “These variables may lead to increased volatility in GS Caltex's earnings, and could negatively affect our profitability and financial stability.”

On Aug. 20, Korea’s top 10 petrochemical firms agreed to cut NCC capacity to cope with an ongoing recession caused by oversupply from China and the Middle East.

Following the passage of the yellow envelope law, however, concerns have grown that potential savings from restructuring could be limited, due to difficulty in downsizing the workforce.

“With the yellow envelope law coming into force, labor unions now have the legal grounds to file lawsuits against workforce reduction decisions at any time,” a petrochemical industry official said.

The new law also allows subcontracted workers to negotiate directly with client companies. Given the sector's heavy reliance on outsourcing, petrochemical firms could face conflicts with subcontracted workers.

The Korean Chemical, Textile and Food Workers’ Union has already threatened to protest if the government and the companies refuse to guarantee jobs for petrochemical workers, including subcontracted ones.

“The government and companies must ensure that restructuring does not endanger the livelihoods of both regular and subcontracted workers,” the union said. “We will keep raising our voices and fighting to protect job security for petrochemical workers.”