July 20 (Bloomberg) -- LG-Caltex Oil Corp.'s refinery, which accounts for 28 percent of South Korean production of fuels used to power vehicles, make plastics and run electricity plants, has been shut by a strike that may cause prices to rise.

LG-Caltex may lose 30 billion won ($26 million) a day in sales after striking workers cut power to the plant yesterday evening, halting output, said Andy Lee, a company spokesman. It's the first-ever South Korean refinery to be shut by a strike.

Workers at LG-Caltex, South Korea's second-largest oil refinery, and companies such as Ssangyong Motor Co. are demanding higher salaries as economic growth is expected to rebound to more than 5 percent this year after halving in 2003 to 3.1 percent. The strike may boost costs and curb production at customers such as Sam Nam Petrochemical Co. and LG Chem Ltd.

``Since refined oil products are widely used in all sectors of the economy, the impact is very big,'' said Harrison Hwang, an analyst at Good Morning Shinhan Securities Co. in Seoul. ``Korean refineries usually have about a week's worth of stocks, so if the strike is protracted it may be a problem.''

The strike may cause oil product prices to rise. LG-Caltex is Korea's biggest producer of benzene, which is used to make chemicals such as detergents, insecticides and motor fuels, said Yoo Young Kuk, an analyst at Sejong Securities Co. in Seoul.

Asia

``The prolonged strike may trigger prices to increase somewhat across Asia,'' Yoo said. ``In Korea, the impact on prices will be limited because the government won't allow prices to rise too much because of inflation concern.''

Workers, who have downed tools at its only factory in the southern city of Yeosu Sunday night, ended their occupation of the plant today to hold rallies in Seoul, said Yoo Young Koo, an official at the Korean Chemical & Textile Workers Federation, a union group whose members include the LG-Caltex union.

The company is studying a plan to use 430 white collar workers and retirees to restart the factory, said Lee, the company's spokesman. It can take as long as 18 days to get the factory back into full operation, he said.

``It takes a significant time to study the exact status of the factory because it can be dangerous,'' Lee said. ``We won't know until tomorrow at the earliest whether it is possible for unskilled non-unionized workers to restart the factory.''

Loss

The government urged the workers to end their illegal strike.

``The longer the illegal strike lasts the bigger the losses for the South Korean people and the labor union will become,'' Commerce, Industry and Energy Minister Lee Hee Beom told a press conference in Gwacheon, South Korea.

LG-Caltex -- equally owned by LG Corp. and Caltex Corp., a unit of ChevronTexaco Corp. of the U.S. -- can process 650,000 barrels a day of crude into products including naphtha. South Korea has total oil refining capacity of 2.32 million barrels a day, according to BP Plc's Statistical Review of World Energy.

Shares in LG Chem, which uses naphtha and other oil products to manufacture petrochemicals, resins and plastics, closed down 4.1 percent at 37,400 won in Seoul. SK Corp.'s share fell 0.4 percent to 45,100 won.

LG-Caltex's customers such as Sam Nam Petrochemical Co. are seeking fuel supplies from LG-Caltex's rivals including SK Corp., S-Oil Corp. and Hyundai Petrochemical Co.

``LG-Caltex's problem is disrupting our production,'' said Hwang Ji Sang, a spokesman at Sam Nam, which buys 70 percent of its raw materials from LG-Caltex. ``We are tapping other suppliers so that we can avoid having to shut our production.''

Demand

LG-Caltex union members on July 7 voted to demand a 10.5 percent pay increase and a reduction in working hours to 40 a week from 44 a week. That was rejected by management, which said workers' wages had risen adequately over the past five years. Forty-one percent of the company's 2,700-strong workers belong to the union.

``We will hold a rally in Seoul and we also plan to launch a campaign to boycott LG-Caltex oil products,'' said Yoo at the Korean Chemical & Textile Workers Federation.

LG-Caltex yesterday requested the government to send the police to stop union workers from crippling operations. Union members on Sunday took over six of 29 control rooms at the plant, slowing production.

``Our top priority now is to check the safety of the plant and return operation to normal as soon as possible,'' Lee said. ``We are willing to resume talks with union leaders on condition that they return to work.''

To contact the reporter on this story: In-soo Nam in Seoul at inam@bloomberg.net.

Last Updated: July 20, 2004 05:51 EDT