Samsung Electronics and its South Korean union have reportedly narrowed their differences, according to a mediator, as pressure mounts from the government and business groups to avert a potentially damaging strike.

The two parties are racing against the clock to finalise a deal on bonus payments before nearly 48,000 workers are set to walk out for 18 days starting on Thursday.

Such a significant and prolonged industrial action could inflict considerable damage on South Korea's economy, given that Samsung alone accounts for almost a quarter of the nation's exports.

As the world's largest memory chip maker, any disruption to Samsung's production could also impact global supply chains, particularly at a time when the boom in artificial intelligence has already led to shortages.

Park Su-keun, chairman of the National Labor Relations Commission, which is facilitating the negotiations, indicated that while both sides have made concessions, they remain deadlocked on two crucial issues, though he did not elaborate further.

He told reporters, "There is some possibility that an agreement could be reached." Talks were scheduled to conclude at 7pm (1000 GMT) on Tuesday.

Samsung declined to comment on the ongoing discussions. Meanwhile, a union representative stated that the union is "making every effort to come up with a plan to satisfy its members."

While the threat of the strike has put South Korea on edge, investors have been heartened after the government threatened over the weekend to step in and order emergency arbitration. That would prevent the strike from going ahead for 30 days while the government mediates talks.

Shares in Samsung ended 2 per cent lower on Tuesday, paring losses after the news of narrowing differences. The stock is down 1.3 per cent for the past week.

"The reality is that all of our citizens are worried about this, considering the ripple effects that a Samsung strike could bring," industry minister Kim Jung-kwan told parliament on Tuesday.

South Korean business groups have also urged the union not to proceed with the strike.

The strike could in a worst-case scenario shave 0.5 percentage points off a forecast 2.0 per cent expansion for the South Korean economy this year, according to an official from the country's central bank, who declined to be named.

This assumes that around 30 trillion won ($19.9 billion) of chip production could be lost as well as a likely additional "few weeks" of disruption before production lines are operating normally again.

KB analyst Jeff Kim has estimated that an 18-day strike could disrupt global supplies of DRAM memory by 3 per cent to 4 per cent and NAND memory by 2 per cent to 3 per cent, which would likely fuel further price increases.

For many investors, rather than the potential strike itself, the biggest issue is whether Samsung caves to the union's demand to have bigger bonuses written into contracts, resulting in permanent increases in labour costs.

"The point is how they negotiate the formalising of pay increases," said Lee Seung-yub, a portfolio manager at Seoul-based hedge fund Quad Investment Management.

The union has demanded Samsung abolish a cap on bonuses that stands at 50 per cent of annual salaries, allocate 15% of annual operating profit to bonuses and formalise this in contracts.

Samsung has proposed that memory chip workers receive one-off bonuses this year that would top those of SK Hynix employees, while the bonus cap would stay in place.

The dispute is the biggest clash between Samsung and its labour union since Samsung Electronics ​Chairman Jay Y. Lee pledged in 2020 to put the firm's past union-busting activities behind it.

Samsung remains one of the most sought-after workplaces in Korea, but employees are furious about the pay gap with smaller rival SK Hynix, which took the lead in supplying high-bandwidth memory for AI chip units to Nvidia.

SK Hynix overhauled its pay structure last year. Samsung's union says SK Hynix workers last year received bonuses more than three times higher than those of Samsung workers, resulting in an exodus of Samsung employees to SK Hynix and a surge in union membership.

A court on Monday partially granted Samsung's request for an injunction, ruling that essential staffing levels at some production facilities must be maintained during any industrial action. Samsung has notified the union that this will require 7,087 workers to report for work even if the strike goes ahead.