OREANDA-NEWS. South Korea's steelmakers are rightly apprehensive about 2015.

Steel imports, largely from China, surged last year to take a 40% market share, even as local capacity and production grew, forcing a flurry of mergers and acquisitions and some financial restructuring.

While import levels should rise only marginally this year after 2014's onslaught, domestic market growth is set to slow as some consuming sectors stagnate.

The brakes will also be on export growth amid persistent world oversupply.

The Korea Iron & Steel Association (Kosa) foresees a modest 3% growth in domestic demand this year to some 57.1 million metric tons, thanks to a brighter outlook for construction, while demand from the key auto manufacturing and shipbuilding sectors will remain largely flat.

Growth will be meager compared to 2014's 7% increase in total finished steel demand, and steelmakers are being forced to adapt.

Sandwiched between north Asia's two steel behemoths China and Japan - both currently enjoying record or near-record global steel export volumes - South Korea's steelmakers are in an awkward position.

Korea is one of very few countries to levy no import duties on steel and whose non-tariff barriers on steel are minimal, leaving its steelmakers potentially vulnerable to import surges.

Most consider over-optimistic Kosa's expectations that imports may rise only marginally this year -- by 0.6% to 22.9 million mt, after a 17.3% leap in 2014.

China, whose major steel loading ports lie within just a few days sailing of the Korean peninsula, exported a record 93.78 million mt worldwide last year, a record that seems certain to be broken again this year.

Robust 2014 growth won't be matched this year

Last year's domestic finished steel demand growth to 55.51 million mt was surprisingly robust given the relative lethargy of the economy overall.

Korea's GDP grew 3.4% in 2014 -- up from 2013's 3% -- but was still lower than the 3.7% the finance ministry had initially predicted.

Bank of Korea forecast in January that GDP will grow a further 3.4% this year, down from its earlier outlook of 3.9%.

Last year steel usage grew from a low base in 2013, when demand had fallen 4% to 51.8 million mt chiefly because of a slump in Korea's construction market -- by far the country's largest consumer of steel.

Leading steelmaker Posco managed to offset a 5% dip in domestic sales with a 10% rise in exports but other companies without this option struggled.

Korea's total crude steel output, including carbon and specialty grades, rose by a similarly strong 8% year-on-year to 71.54 million mt in 2014, Kosa said.

Contributing to the rise was Posco's start-up in January 2014 of a 2 million mt/year No.3 Finex iron-making plant at its Pohang works, north of Busan, seven months behind its original schedule due to market softness and over-capacity concerns.

Posco's much vaunted Finex process uses fine iron ore feeds and steaming and low grade coals to produce a pig iron almost identical in specifications and performance to a blast furnace equivalent, the company says.

Posco's rival Hyundai Steel blew-in No.3 blast furnace at its Dangjin works south of Seoul in September 2013 on schedule.

The 5,250 cubic meter facility boosted the company's upstream capacity by 4 million mt/year.

The furnace reached its production stride in early 2014.

For this year, Kosa expects the country's total crude steel output to increase 2% to 73 million mt.