The second wave of the pandemic has hit domestic steel demand in the current year, with a 22 per cent month-on-month drop in April 2021, and a further 1 per cent sequential decline reported in May 2021. However, the current year consumption data looks far better compared to last year (150 per cent growth in April-May 2021) because of the much more stringent lockdowns observed during April-May 2020, according to ICRA. Despite weak domestic demand, buoyant international demand and steel prices supported domestic steelmakers and India remained a net exporter of steel with 122 per cent year-on-year growth in exports reported in April 2021. Although exports in April 2021 were 26 per cent lower than the March 2021 levels, momentum continued in May 2021 with a 30 per cent month-on-month growth. With the gradual lifting of lockdowns/mobility restrictions in India in June 2021 and improving vaccination coverage, ICRA expects domestic demand to recover in the coming months, which in turn would result in a pickup in capacity utilisation levels.Elaborating on this, Jayanta Roy, Senior Vice President & Group Head, Corporate Sector Ratings, ICRA, says, “The key reason behind supportive international demand and prices has been China, which reported a 19.9 per cent and 21.6 per cent growth in fixed asset investment and real-estate investments, respectively, during 4M CY2021. China’s export hot-rolled coil (HRC) price shot up by 53 per cent to $1,065 per MT during January-May 2021 before correcting to $945 per MT in the first week of June 2021, following the Chinese Government’s clampdown on financial markets to rein in price speculation. While the proposed easing of steel production cuts in the Tangshan region of China would exert pressure on steel prices, withdrawal of export rebates since May 1, 2021, and market expectation of an export duty on steel products point towards a reduction in Chinese steel exports, supporting international steel prices going forward. China’s steel exports grew by 24 per cent in 5M CY2021 to 30.9 mn tonne (mt) owing to the low base last year.”  Domestic monthly steel deliveries slowed down somewhat in April-May 2021 compared to Q4 FY2021 because of localised lockdowns during the second wave. However, with exports remaining an attractive alternative for domestic steel mills, domestic steelmakers have announced further price hikes in April-May 2021, leading to further hardening of spreads compared to Q4 FY2021 when many steelmakers reported all-time high profits. This, in turn, will help steelmakers report yet another quarter of solid earnings in Q1 FY2022.“Domestic steel prices are currently trading at a significant discount to the landed cost of export offers from China,” adds Roy. “Even amid the second wave disrupting economic activity, the steep rally in international steel prices gave domestic steelmakers the headroom to roll out successive price hikes, accumulating to a 20 per cent increase since the start of the fiscal.”