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Supportive international prices are expected to help domestic steelmakers tide over the second Covid wave, ratings agency ICRA said.

Besides, ICRA expects domestic demand to recover in the coming months with the gradual lifting of lockdowns and mobility restrictions in India during June 2021 and improving vaccination coverage.

This trend in turn will result in a pick-up in capacity utilisation levels, the agency said.

"Domestic steel prices are currently trading at a significant discount to the landed cost of export offers from China," said Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA.

"Even amidst 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."

According to the ratings agency, the second wave of the pandemic has hit domestic steel demand in the current year, with a 22 per cent M-o-M 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 because of the much more stringent lockdowns observed during April-May 2020.

"Despite weak domestic demand, buoyant international demand and steel prices supported the domestic steelmakers and India remained a net exporter of steel with 122 per cent Y-o-Y growth in exports reported in April 2021."

"Although exports in April 2021 were 26 per cent lower than the March 2021 levels, the export momentum continued in May 2021 with a 30 per cent M-o-M growth."

At present, India is facing an iron ore shortage in the key raw material producing state of Odisha, with many of the auctioned merchant mines yet to ramp-up to their earlier level of production.

"This has resulted in domestic iron ore prices rallying to all-time high levels at present. With seaborne iron ore prices remaining elevated as well, exports have become remunerative for miners, even for higher grades which attracts a 30 per cent duty."

"Consequently, ICRA expects the domestic iron ore shortage to persist for the next 6-9 months, leading to prices remaining elevated for a greater part of FY2022."