Tenaris SA (TS) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third quarter 2004 TENARIS Earnings conference call. My name is Alisha and I will be your operator. (OPERATOR INSTRUCTIONS). Representing TENARIS are Mr. Carlos Condorelli, Chief Financial Officer, Mr. German Cura, Commercial Director, and Mr. Nigel Worsnop, Investor Relations Director. I would now like to introduce Mr. Nigel Worsnop. Please go ahead, sir.

OK, thank you and welcome to our third quarter 2004 conference call. We would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect these results include those mentioned in the company's 20th Registration Statement and other documents filed with the US Securities and Exchange Commission.

Before moving to questions concerning the results we published yesterday, here are a few points that we would like to highlight. The growth in our results is a reflection of favorable market condition and our good positioning in the market. As we discussed in the last conference call, TENARIS is well positioned to benefit from the favorable long-term market growth prospects for our seamless pipe products. We are the leading global supplier of seamless OCTG products to the oil and gas industry worldwide being one of the limited number of suppliers capable of developing and supplying the compact product technology, required by the energy industry to operate in the increasingly difficult environment. Being uniquely placed to reduce cost in the tubular supply chain through integrating the supply chain by matching our customers' drilling programs to our mass pipe manufacturing programs and taking care of everything in between and counting equally the oil and gas majors and the nationals as major customers. It is important to note that the environment in which our steel pipes have to operate is very different in terms of performance characteristics than that of other steel products. Our products have to perform deep below the earth or the ocean surface and they are subject to temperatures and pressures, which ordinary steel products don't encounter. This favorable positioning is now being reflected in our results. We have recovered the margins that we had last year in our seamless business, compensating through higher prices, increase in our costs resulting principally from the increase in international prices of steel-making raw materials when comparing both the quarterly and nine-month results. Although we expect an increase in our seamless cost of sales for the fourth quarter compared to the third quarter due to the further increases seen in steel-making raw material costs in the third quarter with the pfeiffer effect (ph), our growth margin on seamless sales should be up for the 2004 year taken as a whole compared to 2003 with a further increase in average selling prices offsetting some of the rising costs.

During the quarter the international rig count continued to rise with the increase in the Middle East being particularly notable. Although it fell back a little in October, demand for our OCTG products remained strong in both our local and international market. Margins in our smaller welded pipe business are also improving, after several quarters of weak demand in our local and regional market. Demand in Brazil is starting to pick up with a gradual recovery in demand for gas pipeline infrastructure projects and the prospect for investments in expanding the gas pipeline infrastructure in Argentine market improving. However sales to export markets will decline as we concentrate more on the local and regional market. The strong growth in sales up 37% over last year's third quarter and 27% in the year to date, and the recovery of margins in our core seamless business. As well as the third quarter improvement in our welded business, that too an increase in our EBITDA of 60% in the third quarter compared to last year and 31% in the year to date. Our EBITDA has increased in each quarter of the year so far and is comfortably on target to exceed 800 million for the year. The improvement in our results also reflects the benefits of the consolidation process we have carried out including the 2002 exchange.

The finance of today is the result of a long-term consolidation process reflecting a series of acquisitions made to build up a global manufacturing network within some global service and distribution networks serving our global customer base worldwide. Through the 2002 exchange we consolidated TENARIS in to a single company in order to maximize operational, commercial and financial synergies. A consolidation process has resulted in our building of 20% global market share for seamless OCTG products establishing ourselves as clear leaders in the sector with a sustainable competitive position. Increasingly we operate at the high end of the market where market consolidation is most advanced. We continue to work on extending the benefits of this consolidation process. With our integrated global network of mills and service and distribution centers, we are able to invest in product development and in supply chain integration as well as in new opportunities to enhance our competitive position in a way that no single mill on its own could realistically compensate. We are currently busy integrating Silcotube, our Romanian acquisition into the system, upgrading quality systems. We are also busy starting up our new HBI Plant in Venezuela with the effects as to low cost raw materials and energy, which will further enhance our industrial cost competitiveness. Similarly we will invest in building a power plant in Dalmine in order to reduce operational costs for our facilities in Italy. We also continue to invest in our industrial systems to add value to our products and this week we opened a new facility in Veracruz, which will produce tubular automotive components for the naphtha market.

The 2002 exchange allowed us to begin operating as a single global company with manufacturing operations concentrated in low cost countries and a more efficient financial and tax structure. Although we were able to implement various operational synergies fairly quickly following the exchange, these were obscured in our results due to an overall increase in cost reflecting high raw material and energy and other costs. Below the operating lines the synergies are reflected in the low cost of our debts. With our net interest expenses in the year to date amounting to $22 million, and the net interest rate accrued on our debt being around 3% annualized. We have also been working on reducing our high tax rate and the results for this quarter show the first concrete signs of the progress made. This helped us to increase our net income for the quarter to $130 million, of a 130% from the third quarter of last year and up 59% on a first share basis in the year to date.

Our net income continues to benefit from our investments in Sidor. Since we invested 33 million last year in the restructuring of the debt of Sidor and Amazonia, the market for Sidor's products has improved dramatically which not only is the line up to produce excellent returns on our investment in the restructuring made mainly through (inaudible) through the excess cash mechanism that was established but also is resulting in positive returns on our investments in Amazonia. The gains on our investments in the (inaudible) through the excess cash mechanism are recorded semi-annually and include 22 million in the second quarter, which we received in cash this quarter and should include a further gain in the fourth quarter. The result of 17 million recorded in this third quarter correspond to our 40.5% share of Amazonia's result, which in turn reflects Amazonia's share in Sidor's results for the quarter. And with that I would like to open the floor for questions.

[OPERATOR INSTRUCTIONS]. The first question is from Roberto Ellinghaus with UBS, Please go ahead.

Good morning and congratulations for the great results. I just have a couple of questions. First one is, can you tell us how sustainable the lower tax rates are, I know you mentioned at your presentation? Should we consider this 8.4 or may be a little bit higher? And my second question is if you can give us an update on the Fintecna arbitration?

Excuse me. We didn't hear very well your question Roberto, but I understand that your question was the sustainability of the tax rates, whether there is any update on the Fintecna arbitration.

Exactly. Exactly.

OK

Good morning everyone, this is Carlos Condorelli. OK regarding the tax rate, well we are very happy with the effect of what we have seen, we are seeing right now in this third quarter and we are confident that we will be able to sustain the tax rate between the range of 35 to 38, 39%. We cannot predict all the effect determining our accrual tax. One of these, the main issues is how the exchange rates, the goods rate in the countries where we operate, for instance Argentina, Mexico or Brazil, which are where we have a big operation and this is reflected in the, not in the current tax, but in the differed tax. So this quarter we have seen a small moving in the exchange rates and so the different measure we implement is even having the possibility of reducing the tax rate. So what on that should be sustainable, subject to the, how the exchange rates looks like. Regarding the Fintecna there is no news right now, but we keep expecting some good news.

OK. Thank you very much.

The next question is from Serge Escude with UBM. Please go ahead.

Yes, good morning. I have a question on the weight of the services that you are now providing to your customers. Could you give us an estimate how much is the weight of the tube services you are now providing to your customers in the third quarter 2004 with respect to third quarter 2003. And I have a follow-up question. What, how do you estimate the impact of the raw material in the next quarter and the next year, the impact obviously of the increase of the raw material? And my last question if I can is the, what kind of expectation can we have on the future acquisitions in the process of consolidation or expansion of TENARIS. Thank you very much.

OK, good morning, this is German Cura speaking. I will start addressing the services question. What I assure would probably here TENARIS has decided to pursue the fundamentally tubular associated services. This is something very important for us to clarify, because when we talked about oil field services, we want to make absolutely sure that we communicate with the financial community or customers, etc, that ultimately our aim is providing the tubular associated services within the scope of the company. Tubular associated services in practical terms means pipe management. Pipe management means yard administration, rig preparation, rig returns, inspection work, so on and so forth. Now as you would probably know and this is something which we have addressed on prior rounds, inventory or pipe management, it is a fundamentally US phenomenon. It is typically done for the domestic operators in the United States and usually performed by all traditional services companies like Pipe, like (inaudible), like Vinton and others. Now, TENARIS, once we established a model of establishing direct relationship with our end users, and once we define the notion of establishing long-term agreements, aiming at fundamentally synchronizing training programs through production programs, we saw the need for us to add on the pipe management business. Now this is a growing activity, we are performing this in Mexico, in Argentina, in Venezuela in West Africa and fundamentally Nigeria. We are starting our base in the Caspian Sea, Norway and ultimately you could probably say, fairly say, there is a growing activity in terms of dimension and scope.

Can you give us an idea of the way you the took services, tube services, the way you define them in the third quarter 2004, and the third quarter 2003? Do you stick to have an estimate of the increasing weight of that services?

Let me provide you an indication. We are anticipating that about a third of the TENARIS's OCTG, is going to be supplied with the addition of pipe management services. We just don't account on them separately but yet again for you to know is a growing activity, linked to a long-term agreement, which represents an activity linked to about a third of our OCTG sales.

OK. Thank you.

Now the second question was raw material. How, the question I think was how can we predict what is going to be the cost of our raw materials going forward in the next quarter.

Exactly especially on your margins.

OK, if you focus on the fourth quarter it is simply looking at the cost we have in inventory, even the methodology we use for accounting the (inaudible). Really the cost of the inventory is higher in the main operation we spent than the cost of sale we reported, given that at the end of the period we look at in increasing our cost of raw material mainly. So this is the response we hope you saw on the fourth quarter.

So you seek to buy at a good price your raw materials for the fourth quarter, to understand rightly what you said, is that correct?

No, we are expecting our fourth quarter cost to increase because of -- what we bought during the third quarter will be reflected more in the results of the fourth quarter and when we bought in the third quarter, the prices were higher than in the second quarter.

OK.

And you know that the price of scrap and similar materials has increased over that period. You can see that in the European scrap price in the northern scrap price

And also you are there, a Euro effect is going to be affect us in the fourth quarter.

Sure, so we can expect some tension on margins that is on your gross margin?

No, that's only at that time we follow these increasing costs with our price we saw, and we spoke in just about cost.

OK. So you succeed to transfer all the prices increase to your customer?

We hope so.

OK.

It is not an automatic transfer, but we have been working on it.

OK, so

I think that it is important to mention is that we had started our operation at first (inaudible), which should have and we have had an impact if we keep working at those rates we have an impact in our cost of production, given that we are reducing the price of our raw materials in an important part. That if we can take from let us say five hundred thousand tons is going to impact us very favorably.

OK.

Next year.

Next year. OK. And the follow-up question was on the acquisition in what is your, how you are planning some further acquisition within the end of this year or next year, or are you looking at some targets?

We live looking at opportunities that is not easy to get an opportunity. So as soon as we find a new one, we are going to proceed provided that the feat we will start this year and provided it is happening in the market we want to get the best, we cannot announce anything because we are all the time looking at opportunity.

OK. If I may the last question is on the working capital, so you are increasing your services with your customers? So we, can we expect an increase of working capital following that strategy and with your customers?

OK. I tried to explain why we increased further our working capital. First of all if you look at our account receivable, it reflects that high volume on high prices mainly. We conceded the days of the account receivers are more or less the same that we use to have in the past, so but given the dramatic increase in the revenues, and also remember that this quarter we incorporate in two other operations, being the most improved ones in terms of how it is affecting our day to our working capital etc the one we got at Romania, we got at Romania we are, we have started working on that, the balance sheet is consolidating in the third quarter. So, second going to the inventory, there we have just to simplify to the financials or our 3D financials, one is the raw materials. Given the shortage of raw material, we keep a bit lot inventories on raw materials and it is reflecting also the cost of raw materials, so today we have high volumes and higher cost of raw material. Going to the (inaudible) we are keeping more or less the same inventory we have in the last quarter, in fact in the third one it was just a little bit given that we have two plans with annual maintenance so, but we are going to recover if the volume subrogates in the fourth quarter the inventory level reflecting the high volume, so we are having. If you consider good internship with the assumption, we follow up is for sure much higher than the one we have in last year reflecting the high volume as well as the higher cost. And finally the assumption that it is true and we are trying to accomplish and to improve in a way we consolidate and the way we operate the different location we had, because Nigel was mentioning before that we are local production in our lower cost production facilities, but it means longer pay out to give to the customer, then all those services etc, but we are working far on this issue and during 2005 we should be able to get some results from that.

OK. Thank you very much for your answers.

OK. You are welcome.

The next question is from Jason Selch with Columbia Wanger Asset Management. Please go ahead.

Hi, I was speaking with a large US independent this week and he said it is not the people who are over estimating the increase in the steel prices, or the lack of availability, because his company had sourced all their requirements from China. And I was wondering if China are of the anti-dumping, are they allowed to import in to the United States and do you have any idea how much OCTG they are exporting at this point?

Well, let's briefly provide a Chinese background. Yes, the Chinese producers have been increasing capacity and it is also known that particularly over the last two three months, a good number of either new projects or even updated or expansion projects in China have been put on hold as the result of, well the determinations taken by the government of probably delaying some of the CapEx or project financing aiming at the steel sector, aluminum, so on and so forth. For the most part the Chinese producers of OCTG are fulfilling their domestic needs. When we talked about it we typically say that the Chinese producers today have a shade of about 20, 21% of the OCTG operate consumption, but yet again a large portion, a very large portion of that is serviced domestically. Yes, they don't have dumping restrictions in this States. It is also true that they have reduced their imports in the States quite substantially. They need about a 100,000 metric tones during 2003 and they have reduced their quantity during 2004. We obviously don't have yet the final 2004 numbers, but that we are monitoring that and we know that they are reducing their level of exports to the United States. Overall you could probably claim that the Chinese today are exporting something close to 200,000, 250,000 metric tones, out of which both the US and Canada as markets are receiving something I would probably say close to 50% and another important I think detail of the Chinese exports is that they typically related or associated to the oil and gas Chinese expansion, that is, it is widely known that once China has become the second largest importer, sorry, of crude oil, their operating companies CNOC, CNOPE etc are venturing overseas. They have taken fields, production positions in places like Indonesia, Kazakhstan, so on and so forth, even in Latin America and it is also a very well known phenomenon that when any of the Chinese operators goes out of China they typically take Chinese services and Chinese materials and Chinese equipments. So what I am trying to say is that a good portion of the remaining Chinese OCTG exports are usually associated to consumption of the Chinese oil and gas company.

OK. In the, did you mention whether the pipeline from Bolivia to Argentina has been approved and whether you expect to be producing that pipe next year?

No, it hasn't been approved yet? Now we are working on the loops, which is an extension of the existing pipeline, which is an important project. And this is starting with a progress in Argentina to make the decision, (inaudible) stocking we already ordered a plastic product for producing the pipes and supposedly we should commence the shipment by the first quarter of 2004. But in the case of the Bolivia, Buenos Aires pipeline has not been approved yet. It is in the process, Bolivia yet to approve and to be ready to export the gas.

OK. Thank you very much, a great quarter.

OK. Thank you.

Thank you.

The next question is from Daniel Altman with Bear Stearns. Please go ahead.

Hi, congratulations on a great quarter. Three questions, first of all on the pricing side, previous guidance was 15 to 20% increase in 2004, a little secure there. I wonder if you anticipate an increase in your revenue per tonne in the fourth quarter, or even in the first quarter of '05? Second question is if you could break out on your seamless volumes, if you could break out OCTG versus industrial, and the third question is if you could provide little bit more color on what you say were technical problems in, at the electrical plant in Argentina? Thanks.

Good morning Daniel, this is German speaking. I will probably address the first two, Carlos would be very happy to address the third part of your question. The pricing, which we have talked about, is over our rounds, yes, we have advised something around 15, 20%. It is the third quarter we showed those twenty clearly. I think during the coming quarter we are going to be still seeing some price appreciation. I will probably caution the audience that this is not going to be anything dramatic, but yet again we anticipate that well some of the price push that we have discussed about on our prior rounds are still going to materialize within the next quarter as we have anticipated. Seamless volumes Daniel, what you could probably say is that, (inaudible) today about 50% of OCTG. What you need to consider as well is that a good part of remaining 50% is not OCTG but is not industrial pipe either. It is line pipe aiming at both say the downstream petrochemical, LNG, so on and so forth sector as well as the for incidence, deep water pipeline projects. So you could probably claim that the remaining 50% still do contains an important volume linked to the energy sector. Now on the

OK, Daniel, good morning, how are you? What was the question about Argentina, sorry

Yes, the electric plant in Argentina and the technical problems.

Oh. We have a problem with turbine and the generator mainly and we are currently discussing deep with the supplier, which is the best solution. They placed two or three different solutions and we are expecting to recover something from cost and losses we incur and we are recurring for these technical problem. And depending upon the alternative we choose is delayance of the stuff that we have but for the time being we haven't had any problem in our operation due to these its a question only of the cost and I mean that we have (inaudible) up many times providing the same. But we are right now in the process of defining what to do with our supplier and we are discussing with them the recovery of the costs and losses we are suffering.

OK, just to pass if I could, are you able to quantify the cost that you see you need to recuperate, is that a material number?

Certainly material Daniel, for different reasons, so depends on what is the solution. But to repair the tube is one issue, but because we are able to change, I am going to another solution. But today we are not conscious it is going to impact significantly to deny if, it's too early to quantify, but we are confident that there is no material essential material, comes to the table, we immediately we announce it.

OK, and just a follow-up with German, thanks for the answer on seamless. I am just wondering, you said, can you, are you actually able to give a specific number on line pipe versus non-line pipe? Are you break up that as the 50%?

Yes Daniel. I was in fact waiting for that to come.

I am not going to let you off that easy.

I knew, I knew, he was telling. You could say on third quarter figures Daniel, something say, out of the remaining 50% we could probably say, fairly say that 60% of that would be mechanical, industrial type of pipe the remaining 40% would be line pipe, energy related stuff.

OK perfect. Thanks again.

OK.

The next question is from Ricardo Cavanagh with Raymond James Argentina. Please go ahead sir.

Yes, good morning. Well I have two questions. The first one is for Silcotub in Romania, how are you integrating the production of Silcotub with TENARIS commercial network where you are selling Silcotub's production, what is your strategy there? And the second one is related to Posden (ph). You just mentioned that you are going to start operating Posden next year. My question would be related, when are you expecting Posden to be fully operative? Should we expect it to generate sales throughout the entire 2005 or part of the year?

Well, I will take that Silcotub question. Now what we probably say that, Tenaris today functions with a network of production unit and on those we have of course incorporated Silcotub and as of July we are working over in Romania to take the necessary measures to bring Silco to the TENARIS standard. This is something which we typically talked about with, you know contact with our customers and their financial community where we say that the TENARIS today pride itself of having one only quality system meaning that every production unit in the family is up to make the same product while in the so on and so forth standard. So the integration is of course underway. I would say very, very gladly surprised with the condition of the plant in terms of say production unit, is a technology that we used all across the system from a rolling technology that we use all across the system where TENARIS has I would say a massive experience and consequently we are very confident, very soon based Silcotub would be producing at the same level of the rest of the mill. Now from a commercial perspective TENARIS is organized the local and global business units. And typically we confront our customers with a complete offer once a contract is established, we then define which production unit would produce what based upon you know a specific product range, a specific delivery requirements, a specific locations so on and so forth. And of course we are assuming that Silcotub would be ready to be incorporated as part of a standard I would say operating type.

Just to be little bit, today Silcotub is exporting to our commercial network and is in fact, so is another company of TENARIS.

You could probably say that, commercially such, it operates absolutely the same way that the rest of the (inaudible).

OK. Going to offer post event operation, we started operating in October. So we already started and we are expecting some good productions and having impact on the fourth quarter. You are going to see full impact hopefully by 2005. But we already started operating and we are operating right now.

Well, just to add one clarification, we are not expecting in the first year for example to produce the full rated capacity

By this report we can produce 900,000 to 1,000,000 tones per year. It impacts for us around 500,000 tons of bracket, which is an important figure for us.

Thank you very much.

OK.

OK, next question is from Frank McGann with Merrill Lynch. Please go ahead sir.

Yeah, good day, two questions, one related to capacity utilization. I was wondering if you could update us on the capacity utilization in Mexico, Argentina and Dalmine and going forward as your business continues to grow and the demand looks like it is going to stay strong for quite a long time. What are your plans to meet that growth? And then secondly in Venezuela, just related to the restructuring agreement last year, I was just wondering you have been reporting some very significant special payments related to that. I was wondering how long those continue and at some point that capital you see the business itself generating the growth, but you won't to have special gains that you reported in the second quarter and likely you reported in the fourth quarter this year?

Good Frank. I will take the capacity question. I think it is sad to say that the whole of the (inaudible) system other than Romania is today operating close to capacity. You know the market is demanding, we are responding and our mills are operating clearly close to the capacity. Now, Silco of course adds an important component to the entire system and that is why I was trying to emphasize the notion of mass property turning it around and bringing it to the financial standard because we see the incorporation of incremental volume. We are of course having some additional capacity both in Dalmine and Tapsa. We are planning to exercise that based upon of course the specific market needs. But may be more importantly, is the explanation that we do in terms of the way the CapEx is been exercised at our mills. TENARIS is today going through a very important process of incorporating that out of 60 mills aggregated capacity of high-end production. So the entire system is rapidly increasing our premium connection capacity, our ability to produce profitable steel rate, our ability to ultimately then integrate to our offering additional volumes of high added value products. I think Nigel mentioned the inauguration of the component center here in Mexico and our aims precisely to the well directions that I was just referring to.

OK, going to the Sidor, OK, Sidor, first of all go to the basic. Sidor is doing very well, benefiting from the excellent market of the flat steel product. As you know Sidor has a very low cost, is doing really well and as long as Sidor is doing very well, we benefit either from the excess cash or from capturing the re-salvage cap. The way we are reporting these operation and our participation in the Ecar(ph) participation at Sidor are the following one. First of all we have for the past two Amazonia, remember that generation of Sidor goes to different, but to simplify in two different ways. One is the excess cash, which goes to a (inaudible) shareholders where we have a decent participation from the one we have at Sidor. And then we report Amazonia as, using the equity made for Sidor. We are expecting for the fourth quarter some excess cash to be declared by Sidor and so we are expecting some gain on this aspect as well we are expecting the full results for Sidor for the fourth quarter. This is a simplified question of how we report Sidor.

OK, whereas as you go over the next year or two, I am just not sure exactly how the restructuring works in terms of this excess cash. Is that, will that continue for an unlimited period, or if there is some point where you recover a certain amount of the investment that you made in the restructuring, a sort of return on that investment that you then begin to cap that out and those amounts would be reduced.

Hi, this is Guillermo Vogel, I am just joining the conference here and to give an idea, the excess cash is mainly linked to the prevailing life of the loans that we are restructuring Sidor so, the excess cash ends at the time that the all those loans are fully repaid. The exact date of the repayment moves, but I would say that today at least you can have a life expectancy that goes up to 2009. In terms of the results, in terms of how it will affect our results as Carlos mentioned, either we are going to incorporate them as part of the results of Sidor, or we incorporate them as excess cash. So that will come and that will affect our results anyway. The big difference is that excess cash comes in cash. And at the time we get this cash we are basically having an input in to TENARIS from cash flow that comes from Sidor. But I would say that the main element that defines in the future the effect of the results of Sidor on TENARIS are going to be the actual results of Sidor much more than if they are allocated through excess cash or if they are allocated to I would say, to incorporating the results of Amazonia. That we are doing one thing, and not that we are going to be able to success fully in it or not but we are trying to do is that to be able to declare excess cash on a quarterly basis. This, the main reason to do this is in terms of having a much more define effect on our results, on a quarter to quarter basis and we hope to be able to grab an answer on that before the end of this year.

OK, so going to 2009, assuming that business stay as strong as it is right now, we should see continued very strong recovery from Sidor, or both from just direct earnings as well as the recovery in excess cash.

Right, the answer is yes because finally we are reporting to different ways the money made by Sidor, the EBITDA made by Sidor. So remember something important, which cannot affect us and is affecting our, we account in business, we account the investment we made at Sidor at Elopa (ph) at cost. So the participation that we could have at a Sidor through Elopa today in our books are recorded at cost. OK, till the moment that is capitalized or reincorporated. So I am trying to say that this is a very conservative way that we record the business we met is all here.

Great. Thank you.

OK.

The next question is from Victor Galliano with HSBC. Please go ahead sir.

Hi, good morning. I am just, congratulations first on the excellent quarter, but a couple of questions here in terms of the outlook for Confab and CF can you give us some idea of what the order backlog looks like here in terms of the activity of obviously Petrobras there in the case of Confab and in terms of the outlook for CF. Can you give us a better feel for what we can see in the coming quarters and may be in general terms we have seen you know looking at the volume distribution of growth in seamless, we have seen it very much skewed towards the growth, has been skewed towards Asia. Can you give us your own feel on where you think the premium growth will come in Q4 and in early part of 2005? Thank you.

Well, let us address the well debt question first, as Nigel indicated in his opening remarks what you remarked, we are seeing an improved well debt overall picture in our regional, market both in Brazil and Argentina as a result of having time of the announced infrastructure projects being ultimately then defined. Some specifics just to provide details. In Brazil four new big projects have been confirmed in the last very few months. Casimbas(ph) Victoria, is a project, sorry, which we have initially got back in April 04, they were obviously down financially (inaudible) rather, which we discussed about, we are expecting to start delivering of these in the later part of this year, early next. Catu-Carmo'polis, this is an important project that we are expecting to start by the end of the year and the deliveries I think would probably more well within the first of semester '05. Manati e', this is another big one, which we announced, these would probably be active deliver specifically in first quarter of '05 but I will mean, as this is a 24 inches line for a mining project in Brazil, which we just recently bought. So we are now adding some complete materiality to ultimately the, well hopes that we had and we expressed over the prior rounds. Now there are those, also consistent delays, the BVA-T, that is a very important project in Brazil that was announced, we talked about it, it continue to be delayed and reasons behind are fundamentally the disagreement between Petrobras and the government of the state of Rio De Genero. That's the Brazilian brief picture. In Argentina, well we talked about the new two looks of both TGN and TGS. These say, would probably account for something over a 100,000 metric tones. So it will be very relevant for CF. Now, projects are not yet been say confirmed, but we are confident that they will soon be on streamline as a result of well everything that happened during this last winter in Argentina and the ultimate decision that the infrastructure needs to be improvised to avoid potential gas availability issues. Yeah, please.

Regarding the question on the distribution of the sales, it is certainly true that if you just compare this quarter with the third quarter of last year, there was an increase in the far east sales. I think that is more related to a particular issues in the third quarter of last year regarding sales for China, but if you look at the year to date, the main increase has been in our key markets, in our local markets in North and South America, where you can see that although the demand is strong across the board, it has increased most particularly in North and South America.

Let me add on to detail to explain the Chinese component of this last quarter and then a little bit of the outlook in terms of what the premium areas are going to be. This last quarter, both China and Korea have been very strong in the power generation segment in both places has been very, very strong. We have a no reason to believe that is not going to be the case going forward. We are supplying both, fabricators both in China and Korea and that has become a very important line of business not only for us but the industry in general. Now going in to the outlook on the premium areas, we typically refer to these in two dimensions. Major oil companies will need to move in to very demanding operating environments to fundamentally be able to cope with their declining trades. Complicated environment are the water oil sands, LNG and everything that we have talked about. Now TENARIS is committed to follow the major oil company's drive. And this is precisely tied to the notion of fast increasing our capacity, our production capacity of the high-end product. High-end products means complicated environments, complicated environment means following the majors to very difficult places given that they don't have access availability. Second dimension is the nationals. This is where the oil is going to be coming from. Middle east in particular. TENARIS has a very solid procedure in the Middle East, at the same way, with (inaudible) Venezuela, (inaudible), in Mexico, so on and so forth.

OK. Thank you.

The next question is from Joel Gremardis (ph) with UBS Investment Bank. Please go ahead sir.

Good morning gentlemen and congratulations on the impressive results. I had two questions, I was wondering if you could give us an update on the European activities, which in the 20K fiscal year '03 were described as being affected by the strong Euro and the stagnant economy and the second question that I had, if you could be more specific on how Dalmine is expected to fund its upcoming second installment under the PHUP settlement?

OK. European outlook, I would say in general terms, there has been a slightly price recovery with the Euro from a Dalmine perspective as we have specifically said a number of times. This is one of our mills that is I would say heavily dedicated towards mechanical and industrial segment. I would say that it is a stable I wouldn't say that Euro is probably booming. Industrial and mechanical sector is now booming, but it is without it out stable. Now on top of that from say a range perspective, I guess you would recall that in Dalmine we have the ability to produce the big of the line pipe dedicated to the water pipe line projects and on that Dalmine plays a very important role. So may be to sum it up I would say the price appreciation has probably allowed us to if you will cover the Euro effect. The economic situation in Europe is now booming. Mechanical and industrial activity again are probably booming but yet again an important market technique for us. You could probably go back to the numbers of the last quarter in terms of our industrial and mechanical mix. And beside a value you would find that a large component of the numbers that are mentioned are dedicated to European and pure European consumption.

OK. Going to the how we are thinking to pay the second installment for BHDK (ph). We are ready to hold Dalmine while we expect for something coming from St. Edna (ph). So we don't have any stress and financial crisis. So we can pay very clearly, we are going stronger, but on the other hand Dalmine is increasing its production, is increasing, is recovering margin so is not our base operation cost, but it is a certain recovery.

So should we expect another capital infusion?

No, No. I don't think so because there is some technical question here. First of all in the next quarter or the next month where we have to pay, we are not going to be a capital infusion. But we have to make our decision when we collect something from Fintecna and perhaps even that Dalmine was one who paid the bill for BHP, may be we return the money to Dalmine, just to make Dalmine recover the money they paid for BHP. At that case we have no decision made, but may be we made the capital infusion for the money we recovered from Fintecna.

OK, just a follow-up, because I think I had heard on a previous question that there were really no developments on the Fintecna arbitration, did I understand exactly?

We keep optimist in a lot.

OK. Get you. Al right, thank you very much.

You are welcome.

Sir we have no more questions in the Q & A at this time. Would you like to prompt for more questions or would you like to close the Q & A?

Well, I think if that is all, perhaps thank you very much for joining us on this conference call and we look forward to the next one.