Tenaris SA (TS) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen.

And welcome to the Tenaris second quarter 2008 earnings conference call.

My name is Sylvana and I will be your Coordinator for today.

(OPERATOR INSTRUCTIONS).

As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr.

Nigel Worsnop, Investor Relations Director.

You may proceed sir.

Thank you and welcome, everyone.

Before starting I would remind you, as usual, that we will be discussing forward looking information in the call and that our actual results may vary from those expressed or implied herein.

Factors that could affect our results include those mentioned in the Company's 20-F registration statement and other documents filed with the SEC.

With us today are Ricardo Soler, our CFO, German Cura, the Managing Director of our North American Operations, and Alejandro Lammertyn, our Commercial Director.

We also have Guillermo Vogel, Member of our Board and Vice President Finance with us today.

The quarterly results we published yesterday show that Tenaris is taking advantage of the strengthening market for OCTG and other pipe products from the oil and gas industry to resume its record of growth.

The strategic choices we made over the past few years are now bearing fruit.

Net sales grew 20% sequentially and 23% year on year.

Both seamless and welded pipe volumes were record levels.

Operating income grew 16% sequentially to set a quarterly record.

Earnings per ADS, excluding the result from Hydril's Pressure Control business which was sold on April 1 rose, 30% sequentially and 21% year on year to reach $1, another quarterly record.

Sales in North America were up 42% year on year and 18% sequentially not withstanding seasonal weakness in Canada.

In the US market, OCTG distributor inventory levels remain low.

Below four months supply.

We are continuing to gain alliance partners with Occidental being the most recent to sign up.

And during the quarter, 75% of our sales in the US of OCTG were made up of alliance and program sales.

Sales also grew strongly in Mexico where drilling activity by drilling contractors for Pemex is increasing and will increase further as the Chicontepec field is developed.

Sales of our Tubes operating segment in South America, where there was a strong recovery in sales in Colombia and Venezuela, were up 40% sequentially.

This was in addition to the strong performance of our Projects operating segment whose sales are concentrated in this region and which is benefiting from the sales of pipeline products to link up Petrobras' offshore production facilities to onshore processing plants.

Throughout the region, we are concentrating on meeting the needs of our customers for their tubular products.

Sales of high end products, including premium OCTG and Sour Service products also set quarterly record highs and accounted for 46% of our seamless pipe sales by volume.

Deliveries of Sour Service products were made to the Middle East and Caspian regions.

Sales of heat treated products also rose strongly with 80% of our seamless OCTG sales by volume being heat treated.

We are making good use of the new heat treatment and premium connection capacity we installed recently in our industrial system.

Prices for our products are rising in all markets, though faster in some than others, as they adjust to the cost increases confronting our industry and the stronger demand environment.

The average selling price for our seamless and welded pipe products in our Tubes operating segment increased 9% during the quarter, around the same amount as our cash cost in dollars, and will increase further over the next two quarters.

The industry cost increases that have occurred during the last three months will be more fully reflected in our costs during the third quarter under FIFO accounting.

But after that, we expect the cost increases to slow down.

As anticipated in the beginning of the year, we have, and will continue to maintain, our margin in dollars per ton.

The third quarter is traditionally our weakest quarter as seamless sales volumes are affected by summer vacations particularly in Europe and we undertake maintenance at our European and Canadian facilities.

As in previous years, this will result in a drop in sales volume of around 50,000 to 60,000 tons of seamless pipe products.

This year we will also have a maintenance shutdown at our Tamsa plant in Mexico and we'll take the opportunity to prepare our facilities for what we expect will be a very demanding market environment going forward.

This will affect our sales and margins in the third quarter, but the fourth quarter will show strong growth.

For the second half as a whole we expect to record good growth in sales and operating income both year on year and compared to the first half.

Accordingly, we should end the year with strong earnings momentum going into 2009.

Now before going on to questions Ricardo Soler has something to say.

Okay, good morning.

Just an announcement for our Investor Relations community.

Nigel, at the end of the month, is taking a new responsibility at Tenaris and leaving his position of Investor Relations Director.

Mr.

Giovanni Sardagna, who has been working with the Investor Relations team during the last six years, will take the Investor Relations Director job.

Good luck Nigel in your new responsibilities and thank you.

Now we can go for the questions and answers.

Ladies and gentlemen, (OPERATOR INSTRUCTIONS).

And our first question comes from the line of Ole Slorer from Morgan Stanley.

You may proceed.

Thank you very much.

I think there's an echo on the line.

Okay, this is better.

Congratulations, Nigel, with your new appointment.

Thank you, Ole.

We have to have a talk about how many offshore rigs are coming on so don't give away your pipes too cheaply now.

Now the mix in the quarter it was, you said, 46% of sales by volume was premium and 80% of volume heat treated.

How did that compare with the previous quarter?

It was a little bit better than the previous quarter.

It was 46% in terms of overall high end products and when we come to our OCTG products, they were 80% heat treated.

And the previous one again is very similar, although a little bit lower in both cases.

So high end was around 42% in the first quarter and the heat treated for OCTG in the first quarter was a little under 80%.

A little under 80%, okay.

So I'm just trying to figure out, out of the 9% some of that came from a mix improvement, the 9% increase in average revenue per ton?

So based on that mix, would you say that three-quarters of it was a price increase and one-quarter of it was a volume mix improvement or something along those lines?

There was a little bit of a price improvement, particularly in the North American market where the prices are reacting more quickly than the international market but we will see in the second half of the year the prices improving in all the markets.

Okay, so what you're basically saying then is that it was more of a mix improvement that drove that increase in average revenue per ton than a realization of higher prices?

I think, Ole, this is German speaking, that we could contemplate both.

In the overall price increases that we see and the sequential quarter to quarter there is clearly an important component of pure price increase as well as the mix increase.

Okay, I'm just trying to get a feel for the dynamic.

And this is about the highest mix of premium that you've recorded I think.

So should this -- how do you see the outlook for the mix in the second half of the year?

Was there anything?

We talked a lot about Caspian orders that slipped from the first quarter into the second quarter.

So was there anything that makes the mix in the second quarter unsustainable or is this a new level that we should be thinking in terms of over the next 12 months?

I think, Ole, again German speaking, over the second half we see that we are going to be able to sustain the level of high end products.

Remember it is not only premium products -- not only premium connection products, but overall high end products that we sold during the second quarter, which may potentially slightly increase going into the first quarter, second quarter '09.

Okay.

And if we switch over to the Welded business where you are -- how is the dynamic there between the increase in plate costs versus your pricing power on marking this up when you're selling them as welded tubes?

Well I think from a pricing of the welded pipe perspective we could probably say that we've seen fairly important increases of prices during not only the quarter but the semester overall.

I think it would be fair to say that it all started at the end of last year, November of last year when we were, as a welded pipe producer, transitioning a cost push environment.

The hot rolled coils almost doubled their price when we look at the prices today compared to the prices of October, November, December timeframe.

Now by, I think, the beginning of the second quarter, that cost push scenario translated I think in a demand pull driven by and large for an increased level of activity in North America, in particular in naturally the US.

And this is where we are today, the pricing dynamics in the US, in North America in general.

But in the US in particular it is in fact reflecting an increased level of activity and increased demand.

So would it be fair to say that you would increase your margins going forward in the second half of the year in both Welded and in Seamless although the mix will -- I mean the growth in the Seamless I would imagine will -- sorry, Welded will be very strong going into the third quarter so that will dilute the mix when you record your margin?

Well I think we are still realizing some of the price increases that we announced and we are looking at prices of hot rolled coiled leveling off.

So it is a fair analysis to assume that over the fourth quarter we may see some welded pipe North America margin increase.

Okay, but not in the third quarter?

Well consistent with what we've seen.

We've seen the second quarter, third, fourth, they're probably going to be particularly more impact during the fourth quarter given that we are going to realize the full cost increment during the third quarter.

But in the third quarter with all the margin there's going to be a mix issue in that welded product sequentially.

It should increase substantially more than seamless?

That is right.

And you are boosting and you're boosting welded, which has a much lower margin.

That is right.

As we anticipated, we'll expect in the third quarter seasonal seamless adjustment globally.

And naturally the welded piece in North America might remain at the levels that we've seen.

Okay, so the mix issue is there.

If you look at, to shift gear a little bit, if we look at some of the shale plates coming on in North America like the Haynesville, for example.

We're hearing from a lot of E&P customers there that it's getting very problematic to source the tubes.

Could you talk a little bit about what type of products that you will be required in these new shale plates?

Is it welded?

Is it seamless?

Is it premium?

Well we've seen a lot more of heat treated material.

There's a lot more horizontal drilling and consequently the use of heat treated material.

On some of the existing plates, we are seeing the introduction of new designs contemplating some premium connections.

We are by the way fairly active and present on the various shales, Fayetteville, Haynesville, Barnett and so on.

And we are today fully servicing our existing alliance customers in all of the place among many ConocoPhillips, etc., etc.

Okay, well thank you very much.

Thank you.

And the next question comes from the line of Cindy Du from Jefferies & Company.

You may proceed.

I had a question on I guess spot pricing exposure versus program sales and I guess to date have most of the program sales going into the second half of '08 and even into '09, have they been locked in and at what pricing has it been locked into?

And then how does that compare domestically and internationally?

Well as far as the North American market is concerned, as we have indicated, we have a major piece of our sales also retails linked with alliances and programs and all of them without exclusion contemplate an adjusting mechanism, price adjusting mechanism that reflects Pipe Logix.

So yes, the alliances are in place.

The volumes are known and committed and the prices are being monthly adjusted based on the way Pipe Logix evolve.

Maybe Alejandro you want to take the international piece?

Yes.

Hello, Cindy.

This is Alejandro.

In the case of international we are at the moment renegotiating all our long term agreements and also applying the variable indexes to make sure that varies with indexes like Pipe Logix.

Okay.

So are you saying according to Pipe Logix's average welded prices and seamless prices have basically doubled year to date.

Are you saying that you've, with the pricing mechanisms that were in place for -- against the first half program sales that you've recognized most of those price increases?

Well we, Cindy, have announced price increases when you look back and start from November onwards.

We have announced price increases north of $1,000 a ton.

Now naturally, there have been announcements and the pricing mechanisms in place, so this is a gradual process.

But this is what in fact what we're doing.

And today by and large this is sustained by a demand pull that we are seeing given the level of activity.

Okay.

So would you say that there is a majority of the programs that don't have pricing adjustments?

Because it seems like your average two prices hasn't really gone up too much for the first half and would we expect the difference to be made up in the second half?

Well surely the second half would reflect the price increases.

Now again programs in North America do contain Pipe Logix as a reference and both programs and alliances are in fact subject to price adjusting mechanisms with the dynamics that we've seen.

Okay.

And then I guess we've seen definitely a recent decline in the spot natural gas prices.

Are you hearing anything, or is there any push back from distributors or customers on prices for OCTG or is there still such a tight supply and low inventory that you would expect pricing to remain at sort of elevated levels?

Well we have not seen any indication from...

(technical difficulty).

At this time just one moment please.

The line of Mr.

Nigel Worsnop is not able to be heard.

Please stand by for one moment until we fix this technical difficulty.

....

We do have the speakers back on the line.

You guys may proceed.

Thank you for your patience.

Mr.

Worsnop?

Okay, very sorry about the interruption but I think we need to go back to the question that Cindy was putting about the -- Cindy?

Hello, can you hear me?

Would you please mind repeating your last question and I truly apologize for the technical problem.

The line got disconnected.

Okay, no problem.

Can you hear me?

Yes, please.

Okay.

So my question was really, given the recent decline in the spot natural gas prices, have you started to get some pushback from your customers or distributors on pricing levels?

Or have their concerns over tight supply and low inventory levels and their plans for drilling in the second half of '08 and '09, has that curtailed any buying patterns or any push back in pricing?

We have not seen any changes, Cindy, for now.

We're in constant contact with our customers and there's no indication as to whether the gas price volatility may affect the anticipated level of drilling.

We need to also highlight the fact that the U.S.

market is today at about 3.7 months worth of inventory, the lowest point in the last six years.

But given the situation, we naturally are monitoring this constantly.

Okay and then I guess following on that, is there any concern that if natural gas prices do somehow impact US spot pricing that that would hinder some negotiations on an international side to get price increases to cover raw material costs?

Well let's say that when we look at the US/North America view, it is clear that gas price has had a direct effect in the level of activity and this has been particularly true in the Canadian market.

I think from a Tenaris perspective and given the market positioning that we're developing through the alliances and through the type of operators, multi year alliances and type of operators where we're positioning ourselves, usually, the daily or weekly or short term volatility is not really a decision factor.

Okay.

In the case of international natural gas, it's not an -- a real relevant point of cost on the negotiation on prices.

So we're not affected on prices.

And on activity, it's more related to the regional use of North America, rather than the global pricing.

Right.

But would you agree that typically, international pricing is sort of set or based off of what US spot prices are at the moment, or where that trend is?

So if it turns before you're able to get the price increases internationally, that could potentially impact margins in '09?

Well actually, the two markets are related, but not directly related.

So we don't expect that the international market will be impacted directly from a reduction of gas price in the US.

Okay, fair enough.

I'll turn it back to the queue.

Thank you.

And the next question comes from the line of Frank McGann from Merrill Lynch.

You may proceed.

Okay.

Good morning everyone.

Just in terms of demand outside of North America, perhaps you could discuss the volume trends, particularly in South America, which you mentioned have been pretty strong.

But looking at the revenue growth year over year was very low, as well as the Middle East and Africa, and in the Far East.

What are you seeing right now?

What are your expectations or the signs you have as you go forward over the next 12 months?

Well regarding Latin America, as Nigel mentioned, we see it very strong, particularly in Mexico, as we mentioned, and Venezuela.

Venezuela is buying a lot at the moment and a lot of premium connection as well.

In Colombia, we are starting the just in time contract with Ecopetrol and we see it growing.

Also, we have Brazil, as you know, is also growing.

In the case of Middle East, the situation in terms of drilling operation is still very solid.

As we mentioned in the past conference call, Saudi Arabia still is reducing their inventories.

And we think that they will recover the buying -- some buying by '09.

Same in Kuwait with KOC, we see them very strong in '09.

In the case of West Africa, Nigeria, although they have political problems, for us it's a very important place where we are taking at fully advantage of our local threading facility there now that they have local content requirements.

Angola, still solid.

So in Angola -- and we have recently closed the Kizomba project with Exxon Mobile for a deep offshore pipeline.

In North Africa we saw -- we see them also very strong, particularly in Algeria.

In the case of Far East, what we can mention is Australia where we are very strong, present in the development -- exploration development, apart from Gorgon that we are following, all the new developments in Algeria -- sorry, in Australia with our presence also with Hydril Connections that are really demanded for high torque horizontal drilling.

So this is an overall view of the international.

We see it strong and with an important impact expected on -- for Middle East and Caspian coming in '09.

If I could just follow up, given that it is as strong as it is, why were the revenues so weak in the quarter?

Is it a mix issue that caused the overall revenues to be so soft?

No.

As we said, the mix is strong.

What we are facing is, in the case of international, there is a delay in the price impact because of the backlog that is longer because you have a longer lead time to arrive to the market and to have impact on their stock and on their final user of the pipe.

That's why you don't see a direct impact on the revenues, but for sure that there is an impact on incoming orders and the negotiation of the contracts as of today.

And we will see the -- growing the impact on the second half of '08 and coming strong on '09.

Okay, thank you.

And the next question comes from Christian Audi from Santander.

You may proceed.

Thanks.

First of all, Nigel, thank you very much for all the help you've always given us.

And good luck on your next adventures and challenges there.

Look forward to keep hearing from you.

Secondly, in terms of questions, going back to the Middle East, so I just want to get it straight in my mind, on the one hand, you have an inventory adjustment that's negatively impacting volumes this year, while at the same time, you have a mix which, based on your comments, was a bit better in the second quarter.

But what you're saying as we go into 2009, we should have kind of a double whammy of both the inventory adjustments, hopefully being over and thus helping the volume side of the equation while at the same time having a mix improvement, as you just explained.

Is that correct, that 2009, therefore, you have not only mix but an important volume improvement coming out of the Middle East?

That is correct.

And with respect to Canada, how much conviction do you guys have on -- as finally -- this has really been a bad market for awhile, as far as finally seeing a pickup more towards 4Q and 1Q that will really make this be a potentially positive catalyst for your operational story?

How much conviction do you have on that?

Well Christian, we really feel that Canada has bottomed out.

I must admit that the gas price impact in the Canadian level of activity is probably the highest when you look at the overall market.

With that said, we are, at this point, looking at a better season than the one -- better drilling season Q1, Q4 -- or Q4, Q1, sorry -- better season than the one that we saw last year.

Okay.

And on the third topic of mix, are you working -- and this is globally -- in any process of upgrading, whether it's heat treatment or threading facilities anywhere in the world where these programs would be completed by the end of '08, and thus have a very positive impact in '09?

Is there anything that you're currently working on in terms of capacity upgrades that would lead -- would result into the mix improving, particularly in a strong [unaudible] in '09 or has most of it already happened?

Well talking about capacity dedicated to the high end, as we have been saying over the last few years, we have invested mainly in in high end products, in debottlenecking the high end products.

I would say that today we are taking mostly full advantage of the capacity increase in heat treatment and premium connections that we have and that Hydril had coming from a lower utilization.

Now we have the plants becoming fully utilized.

Apart from that, we are still investing on the same grounds.

And particularly, in the international, we're investing in the plant in Saudi Arabia will be more regional and more covering the local needs of Saudi Aramco

This is Ricardo.

Just an overall, in order to understand where we are, we're always analyzing opportunities and we understand that in the next half of the year, this half of the year, we are going to have a capital expenditure of about $250 million dollars.

That includes the Saudi Arabia plant that Alejandro told you.

Okay.

Thanks.

And the last question.

German, you touched on the cost outlook.

What's your read right now, in terms of -- we've had this huge pickup in costs.

We could eventually see a stagnation on the -- at least on the increases, but not necessarily a drop in costs.

Or do you think we could into '09, given the historically high levels that these costs have reached, could we then see a scenario where after being stagnated for a while costs could actually start dipping down?

Or is that too aggressive a view to have at this point?

I think what's in our view at this point is that costs are leveling off more than anything else.

Okay.

All right.

Thank you very much.

And the next question comes from the line of Serena Wachnitz from T Rowe Price.

You may proceed.

Hi.

Good morning to everyone.

I have two questions.

The first one is on the other businesses.

They posted a significant improvement in profitability, especially the price for electrical conduits in the US.

I was wondering whether this is something -- a level that we will see going forward, or whether you think that it's a short term improvement.

And then the second question is on the SG&A line, there was a significant increase in absolute terms, quarter on quarter.

I was wondering if you could comment a little bit on that, what is driving that and what we should expect for the next quarters and years.

Thank you.

Okay.

I'll take the other businesses, and particularly the conduit question.

And this is a good question because we have said before that we had confronted some startup issues in our new Louisville plant.

That was almost a year and a half ago when we completed the Maverick acquisition.

And I'm happy to report that the Louisville facility operation, as I mentioned, has improved in a substantive way.

And as a result, we've seen the results that you're looking at.

Now also, it is true that the Conduit business is, by and large, devoted to the construction side in the US, which is transitioning the situation that we know of.

So a very good operational turnaround and a market situation that is probably not looking as well as we hoped for.

Then within others, we also have sucker rods which continue to perform very well.

And also what we call the equipment side of our business, based in Brazil.

This is performing very well and is naturally having a major participation on the Brazilian infrastructure development.

So I believe it is rational to say that we see that expanding in the coming year.

In terms of your question related to --

I just wanted to get a closure on that question.

So some of you expect the result of this other business to either be stable or even slightly better, going forward.

Would that be a fair conclusion?

I think we could say that overall it should be stable with Brazil equipment probably doing better.

Rods is stable for sure.

And well Conduit exposed to the construction environment in the US that I tried to describe.

Great, thanks.

Okay.

This is Ricardo.

Related to your last question about the level of selling and general administrative expenses, I would like to comment that, as a percentage, we are keeping or decreasing the level of the last quarter.

The increase in the number is related to the increase in sales in volume that we had during this quarter, and mainly related to sale expenses related to that increase in volume.

Perfect.

Many thanks.

And the next question comes from a follow up of Rochus Brauneiser from Kepler Equities.

You may proceed.

Yes.

Good morning, gentlemen.

It's Rochus Brauneiser from Kepler Equities.

Maybe three questions, if I may.

The one is on your raw material exposure.

As I understand correctly, your maturity of input is based on electric arc furnace on a scrap route.

Is this something you want to keep like this, or could you imagine diversifying also on the integrated route as probably scrap prices will stay high, or could you alternatively think about investing into scrap recycling?

That's my first question.

The second one is, recently the imports of OCTG products have obviously picked up again into the North American market.

Is this any concern for you in terms of the spot market outlook for the later part of this year in North America?

And finally, what is your view on the Q4 contract prices in North America, knowing that the spot market is already up some $1,600 per short ton?

Well related to our production facilities, we don't have now any plan to change our source of raw material.

Basically, it's scrap for our facilities in Italy, Mexico, Romania, and basically, iron ore for Argentina.

With respect to the imports in the US, yes they continue to be a concern.

Yes, they continue to be high, particularly the imports coming from China.

If I may, I'd like to share with you a couple of numbers.

China has exported to the US 850,900 metric tons of OCTG during '07.

And we've seen that in the first six months that number may be probably close to 550 to 600 already.

We have indicated many times that we are watching those imports very closely.

There is an existing line pipe, welded line pipe trade case that was filed and is, at the moment, in the course of the investigation.

So at this point, we see the imports from China are not going to probably decrease.

We're monitoring that very closely because we also know that behind them there are export rebates and things that make them what we call not completely fair imports.

Now with respect to the Q4 prices in the US, as we indicated, all our existing contracts for our alliance customers or program customers, do contain price adjusted mechanisms, which again, try to reflect the way Pipe Logix is evolving.

There's usually a lag time between the way or the day Pipe Logix is in fact -- or Pipe Logix adjustment is announced and the time where we in fact execute the price increase.

But at the end, you could fairly say that they are very well linked.

And as indicated, we're expecting during Q4 to reflect in both our alliances and contract prices a good piece of the price announcements or the price increase announcements that we have done.

Okay.

So that means all, or most of your contract and alliance business is linked to this Pipe Logix price trend?

Correct.

Okay.

That's great, thank you.

And the next question comes from the line of Ole Slorer from Morgan Stanley.

You may proceed.

Thank you.

Just a quick follow up there on the pricing trends.

So, if there was a somewhat -- if you realized, say, a 6%, 7% higher price on average, sequentially into the second quarter.

But you've seen that in the US, price increases go up by 70%, 80%, 90% since the first quarter, in terms of announced price increases.

And looking at some of the announcements that you've made in the Middle East, now they are as it seems if they started coming through in -- more in June, July type timeframe.

So can you discuss a little bit, if the current prices, just for argument's sake, stay the same, how long time will it take in the US, first of all, before you would realize the new price book?

I think it will be rational to say that we'll see the -- in the US, we'll see the price increases realizing or heating up P&L over the course of the second half of '08.

So will you have -- really have fully realized all price increases by the end of 2008?

We will have, by the end of '08, our prices in the US reflecting the prices dynamics, or pricing announcements that we've made publicly.

Okay.

So given that Mexican pricing is indexed of Pipe Logix, how long time has it taken till you realize those prices in Mexico?

Well Mexican prices are following Pipe Logix.

But also are following some of the domestic indicators as well, which by and large are following some of the aspects of cost.

Now there is a lag between the price announcement and the implementation.

And that typically is about a month.

Okay.

So from first quarter next year you should be realizing this pricing, new prices in Mexico?

Yes.

Okay.

And would it be fair to say that the prices are, at this point, at least 50% higher than your realized prices in North American markets in the second quarter?

Sorry Ole.

Say that again.

Would it be fair to say that the latest price booked is roughly 50% higher than your realized average prices in North America for the second quarter?

I think it's slightly below that.

Slightly.

If we look at the same dynamic internationally, you've raised prices.

When did you really start to raise prices in -- when did you really find you had pricing power in areas like the Middle East?

Maybe price increases take place, let's say, over June, July and other markets?

Was it a summer event or did you raise prices before that?

We have been Ole raising prices in the spot offering for -- since -- at the same time of US.

Of course, as we said, the delay is higher.

And the full impact will come on the spot market from the spot tendering process that is coming now for the Middle East.

So now we are offering the Middle East in the next semester.

And it will be fully realized in -- during the first half of '09.

For the spot for the rest of the market that we are today having, apart from the Middle East, we are having actuals that will be realized during the second half of '08 and fully by first half of '09.

If you say that the current price book in North America is just under 50% higher than your average realized prices for the second quarter, what would that comparable number be for international prices, versus what you realized in the second quarter?

On -- in the end, you say -- on the final -- to the full realization of our price increase, I would say, due to the relevance of Middle East and OCTG, I would say that we are today at 10%, 20%.

At 20%, okay.

And costs should flatten out as of the third quarter, based on what you're seeing right now.

Well I think, Ole, as -- for competitive reasons, we're not going to be able to bring every other detail.

I'm confident that we have provided a good picture as to how the pricing dynamics might evolve.

You've been very kind.

Thank you very much.

Thank you.

And the next question comes from Stephen Williams from Simmons.

You may proceed.

Yes, hello gentlemen.

Just a quick question on the distributive in the -- in the North American market.

You've mentioned a couple of times today that inventories are at record lows.

When do they start to restock and to increase, and what would be the driver of that?

Well what happened is that the overall industry in the States started a destocking process toward the last part of last year, which at the beginning of '08 confronted a deep increase of level of activity.

And as such, then we are today at a level of three and a half, four months.

Now naturally, the industry is trying to reposition itself.

And this has in fact driven the demand pull that we were indicating at the beginning.

It will take some time because naturally, the capacity is what it is.

We are supplying our customers.

But this is a process, both restocking and destocking that take some time to, in fact, transition.

Our view is that we will probably see the levels of inventories that we've seen today for the next months.

Okay.

And is that because that simply -- the distributor can't get hold of any extra inventory?

I'm just thinking that given the strong outlook going forward, that this is not the time that they would be attempting to increase stocks.

Well it is fundamentally driven that at an operating level, what we call the operative demand, the pipes that are used on rigs, is today requiring a lot more than what it did only three or four months ago.

Today, we are running close to 19, 18 rigs in the States.

So they increased operating level and somehow attempts against the ability of the industry to recompose the level of inventories.

Okay.

Thank you very much.

And the next question comes from the line of Christian Audi from Santander.

You may proceed.

Just a quick follow up.

Going back to these alliances, did you mention at the beginning of the conference call, more or less, what percentage of your contracts are alliances right now?

Yes we did, Christian.

And it's not only alliances, but it's alliances and programs.

The difference between them is that usually an alliance is multi year programs.

It usually goes for a determined drilling program or a year drilling program.

And today in the States, that accounts by about 75% of our OCTG sales.

Okay.

And on these types of contracts German, how often are you able to adjust prices?

Is it a monthly or quarterly type of an adjustment?

Well we can't be too specific, Christian for competitive reasons.

I hope you understand that.

But generic terms, I would say that given the scenario today, we're discussing monthly.

In some others, we're discussing within the quarter.

Okay.

And this 75%, German, is that North America or globally, 75% of your OCTG is alliances and program contracts.

US.

This is US.

US only.

And globally, are you able to give us a sense or no?

Or non -- outside of North America?

It is one number that we don't publicly talk about, Christian.

I'm sure you understand why.

Got it.

Thank you very much.

Okay.

And at this time, we don't have any further questions.

I will turn the call back for closing remarks.

Okay.

And thank you everyone.

I would like to express my thanks to all of the people I've met over these past five years or so since we did the exchange and brought Tenaris as a public company.

It has been a very professionally rewarding time for me.

And I'm very -- and you have all helped to make it very enjoyable as well.

I'd also like to thank my team who have supported me all this time.

And I'm very pleased that Giovanni, one of them, is going to be taking over from me in September.

Thank you everyone.

This concludes the presentation.

You may now disconnect.