Tenaris SA (TS) 2009 Q1 法說會逐字稿

Thank you, everyone, for joining us for the first quarter 2009 Tenaris Earnings Conference Call.

My name is Erica and I'll be your coordinator for today.

At this time all participations are in a listen-only mode.

We will facilitate a question and answer session towards the end of this conference.

(Operator Instructions).

I want to remind everyone that we are scheduled for only one hour.

I would then remind everyone when we have five minutes at the end of the presentation for one last question.

Thank you.

And at this time I would like to turn the presentation over to your host for today's call to Giovanni Sardagna, Director of Investor Relations.

You may proceed.

Thank you, Erica, and welcome to Tenaris 2009 first quarter results conference call.

Before we start, I would like to 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 those results include those mentioned in the Company's 20-F and other documents filed with the SEC.

With me on the call today are Paolo Rocca, our Chairman and CEO, Guillermo Vogel, Vice President of Finance and Member of our Board of Directors, Ricardo Soler, our Chief Financial Officer, German Cura, the Managing Director of our North American operations, and Alejandro Lammertyn, our Commercial Director.

During the first quarter of 2009 sales decreased 7% to $2.4b compared to $2.6b recorded in the first quarter of last year.

Our EBITDA was 5% lower and reached $800m, with an EBITDA margin at 33%, a similar level to the one posted in the first quarter of last year.

During the quarter we strongly focused our efforts in reducing our inventories, and consequently our production levels.

These actions resulted in a net debt reduction in excess of $600m.

However, sequentially, the reduced level of production started to affect our operating margins measured as a percentage of sales, due to efficiency losses associated to lower production levels.

During the first quarter seamless sales volumes were 16% lower than those the corresponding quarter of last year, while welded volumes were 61% lower.

Volumes in the USA and Canada were affected by the decline in oil and gas drilling activity, and the high level of inventories fueled by an unprecedented level of Chinese imports.

In the international markets volumes have been affected by the actions taken by customers to adjust to current conditions, including procurement delays and cancellations and the postponement of new project activity.

These strong reductions in volumes were largely offset by higher average selling prices, which were up 36% over the corresponding quarter of last year and 3% sequentially.

These prices are still reflecting the effect of price increases set in different market conditions and the continuous improvement in our sales mix.

During the quarter our high-end seamless products were 48% of our total seamless volumes compared to 42% in the corresponding quarter of last year, and 43% in the fourth quarter of last year.

Now I will ask Paolo to say a few words about how we are seeing the current condition, and the actions we are implementing to face this challenging environment.

Thank you, Giovanni, and a warm welcome to all of you.

We are now facing the full pressure of the crisis on apparent demand for our products from the oil and gas industries.

This is to some extent reflected in the negative sequential variation in our results for this quarter.

Revenues were down 24%, and shipments went down 30% compared to the fourth quarter of the last year.

Our order intake level is below the level of our sales and shipment at this time.

The most comforting news is that we think that we are near the bottom.

Not in terms of results nor necessarily in terms of drilling activity, but in term of apparent demand for pipes.

Oil and gas companies operating in the international market outside North America have been postponing procurement decisions, using up available stock and in some cases even cancelling commitments.

But now, with more stability in oil prices, which has risen above $50 a barrel, and with service and equipment costs coming down, we should see a pickup in demand, in tendering in fact, as our customers start to move forward with their plans.

Demand from other sectors, such as industrial sector in Europe and North America, has fallen a long way.

But we are now starting to see signs of recovery in certain segments.

Demand from the North American energy industry on the other hand remains more deeply affected.

There will be a long lasting effect on apparent demand from the 1.5m of oil country tubular goods imports into the United States from China in the last two quarters.

These imports almost exceeded the total level of casing and tubing consumed in the ground by the US industry in the same period, and actually exceeded the consumption in this first quarter.

The result, inventory level has dropped to 15 months of current consumption level, and this overhang will weigh heavily on the market for a long time to come.

We are taking actions in a number of areas to deal with the current situation and to prepare for the future.

We are readjusting the level of our work force in various ways, while taking care to protect our people to the maximum extent possible, because of the investment we have made in them and because of the know-how that is in our workforce at all levels.

This adjustment is being made through a combination of layoffs, work sharing agreements and government sponsored programs in the countries in which these are available.

Between contracted and salaried employees, this will be an equivalent of a reduction of 6,000 persons.

The effect of this measure will be seen in the coming quarters.

We are participating in industry actions in response to unfair trade practices, and subsidized imports from China in the US, in Europe and other countries.

We are working also to get closer to our customers in all their operations around the world.

We are investing to extend our industrial network, and the ability to respond to their needs on the ground.

Two weeks ago we completed the acquisition of SPIJ, a company that is helping us to establish strong roots, in not only Indonesia but also in South East Asia, and is also adding heat treatment and premium threading capability in the region.

We are also continuing to invest in extending our network of technical sales field service specialists around the world.

We will continue to reduce our working capital, and to limit our capital expenditures to the projects essential to enhancing our long term competitiveness and differentiation.

This quarter we reduced production below sales in order to reduce the level of inventories we hold in our production system.

As a result the value of our inventory went down by $528m or 17% of the total during the quarter.

This was instrumental in reducing our net debt level by $600m, and we are now down to around $800m of net debt.

Over the coming months we will continue to reduce inventories and manage our working capital commitment aggressively.

In all of our actions we are looking to the long term to strengthening our competitive position.

And our solid financial position will allow us to take advantage of opportunities if they arise.

This is without doubt a difficult time for our company.

Our results in the coming quarters will be lower as the impact of the crisis is seen in volume and prices.

However, recovery will come, and I remain very confident about the potential and prospects of the energy sector.

This is equally so, whether we are talking about the prospects for oil in the international market or for North American gas, which I am sure will remain critical to the energy matrix over the long term, both from a strategic and from an environmental point of view.

Thank you.

I will stop here and open the floor for questions.

(Operator Instructions).

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

You may proceed.

Thank you very much, and very impressive results in a tough environment.

My first question is on the current initiatives in Washington to curb Chinese imports with some potential tariffs.

I wonder whether you could bring us up to speed on what's going on there and what the timeline is that we should be looking out for.

Well, as you know with -- together with all the industry we presented the antidumping and countervailing case in the beginning of April.

I think on this issue, German, you may expand and see where we are, I think.

Sure, good morning to everybody.

And just building on what we have said, April 8, the US industries submitted dumping, antidumping and countervailing case.

Timeline-wise we had a preliminary round at the ITC at the end of April, and we are expecting a preliminary determination from the ITC by the end of May.

The timeline indicates that by September or so, mid to end September, we would have a preliminary determination from the DOC in the event that the case goes forward.

Okay, thank you.

So if it continues to go forward what is the soonest time that you would see any effect on the ability of Chinese to dump into the US market?

Well, I think in generic terms with 15 months worth of inventory, the majority of which the result of the Chinese inventory buildup, we are going to be seeing this inventory transition of flowing through the market, I think, through the end of the year, beginning of next year.

In any event we don't expect any final determination before the end of the year.

And consequently I believe that if the case goes forward we would have some result, some concrete impact during 2010.

Okay, thanks for that.

And the rig counts in the US market, at the peak of the second quarter last year there was no doubt there was a huge need for imports into the US market to balance the market.

So what is the rig count level where you see the domestic capacity in the US market maxed out?

Well, this is -- we see the rig count coming down at a very fast pace in the last months.

It's difficult to figure out where it could bottom.

But frankly from my point of view, and in our planning, we are considering that rigs go down around 800 rigs in the coming months.

Obviously the price of gas and the price of oil are very important.

And if -- in the economy today there is a sense that we may be reaching the bottom and then the economy could start moving forward, also because of the impact of the stimulus and the measures taken by the government in stimulating demand.

If this comes out and has results in the middle of the summer, and this trend goes on we may expect some change in the expectation.

And this is, let's say something that we see in line with the numbers that I am telling you.

I don't know if, German, you have a -- some more color or --

Yes, we all have a view on the rig count.

We are very bullish, we think they are going to trough in the second quarter and then we think we are going to need a substantial amount of rigs going back to work again.

So my question was not on your view on the rig count outlook, we all have our views there, and we are very constructive unlike others.

And my view was more to do with -- to what level of recovery can we see before they actually will need imports in a very big way?

What level of rig count can be supported through domestic production, domestic capacity?

Well, I think, Ole, it is a little bit of a moving target, because I could perfectly tell you that consistent with what we have announced in the past, Tenaris is committed to sustain our investment in our US plants.

While we speak we continue to build our new tubing line equipment, also in the pipeline heat treatment lines.

So at the end of the day I think I could in broad terms say that the US industry is today equipped to sustain the large part of the US demand.

And this is, I think, a generic statement that is consistent with our investments and growth plans in the country.

Okay.

So even if we see a rig count trending back towards the old highs, which I think is probably more than what anybody expects, but even if we were to see that you think that it could be satisfied with North and South American capacity and domestic capacity?

I think that we are not -- like everybody else we are not expecting probably the rig count to get to the height that we've seen in the past.

But there is no doubt that the US industry would be absolutely ready to sustain US demand in the event that the US rig count trends back up.

Okay.

And if we do see a scenario where the US rig count troughs at some point late mid second quarter and then kind of grinds higher at the same time, as every global economic indicator continues to point upwards at the moment, a little bit back in oil and oil grinds higher.

Under that sort of scenario where the volume trough is the second quarter, when do you think that the earnings trough will be, based on your mix clearly will have a big impact as well here and what do you -- are we talking about the third quarter or the fourth quarter or is it later?

Ole, from my point of view and let's say what we can see in the dynamic of the rig count and the level at which the demand will reduce gradually the inventory on the ground, I don't think this is something that will happen soon.

We expect that beginning next year a number of items will run out from the inventory and our -- we will be taking the larger, let's say, we will see a stronger apparent demand.

But I think this is not something that will be resolved in one or two quarters.

The extent of the damage done by the imports in last quarter is in this sense substantial.

When we say 15 months on the ground, even if the rig count went up, it will take time.

We expect by the beginning and during 2010 that the apparent demand will move to a more, let's say, relevant degree.

Okay.

Well, thank you very much for that, Paolo.

Your next question comes from the line of Michael LaMotte from JP Morgan.

You may proceed.

Thank you, everybody, and good morning.

My first question, I'll follow up on Ole's questions on the North American market, in particular along the lines of production.

If I look at the market today versus previous downturns, having the US welded manufacturing capacity in the hands of more globally diversified, and in the case of US steel, more product diversified companies, seems to be helping the supply side potentially more so than what we've seen in other downturns.

And US Steel's comment is that they basically have idled all of their welded pipe capacity.

Can you talk about where you are in terms of production, and how the supply side might impact the rate at which that inventory works off?

Well, let me just add one point.

You are very right on the fact that the supply structure in the States they -- I think is much stronger than some time ago in terms of capacity and ability to react.

Not only have we invested in the facility in the past, but we are investing even now to prepare ourselves toward the long run and for the future.

This is not only Tenaris; I think it's something that is common to other parts -- other companies in the industry.

And we are prepared for what is coming.

And I think we are trying also in the policy of adjustment in this difficult moment, we are trying to keep in mind, from every point of view, the point of view of client relations, technical sales -- preserving key people in our operations.

We are planning and looking with a long term view.

And the aim of being able to react fast to anything that bounce back.

The ability to react, I think, is very different today from what it was years ago.

Then maybe, German, you can add something on utilization at present.

Really at present the level of utilization I was saying is very low, and remember last time we were mentioning in the welded case a number of utilization in the range of 30%, but globally now in this month we are running at a level between 15%, around 15%.

This is, we hope, a short term situation.

And gradually we should be able, by the second part of the year and probably more in next year, to pick up and start back the level of production.

But this is giving you an idea of our capacity to bounce back.

I don't know, German, if you want to add something on this.

Only a short comment, consistent with the notion that I compared to other prices cut -- prior conversation in fact, utilization has come down from what we told, 30% down to 15%, 20% today.

Our plants continue to operate though through a work sharing scheme.

And this is the reduced utilization is naturally also aligned to the notion of reducing working capital in an environment where some of the customers continue to reduce their rigs.

So it's a triple effect of inventory reduction, activity reduction, rig count reduction and the market need to confront inventory buildup as a result of the Chinese imports.

If I think about the breakdown of the inventory reduction how much of that was raw material versus finished goods inventory work down?

Well, from a US perspective let me very broadly tell you that in the quarter we have naturally tackled the finished goods inventory by and large.

This would naturally -- raw material will fall through in the coming quarters.

Maybe, Ricardo you want to provide a generic view.

Well, let me first make one point on global.

I think we are acting in all the chain.

We are starting to stop limited activity of the steel shop first, so the level of steel on the ground is going down, and the work in process is going down and finished product is going down, this at the worldwide level.

You see this also reflected to some extent in our cost of sales.

To some extent the cost of sales in this quarter and in the coming quarter will be negatively affected by the strong reduction in our production level.

Because in the end we also have an internal -- an inventory -- an internal inventory at higher price -- high cost, because it's coming from last year that is gradually getting into the system.

Now, at this level of production, if you can imagine this in the case of welded, at this level of production this is a very -- it's happening very slowly.

So this will affect our profit and loss for the coming quarters.

It's one of the factors that is -- that we consider in our forecasting.

That's helpful, thank you.

And maybe one comment more, maybe, Ricardo, on the -- on how we can characterize the reduction in inventory.

Oh yes, of course.

Of the total inventory we reduce about 17% in dollar terms.

And most of the reduction took place in our finished goods, basically -- yes, finished goods in our hands and goods in (technical difficulty) also.

Of course, we had reductions in goods in process and we are working in order to have further reductions in those goods in process.

And we had also a small reduction in raw materials.

But basically the big impact comes from the finished goods.

Finished goods, okay, so if I think about the next few quarters then really work in process and raw materials will drive it which is why we'll see the cost of sales be adversely impacted?

Correct, yes.

Okay, all right, great.

If I could ask a question on the seamless side, the volume decline year over year was certainly more acute than I would have expected given the lead time on orders as well as the 2% reduction in rig count year on year.

And in particular Latin and America and Europe were the weak markets.

I assume Europe was more because of the industrial side, but can you comment on the seamless volumes in Latin America in the quarter?

Well, this is a -- we are seeing in Latin America a trend that we also saw in the international operation.

Facing with uncertainty and lack of visibility the oil companies decided to run through their inventory for supporting their operation.

In some case they reduce rigs.

There are regions, for instance, Argentina is one of the case, in which the decision of the company has been to reduce the number of rigs in operation.

But in the rest in general, as you have seen, the overall number of international rigs is going down at a much lower pace.

But the company had decided to use their inventory and to wait and try to get a reduction in the cost of their supply, and at the same time prepare for uncertainty and see what would happen.

This resulted in a lower apparent demand for seamless international reduction.

And this is something that we suffer in our shipments, and you see it in the number of shipments for seamless also, not only for welded.

In the case of Latin America, Latin America has been affected positively by the continuing operations of Pemex.

Pemex is supporting and their operation is also stimulating the development of Burgos and Chicontepec.

And so Mexico has been resilient in this time.

On the contrary in the case of Venezuela there is an important player PDVSA is facing difficulties in payment, is trying to -- and also is reducing level of operation, but is trying to reduce inventory as much as they can.

And this is affecting our sales no doubt.

Petrobras is more stable, and the other companies are also more stable in Colombia, in Ecuador and Peru.

But represent, let's say, a lower share of demand compared to the three major national oil companies.

It certainly makes -- inventory reduction on the part of the customer certainly makes a lot of sense.

But if I think about how that flows through your shipments over the next few quarters is it wrong to think about it as a step down perhaps in Q1 as those customers liquidate inventories.

But that's not something they can do forever.

So then do we reach some stability in -- on the seamless side over the next few quarters?

Well, I think that there is room for reduction -- well, you can imagine that the international rig count went down maybe by 10% by today, compared to the peak of last year.

Now in this environment if you had -- they had the stocks they were prepared for an increase in the rigs, they had some expansion plans considered in different regions in South East Asia -- sorry in Middle East, in Latin America.

So when they shift into the gear of wait and see, I think they have room for supporting this.

Now what we see is our very low order intake.

But at the same time an increased activity of tendering.

Probably this will move the apparent demand starting from the last quarter of the year, and 2010.

They could support, let's say a stock reduction of this size and weight, while they start to get the material and, again, in the last part of the year or the beginning of 2010.

Today, they are getting price reduction.

They see the costs going down.

And they see the price of oil more stable.

Remember, in January, December, they didn't know if this would have gone down to $28, $30 or $35 per barrel.

Now, they know that this is not the case, and they could count on a price of oil above this.

In this condition, they are starting take decisions again.

This will affect our sales in the last part of 2009 or 2010.

But perhaps a volume trough in seamless in the third quarter this year would not be unreasonable, then?

There will be a gradual pickup.

Maybe, Alejandro, you have a close touch with the client and you can give some color to this -- to how they look at the situation today.

Alejandro?

Yes, thank you, Paolo.

First, one comment about Europe.

The reduction that you see in Europe, related to one year ago, is more related to the industrial segment.

That is -- has gone down, as you know, and is still down and still consuming inventory.

And we will see this still happening for some quarters more.

On the oil sector, as we said in the previous conference call, mainly still activity is going, but they have been reducing the procurement and delaying the procurement.

And now, as Paolo mentioned, we are starting to see the rebound of the tendering process.

And that means that -- this is a process that will take two quarters to stabilize, so will become order intake for us by the end of the year and then will have an impact in our demand -- in our sales, more to the fourth quarter and first quarter 2010.

Great.

Okay, thank you for the color.

Your next question comes from the line of Dan Boyd from Goldman Sachs.

You may proceed.

Hi, thanks.

I'd like to go back to the inventory and cost questions.

You mentioned that it's going to take some time to work through the higher cost inventories, before you can start to see margin stabilization, or get the benefit of lower steel cost.

At current run-rates, how long do you anticipate that would take?

Well, I think it's a different situation in seamless or in welded, because, in the case of seamless, we are fully integrated.

Our cycle is different and our structure of inventory different.

We will -- and also, with the level of production today, our, let's say, utilization in seamless is higher than in welded.

We are probably, today, around the 50% utilization rate in our seamless plant, something lower for what we saw last quarter.

So, this is helpful in reducing inventories of finished goods, especially, but obviously has an impact on our cost of goods.

But, in the case of welded, the overhang is higher.

We are working around 15%, 20% utilization, so that means that the stock stays in our yard and will be consumed in the next two to three quarters.

It's locked.

Remember, the effect on our cost of goods is, first, because of the reduced level of sales, we are having higher fixed costs and depreciation in our cost of goods sold.

But second, when we reduce inventory, we also have less fixed costs and depreciation in our inventory and more goes directly to the cost of goods sold, so divided by the volume -- the tons, the volume that we sell.

So, the two effects are impacting the margin that you see in the FIFO accounting.

These two effects will be very noticeable, in the next three quarters for the welded, and probably one or two quarters for the seamless.

And that's because you expect continued destocking on the seamless side.

Would you expect to maintain utilization at 50%?

Or do you have plans to take that a little bit lower, as demand might not pick up for a couple of quarters?

I think we are at the bottom.

Okay.

And then, that is in your press release, you expect to see a slight decline in the -- raw material costs on the seamless side, as you're just flowing through those -- the procured raw material costs, correct?

Well, we are acting.

We are acting on our fixed costs.

We are acting on, let's say, in our procurement cost.

And so, gradually, this will get faster in seamless, and in welded it will take time.

Okay.

Then just one last question.

Are there any regions of the world where you see you're further along in the destocking process, where you'll see a pickup sooner?

As in the customer did not build up a significant -- as large of an inventory of pipes prior to the downturn?

Well, the area in which we really see demand more resilient in this moment is Mexico.

Maybe, Guillermo, you can comment on the situation, and how we see, let's say, the evolution of Pemex into Mexico.

And then we may ask Alejandro which are the other regions in which we perceive more resilience and -- or more ability to bounce back.

Yes, Paolo.

Good morning, everybody.

This is Guillermo.

Well, as you all know, Pemex works with us under a specific situation, which is that they don't have inventories.

We work with a just in time.

We deliver in 72 hours.

And so Pemex has no ability to reduce inventory, because they don't have it.

We have it and we keep it.

And what we are seeing is a gradual increase in the demand by Pemex, so I think this is a region where it's going to continue to be good news.

Pemex did not reduce their activities now, where that we went in Mexico to this influenza the situation.

So they kept operating normally in these days, because there is a pressure on the government side to increase, or to spend in the economy, in order to try to offset the region.

And one of the main elements of this strategy by the government, is -- within the infrastructure program, is energy.

So we're seeing money flowing.

And I would say that the only thing that, today, we are working with Pemex, is that we just renewed our three-year contract, supply contract with Pemex, by the beginning -- the last -- the end of last year, the beginning of this year.

And so I think that they are continuing to increase, as Paolo said, Chicontepec, Ku-Maloob-Zaap.

And they're still keeping investment in Cantarell and in Burgos.

So I think that we feel comfortable that, in Mexico, we're going to see a stable situation.

Okay.

And this will be my comment on Pemex.

Okay.

Regarding international, as I mentioned, Middle East we are starting to see new tenders coming.

Aramco are still reducing activity on API, maintaining the 100 rigs.

And they're still working on the premium, the gas fields, working at the normal activity, and we expect the tendering process more to the end of the year.

What is also very active in the Middle East is Iraq, where we have -- we are already producing the first contract given to an international company, from IDT, and it's already in production.

And we are participating in big activities, and they're an activity not only in local oil companies, but also foreign contractors.

Going to Russia, it's -- Russia is still down.

Gazprom has reduced, or cut all their procurements, although we have managed to sell the first Dopeless order to Lukoil in the North Caspian Sea.

China is also down.

PetroChina activity is down, and the tendering process has been reduced substantially in China.

And we are also working in the more demanding high-end products qualification with our high-end connections.

North Africa, we see it very active in Algeria.

The activity, the need of gas for Europe is still there and Algeria is still drilling very heavily.

And we are participating in the process, and we have sold a big order for Gassi Touil for the LNG line.

We are also active in Libya, where we have sold the first stocking program in Libya.

We are going to have a base -- stock base in Libya for Gazprom, although NOC is also reducing the activity.

Egypt, because of local negotiations between the EGPC and the foreign oil companies for the price of gas, they have reduced substantially the activity.

This is from the oil sector side.

For the infrastructure on the downstream side, we still see the wait and see mode.

The downstream projects, mainly in the Middle East, are still being delayed and analyzed.

And we expect these other parts of the activity to pick up more by the end of the year.

Thank you, that's a very helpful rundown.

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

You may proceed.

Yes, good morning.

Just two things, really.

One, you allude in the press release to SG&A being high or selling expenses being high because of prior contract terms.

And I was just wondering how much we could expect those to come down over the next two to three quarters?

And then, secondly, I was just wondering about Venezuelan payments.

If you're being paid on time and if there are any issues in Venezuela?

Well, on the second point, we are definitely not being paid on time.

We have an important volume of receivables we had -- we are due, but we are collecting from Venezuela, on, let's say, a non-satisfactory pace, but we are collecting.

They also -- maybe -- we are in a position -- there is a need the pipe in some of the fields they need to maintain operations.

So, to the extent which they need our service, we also need to maintain a continuous flow of collection.

But it is clear that, compared to last year, when PDVSA was a dynamic point in our sale international, in Latin America, today the situation is very different.

And PDVSA is doing the same, not only with us, but with many of its suppliers.

It's possible that, with the increase in the price of oil, the financial constraint of PDVSA will be relieved, to some extent, and that, together, we start again with a more, let's say, a stronger flow of payment and reducing the level of receivables that are due.

On the question of SG&A, let me ask Ricardo to make some comment on it.

Well, a couple of comments in relation to SG&A.

Of course, when Paolo, some minutes ago, talked about the different plans that we have in order to adapt our workforce to the new environment, of course the SG&A cost also will be affected.

Of course, in SG&A, we have some costs that are very related to the level of activity, of services and fees, and we have some other costs that will have a higher impact in the SG&A, like the amortization of in-taxable assets.

That -- the relative weight of these costs will increase in the future there, because those are fixed costs.

Okay, thank you.

Okay.

Your next question comes from the line of Alessandro Abate from Credit Suisse London.

You may proceed.

Good morning to everyone.

Just a few questions.

Considering this bleak outlook you have for the next few quarters, can you just give us a feel about the potential trough of the OCTG prices, going forward?

The second question is more related to Q1 shipment, and also visibility on Q2.

You also spoke about postponement and cancellation.

Can you just quantify, actually, the impact this postponement and cancellation on the planned original shipment you had for the quarter?

And the third is basically, if you can give us some light, actually, on the only division where you haven't mentioned yet the utilization rate for Q3, which is basically -- Q2, sorry, which is basically the Project Welded.

Thank you.

Well, I don't think we can now -- we have no visibility now on the medium-term OCTG price.

What we know is that, in the case of like Pipe Logix it went down by around 40% compared to the peak of last year.

I can tell you that, internationally, we see a reduction between 20% and 25% in some cases.

For some products, low-end even 30%.

Is differentiated -- this is different, depending from the product or from the region.

The more demanding product, the more sophisticated products, are -- lost less, in term of prices.

The more bread and butter are more affected by the competition, and went down more.

Now, how this will evolve over time.

Well, I imagine that, in the short term, prices may -- the counter -- the prices that we quoted that is in the tender, may go down slightly something more, or stay where they are.

Now, when you look at the prices in our accounting, I mean the prices of the goods sold, for the delay -- you will see our prices go down, because still we have orders that are shipped today and that had prices that have been defined months and months ago.

But in term of, let's say, tendering, we can see that -- we can say that we are not far from the bottom, I think, in term of price.

And we shouldn't be too far from the bottom in the most demanding products, in which we made an adjustment, but at which -- in which, today, I think the Company are prepared to confirm projects at the present cost structure.

Cancellation or postponement.

We don't -- I don't think we can have a very, let's say, precise picture of what that this means.

But I would say that -- maybe, the 10% of our sales during this quarter, of our contracts during this quarter, has been affected to some postponement or cancellation, and this had an effect on our shipment.

This is, let's say, not a figure -- it is a figure that comes from the sense of the negotiations we are having.

In some cases the project will be postponed, and may be picked up in two quarters or at the beginning of next year.

In some other cases, postponements are just two, three months adjustment to reduce financial stress on the part of the client.

The last point, on utilization.

But this -- could you say it again?

I mean, which was the specific aspect you ask, not the --

Sure.

Basically, you mention utilization in seamless for Q2 done in Tubes-Welded.

I was wondering what about the Projects-Welded.

It's going to be pretty much in the same range of 40%?

No, I don't think so.

I think our projects were -- our project market has been more resilient because, in the end, we were working for the system of loops for Argentina, for the development of Petrobras network, of planned gas and other projects.

And Petrobras has a steady portfolio of project.

Now, they could delay, but they have a substantial number of portfolio projects.

So, in our project business, utilization goes up and down accordingly, to the single projects that are very big.

When they come out, we go up to 70%, 80%.

When we may have one month without specific project, we go down to 20% or 30%.

But, on average, I think our project area should be in the range of 50% or 60% utilization, if you try to average -- several months.

It is an area in which we think there will be demand, apparent demand in our region, and we are mostly a regional player, will be maintained.

Petrobras may delay because of financial reasons, but there will be projects.

And the same is true for Colombia and for the other countries in Latin America.

Yes.

Thank you.

And we have five minutes until the end of the call.

Your next question comes from the line of Serge Escude from Cassa Lombarda.

You may proceed.

Hi, everybody.

My question is about the raw materials.

Do you expect a further decrease in raw materials in the next quarters?

I have another question about the backlog.

What is the length of the backlog do you have at the end of the first quarter?

And my last question is about the mix of products.

Can you give some color about the products you are selling with such high margin today, what kind of products they are?

Thank you.

Well, first question about the raw materials.

Basically, the raw materials have to settle, and I think they bottom.

You can -- and you shouldn't expect major variation in the hot rolled coils, or in the iron ore will be negotiated down by a figure that could be 30% or 35%.

But, after this, the major input for our industry are hard coking coal, iron ore and some of the ferroalloys, I think, are basically at a level from which they should -- they make and get out, but shouldn't go down much faster -- much more.

It will be around that figure.

In term of backlog, we never made the comment, let's say, on the backlog.

But you can understand, from our comment on the order intake, on the level of production and sales, where we stand.

In term of mix, well, we have a product in very high alloy premium, Dopeless, I mean the product for complex applications, corrosion-resist material, high-stress steel.

These are the products -- mainly used in offshore applications, in very complex industrial applications, very complex line pipe offshore, but also for onshore gas development.

These are the products that are more, let's say, in which we are really very much differentiated from this.

In this sense, this quarter, because of the reduction in the sale of bread and butter as we know -- a quarter in which the share of high-end products, as we define, is probably the highest ever, because the -- about 50% of our sales are in this segment.

Now, this segment has been affected by delays, as well as the rest, but it's also a segment in which I think that as soon the projects start on track, we will have positive [yields].

This may be, as I was saying, 2010.

To understand, about 50% of what?

Sorry, I didn't get that.

50% of the seamless product, you mean?

Yes, yes, yes.

I was referring to the seamless product, 50% of the seamless product that are the most sophisticated products in our portfolio.

Yes.

We can expect that level to be stable in the next quarters, to -- at such high margins?

Well, we should expect this to be sustained in the future.

Because we invested in our industrial facility, and I think we can expect to have high utilization in this, let's say, high-value-added part of the production system.

Thank you very much.

Okay.

Well, this is -- so it has passed an hour, so I would like to close the call, and I would like to thank you all for participating.

Thank you.

Thank you very much to everybody.

Thank you.

Thank you.

Thank you for your participation at today's conference.

This concludes the presentation.

You may disconnect, and have a wonderful day.