Tenaris SA (TS) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2009 Tenaris Earnings Conference Call.

My name is Marisol and I will be your operator for today.

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

We will be facilitating a question-and-answer session towards the end of the conference (Operator Instructions).

As a reminder, today's conference is being recorded.

I would now like to turn the presentation over to Mr.

Giovanni Sardagna, the Head of Investor Relations.

Please proceed.

Thank you, Marisol, and welcome to Tenaris 2009 Fourth Quarter and Annual 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 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, Richardo Soler, our CFO, German Cura, Managing Director of our North American Operations, and Alejandro Lammertyn, our Commercial Director.

I would like to start by mentioning that we will host our investor day in New York on April 15th and we look forward to seeing many of you there.

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment on our results.

2009 has been a very difficult year for us as we had to rapidly react to a sharp correction in opening demand for our product.

In 2009, our net sales decreased 32% to $8.1 billion compared to $12 billion reported in 2008.

Our EBITDA, which we measured before impairment charges, contracted 43% and reached $2.3 billion for the year.

EBITDA margin at 28% decreased 6 percentage points from last year.

During the fourth quarter of 2009, sales decreased to $1.85 billion or 42% compared to the fourth quarter of last year, however increased 4% sequentially, reflecting stronger demand for our product.

Our EBITDA reached $460 million, which was 61% lower than the corresponding quarter of 2008 and 6% lower than the fourth quarter of this year.

Our EBITDA margin at 25% was down 12 percentage points from the one posted in the fourth quarter of last year and 3 percentage points sequentially, as lower prices per ton were not fully offset by lower cost per ton.

During the year, seamless sales volumes were 30% lower than those of last year while welded volume sales, excluding projects, were 67% lower as demand of our products and service adjusted to the effects of the global economic and financial crisis.

Sequentially, however, seamless sales volumes increased 20% while welded volume sales, always excluding projects, were 56% higher as we started to benefit from the gradual improvement in terms of offering demand in most of the regions in which we operate.

In the US inventory level, although they remain above historic average, have been coming down to around seven months from the extraordinary levels they reached in the first quarter of this year.

The adjustment to the lower prices currently in the market resulted in lower average selling prices which were down 14% compared to last year and 12% sequentially.

During the year, our sales of high end seamless products were 49% of our total seamless volumes compared to 45% recorded last year.

On a quarterly basis sequentially, our high end sales mix diminished from 52% to 46%.

Notwithstanding higher sales, during the quarter we continued to reduce our investment in working capital with a further $200 million.

The strong cash flow generation during the year resulted in a net debt reduction of over $2 billion to a net cash position of almost $700 million at year end.

The Board of Directors has decided to propose for the approval of the annual general shareholders meeting to be held at the beginning of June, the payment of an annual dividend of $0.34 per share or $0.68 per ADS, which includes the interim dividend of $0.13 per share or $0.26 per ADS that we paid at the end of November.

Now, I will ask Paolo to say a few words before opening the call to questions.

Thank you, Giovanni.

In 2009, we felt the impact of the global economic and financial crisis on demand for our products and services.

Tenaris has responded well, adjusting production level, reducing working capital, and structural costs, while continuing with our investments to strengthen our position in a more competitive marketplace.

Our results for the year reflect a good performance in spite of the difficult comparison with the exceptional result of the previous year.

With an EBITDA of $2.3 billion on net sales of $8.1 billion, a strong balance sheet with $0.7 billion in net cash, our global positioning strengthened through an acquisition of a heat treatment and trading operation in Indonesia and our increasing proximity to our customers.

We are well positioned for the recovery of demand which we are starting to see in North America, but also in the Middle East.

On the other hand, our results for this last quarter were disappointing and they could be weaker in the next one.

Costs were affected by write-downs on aging inventories and the recovery in shipment of high end products is happening more slowly than ever.

In the next quarter, shipment will remain low.

Average selling price will continue to adjust downwards and the contribution for our projects segment will be substantially lower.

Following the strong contraction in demand last year, we expect a recovery in 2010, starting from the second quarter of the year.

In the US, attractive oil prices and the exploitation of leases for productive shares gas drilling, is leading activity higher.

At the same time, positive inventories have adjusted to more normal levels after reaching unsustainable levels following the surge in Chinese imports that took place in the second half of 2008 and in the first half of 2009.

In the Middle East, retribution in Iraq and the debarment of deep and sour gas reserves in various parts of the region is drying the activities.

Meanwhile, the adjustment of inventory levels in the region came to an end in 2009 and are currently at relatively low levels.

Activity levels should increase in most regions as oil and gas companies increase their budgets for exploration and production activities.

Our investment also positions us well for the recovery.

The method we are completing in our US mills will position us to supply the sizes and grades required for shale gas development.

In May, we will complete our new premium trading facility in Saudi Arabia.

The production of our new rolling mill in Veracruz is on schedule and we expect to begin operation at the end of October.

In December, we concluded an agreement with the union and the government in Italy for [talman] and which will allow us to recommission our Italian operation through increasing product differentiation and improving industrial efficiency.

The fundamentals of our business remain solid.

Our customers are increasing activity and we continue to strengthen our ability to serve them and differentiate our product and service from those of our competitors.

The decline in market price that started towards the end of 2008 has largely taken its course and increases in raw material costs are starting to be reflected in price increases.

We remain confident that Tenaris will continue to perform strongly in this environment and that in 2010, following the decline in operating margin of last year, we will be able to maintain them at new levels.

Thank you.

We can take now questions, operator.

Thank you.

(Operator Instructions).

Our first question comes from the line of Stephen Gengaro.

Please proceed.

Thank you.

Hello, gentlemen.

I have two questions, really.

The first, I mean, you mentioned the first quarter and I think you said you expect the first quarter to be a bit weaker.

Do you expect the high end product mix to get worse in the quarter or sort of stabilize?

And did you get a sense, even in the fourth quarter, what is driving that mix against you in the fourth quarter and the first quarter?

Well, I think that in the first quarter of this year, basically, we see some delay in shipment in specific markets.

It's not a question of specifically on focus on high end, but we have some delay, especially in the Middle East, in Kuwait, in [Racase].

We have some delay in Venezuela and we see that this is leaving the volume close to the volume of the fourth quarter.

We were expecting before an increase in volume that would compensate for the gradual reduction in the prices of our shipments.

This price reduction is coming from the price levels that we expect a month ago and this level is still declining.

This is one thing.

The second thing is the level of projects.

We will have in the first quarter lowest level of sale in our projects business and mainly in Brazil.

Petrobras is delaying some of its operations.

I don't think this is a structural thing.

I think that this is induced by the need of the government to supervise some aspect of the conduct of business of Petrobras.

But for the first quarter, we will have a lowest level of -- low level of projects.

The third point is the contribution from our welded operation in North America.

The prices in Pipe Logix reached bottom out last month back in November, but we still have lower prices in our portfolio.

And even if the volume is increasing in this segment, prices are moving slowly and our costs are still reflecting the low level of operations that we had during the course of 2009.

The sum of this is something that, in our view, is affecting the first quarter.

The question for the fourth quarter is different.

In that case, I think we saw a slowdown of some of the cool off of high end materials.

In some of the regions -- also this I don't think is a structural issue.

I think that the oil company, the major are cautious in stepping up the project and are using as much as they can of their inventories.

We were anticipating slightly more dynamic demand in high end, and this high end are profitable growth for us.

I think that we can, but we see a slow movement there.

And the second part is cost.

We had higher than expected input on our cost, particularly a one-off issue concerning provision were slow moving.

Some of the build up of investors that we made one year ago in an [assignment] in which we expect a high demand, answering to this slow moving and require provision.

So, the two effects were reflected in our first quarter.

And our point for the fourth quarter is also again the level of margin in North American operation, the prices were close to the bottom and the costs were reflecting the low absorption due to the very low level of operation of our weather operation in the months between, let's say, March and October 2009.

Okay, that's helpful.

And then, just quick follow-up.

The SG&A line was up as a percentage of revenues sequentially despite sort of the rise in revenues.

Can you give us some guidance on how we should expect SG&A to play out the next couple of quarters?

Yes, you are right.

We were 1 point up in SG&A.

Part of this is due to provision, but I will leave Richardo Soler to give some comment on the SG&A and what we could expect on this in the future.

Regarding SG&A at financial basis, as we see -- as last quarter I have mentioned we see the range as a percent of base between 18% and 19%.

For next year and for the future quarters, as an average, I think that should be in that range.

In this quarter we have, Paolo mentioned some specific issues that perhaps is a little bit higher than expected.

Okay.

So, about 18% to 19% going forward.

That's helpful.

Thank you.

Thank you.

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

Please proceed.

Hi, thanks.

I have a number of questions.

The first one is can you help us understand what's going on with the standard seamless pricing in international markets and are you facing increased competition from some of the Chinese imports or the Chinese capacity that is no longer coming to the US?

Well, not also in -- the Chinese are present in the low end part of the market and we are seldom competing with them because we are more focused on a higher range of products.

But in some cases, we hear the best.

But anyway, I will ask -- to Alejandro Lammertyn to give some view on how we are facing this and how the prices were standard by some moving in commission.

Yes, as we said in the previous conference calls, in the period of lower activity we had to reduce prices to be competitive in the market.

This reduction, we have done it until last quarter, now the situation is different.

But we were confirmed and confident from the same high end market.

The plants were low utilized and everyone was trying to get the position in the small market that was available.

But was no impact from low end Chinese competition.

Okay, that's helpful.

So, can you just give us an updated view on where you would expect pricing to go over the next couple quarters?

I think previously we talked about mid-teen decline from the third quarter level to the second quarter of 2010 level, but recognizing that the mix has changed quite a bit since then.

How do you see that playing out?

Well, first of all, prices are clearly coming up.

I mean, as the prices that we've set, the prices we negotiated, prices we discussed are coming up.

They are coming up because we anticipate, as our clients are anticipating, higher cost and cost pressure, the iron ore and coal and the stress are putting pressure on cost.

Everybody will see this, everybody realizes.

So, also everybody accepts that we will be increasing pricing -- and the prices will be set.

Now, if we look at the price of our shipment, price of our shipment will stabilize, basically, in the second quarter.

And then in the second part of the year, retail will start to rise again even considering the mix now.

This trend is stronger in some region and could be, let's say, not so strong in other, depending also from the competitive situation.

For instance, I expect in the States to see some price increase going on from now on in many segments of the market.

If you look at price in China or price in the markets that are at the margin or let's say very exposed competition, probably the price increase will be much less.

In term of mix, we expect how the mix of high end -- well, in this quarter, the mix of high end in the fourth quarter to be particularly low because of the slowdown in the call of some clients, like in Nigeria and Venezuela that usually was having a call of high end products.

But I expect this to change back and during 2010, it will be -- demand for high end will increase and we have to take this into consideration.

So, if I hear you correctly, your pricing for premium, your pricing for non-premium seamless aren't in the decline much from current levels that are being reported, but your average price reported might decline as mix shift as welded becomes a greater piece?

Or are the -- sort of the -- what still needs to flow through the income statement will still be lower prices despite the fact that spot prices are increasing?

I would think we will see reflected in our income statement still a reduction in prices in the coming quarter.

But then, gradually it will stabilize.

As I was saying, this is the price in our shipments.

Okay, that's helpful.

And on the terms of revenue and in terms of what some of the weakness in the quarter, I noticed that you did not mention Mexico, although a number of oil service companies did see a slowdown in Mexico this quarter.

How was your business in Mexico?

Was it -- or how are things looking as we go into the first quarter there?

Frankly, we see a very stable business and the -- in Mexico.

The slowdown in Chicontepec has been very limited.

There has been increased activity in the south and in the marina.

A reasonable level of activity also in [Bolgas].

So in the end, if we adopt the drilling activity by Travis and the drilling activity by [Welso] and some way in the other contractor, we may have seen during the year a limited reduction.

And for the 2010, I think that we do not expect big change.

Maybe a slight reduction due to Chicontepec from the second half of 2010, but not something, let's say, dramatic.

Okay.

And then, the last one is on the dividend.

Still a healthy level, but it is reduced from last year.

Can you just comment on what motivated the dividend reduction and are there -- I guess this actually a second part to that question -- do you see any M&A opportunities out there as the next year or two progress?

Well, the dividend is below the level of last year, but last year was kind of very strong year in terms of earnings, and we are still increasing our payout ratio, no, and slightly above 30%.

We were in the 22% ratio.

We tried to maintain, let's say, the payout ratio within some reasonable range.

On the other side, the -- we think that we are coming out from an agenda of managing the crisis and we are -- a different agenda in front of us.

The competitive environment has changed after the anti-dumping in different regions, the situation has changed regionally.

The positioning of everybody in the industry is changing and also the oil industry is taking new decisions.

Issues like shales and is one of the facts that will be part of the new agenda.

So, we are thinking and looking ahead and we are focused on the new agenda for us, what this would mean and also the resources that this could require for organic growth and, in some of the cases, for expanding our presence worldwide.

Is there a particular focus on the US where you actually are seeing a lot of your competitors now making investments in the US to take advantage of the situation of not having the Chinese.

Do you think this market will eventually need to be consolidated or do you think there's enough running room for all these capacity additions?

Well, our strategy for the US we started in 2008.

We decide to invest substantially in the industrial facility in Hickman and in [Conegrove] and in [McCarty].

In the facility we have in North America and also the facility in Canada, in a way we, during 2010, we will put extreme investments in this industrial center that will position our industrial system in the States for supplying the shale business all around in all the different areas of the country.

This is focus on medium and small diameter should treat the material, premium material, for supporting the new developments of the industry in the States.

I think that our strategy, we need to concentrate on strengthening our facility and this will get to the client during 2010, second part of 2010.

German, could you add something on the investment plan and where are we heading there?

Yes, just a brief comment to complement the view we have completed the investment on our new tubing line.

Actually, we are in the startup curve, it will be fully operational by April.

And that together with the reengagement of a good number of business -- important business of align that aiming at improving quality, improving increasing efficiency and therefore translating on increased production.

That, together with also a very important intervention in our treatment facility in Conegrove, which as we all remember, covers the 4.5 through seven and five-eighths product range, particularly devoted to the shale.

Therefore, we're going to continue on.

We'll be announcing also new CapEx plans for the US facilities going forward.

We're aiming at the precisely the case in that capacity or that capability, and it is part of a plan and it is a process that continues to go on.

Our strategy is to combine welded and seamless products to be treated seamless and premium for fulfilling the need of the more demanding shales seamless.

And I think that this is, let's say, where we want to be.

Great.

Thanks for all the detail.

I appreciate it.

Our next question comes from the line of Alex Brooks from UBS.

Please proceed.

Yes, good morning, gentlemen.

I've got a couple of questions.

The first one is on an update on the situation in Italy where you were having problems in the -- in last quarter with labor relations.

I wonder if you can let us know where that is today.

And secondly, you are continuing to spend to -- your CapEx is running below what would be implied by the investment you've announced.

Can you just help us with roughly what your CapEx level this year is going to be?

Well, in the case of Italy, I think we are very satisfied with the agreement reached in the dominant and with the union because we presented a plan for realizing an important investment -- $170 million in the facility to increase the ways of the pipe to expand the range of the operation and to streamline and rationalize the facility to make it more efficient.

This will be very important for the industrials because the dominant is the only mill that produce in its main and medium large mill and in the large mill expander.

Some of the -- part of the problem that we need.

This plan implied a substantial deduction in something more than 800 people on an overall workforce of 2,800 people over a period of three years.

It's also implied that we may need to close one of the Modelo mill, but it's relatively old and not sufficient in terms of productivity.

Original agreement that allow us, for the next three years, to use with six times agreement so to be able to adjust to the ups and down demand.

And that will allow us to reduce, to improve our efficiency in an area is that important for us, but has relatively high cost.

The investment will be realized in -- during this year and part of which will start to be operational in September and the second part of it during 2011.

The CapEx that we anticipate for 2010 are in the range of $1 billion.

This is including the completion of our mill in Mexico that I was saying is start to -- should start operate in the end of October.

The bay has been all built.

We have started to cover them and the machinery are on the verge of being shipped.

So, we are complying in time and cost with what we planned.

Direct of the $1 billion investment in CapEx will be distributed between, as I said, [Davan] and North America and a number of other projects in different area of the world, including Indonesia.

Okay.

Thank you.

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

Please proceed.

Good afternoon to everyone.

I have a few question.

In the first question I would like to know exactly how much is the tonnage available for shale-based development you have in the USA.

And if you share the view of [Barrowack] that basically has announced a first part of the six months of 2010 EBITDA significantly lower than the result of the second part of 2009, stripping out, of course, the power generation plan that basically you are not involved in.

And the other question is basically related to the Veracruz planned facility.

I guess, of course, the news of Barrowack of investing in new facility in the US probably created some kind of interest around the investment in this kind of area.

And if from your Veracruz facility you are basically planning actively from 2010 on words to supply the North American market shale gas development.

Thank you.

I don't know if I understand fully because I lost some of your comment, but let me comment on the -- if I understand of your interest.

Before asking German to comment on shale, one general comment.

Our strategy for shale is to develop welded pipes, seamless pipes, and premium in an integrated line that sets aside a need of different areas and different operational condition in the different sectors.

We are not considering that this will be a fully seamless development and we are preparing for this.

Now, German, comment on shale.

Only, I think, an important reference.

Today, we don't naturally disclose the specifics for competitive reasons given the sensitivity of the specifics if you will.

But today, the shale accounts for something higher than 35% of our sales force that is in the States.

And this is a number that continues to grow.

We are devoting, as we were saying, a substantial part of our investments in this stage to reinforce American capability, the domestic capability to service this growing demand.

So, it's a percentage that we continue to grow in the future without a doubt.

Yes.

I don't know if you -- if we didn't answer some of the second part of your question.

If you can repeat it, please?

Yes, basically, it's referring to the guidance that Barrowack gave in the first six months of 2010.

If you basically share this view that sees EBITDA falling relative to the second six months of 2009.

I mean, in other words, first six months of 2010 should come in significantly lower than the second six months of 2009.

Well, as we said, even if we anticipated weak results for the first quarter, we still consider that we should be able to get a margin in line with the margin of 2009 also in 2010.

We expect the recovery to start with the second quarter.

And this is not only related to US operations, it is really something that we see and we focus on worldwide.

But it is some of our markets have been relatively weak during 2009.

Argentina is one case, but also Middle East.

We -- this is part of the reason of the weakness the first quarter is delays in some of the shipment.

But the shipment will be there.

So, I think that the action taken during 2009 and volume recoveries should allow us to absorb the price inflection and also the price over time during 2010 will recover and will get into our shipment, especially in some region like US.

Thank you.

Just a quick follow-up question.

So, you think that basically the recovery in volume for 2010 should be able to offset the margin decline of even the per ton you have in 2010, right?

It's correct.

Thank you very much.

Our next question comes from the line of [Paolo Lorena] from Morgan Stanley.

Please proceed.

Good morning, gentlemen.

A quick question here on opportunities in the Middle East, principally with Saudi Arabia and Iraq.

Do you see -- I know you have talked about the delays that you had over the last couple of quarters, but nothing has been cancelled.

Everything has been basically postponed.

So where do you see the timeline in the opportunities with Saudi and eventually later on with Iraq?

Well, before passing the answer to Alejandro Lammertyn to answer this, we see -- we are very confident on Iraq and now our pipes are actually in use now in Iraq.

I mean, we started last year, but the contract went on and actually the action is on in Iraq.

It's moving.

But Alejandro, you can comment on the situation as we see it in Middle East.

Yes.

First a general comment.

As we said during last quarter, we were expecting a recovery in volume during the first semester 2010 and we still believe that this will happen because we have already in our backlog the order that we were predicting.

The only thing is that there was a delay in the deep pipe from the first quarter to the second quarter.

This is coming from KOC, the big tender in process that for KOC is moving very heavily into deep drilling.

They are moving from 12 rigs -- actually coming from six rigs to 12 rigs and now thinking of moving to 21 rigs, aiming at the $4 million plan that they have for 2020.

We see them very solid and we are heavily participating in that area.

In -- regarding to Iraq, as Paolo mentioned, we were the first one to participate in the recovery of Iraq with the IDT order that has already been utilized by IDT and we are also participating in some of the IPM work that companies like [Wellfor] are doing today.

And we are heavily involved in the new developments that are coming from the major oil companies, BP and clearly NI coming and Shell coming.

We are participating heavily in this part together with the national oil companies that are still very active.

What is related to Saudi Arabia, Saudi Arabia has restarted the procurement process.

We are delivering to them basically on the gas sour that is increasing.

They are maintaining, more or less, 100 rigs that they have been having in the last period of time.

But they are increasing the share of gas.

That is where the premium and the sour service material is required.

Okay.

Thank you.

Back to Iraq for a second.

So you have been the first mover there.

Do you expect a lot of competition coming out of China in Iraq over the next few years?

Well, as you may know, and this has been commented by BP, they have CMPC as a partner and there was an initial pressure by CMPC to use the Chinese material.

So far, there are utilizing the vendor lease of the state-owned company in Iraq that is not accepting Chinese materials.

Okay.

Thank you.

And in a non-related question for German and maybe -- so the drilling activity in the US has picked up significantly over the last three to six months.

What's your outlook for 2010 in terms of recount and shall we expect the mix to deteriorate going forward?

I think today at 1,350 rigs and the industry has, in fact, reached a level that we in general were not expecting only a few months ago.

Oil, as we know, continues to be a major driver behind with more than 400 operating rigs.

And I think that will remain solid through 2010.

There's no reason to assume that the oil price would be anywhere or far away from what these 70, 80 bands that we've seen.

Now, gas, with the almost close to 900 operating rigs, continue to be an area that we watch very carefully.

We know that there are a good number of factors pressing the gas price.

The last few months the weather has helped, but then again it is the notion of how the economy would recover, how the demand would recover, the impact of LNG.

So, they really -- a good number, I think, of particles of pieces that are moving at the same time, so it's an area that we're watching very careful, very careful going forward.

One, if I may add, frankly, I'm -- I really think that gradually the metrics of energy in the States should move towards gas.

And so even the level of gas in stock that we perceive slightly higher than last year, by the way, is not bad news.

I mean, last year we were facing a recession economy and a number of bad signaling perspectives.

Today.

we have an economy that should recover.

We have a difference in price between gas and coal that reduced to historical minimum and so gradually domestics will change.

And I would expect over time the demand for gas to increase in the States.

Okay.

Thank you.

The last one, a very quick one.

What about -- you all talk about the mix for the year globally, another means you asked.

Do you expect it to improve after second quarter?

You mean, mix --

High end premium seamless because it was obviously declining --

We expect what is the high end to increase for sure against the fourth quarter, but still we expect that during the year there will be recovery in some of the markets like Argentina or other market in Latin America and in the States that may require situation, but not really high end material.

So in the end, both lines should gradually grow.

So the percentage, I mean, the share in the mix should not change so much after -- during the -- also the inductor product will gather in the second part of the year in Europe.

This will be a recovery in the second part of the year.

And part of this material is not considered by us as high end.

Okay.

Thank you.

I'll turn it over now.

Our next question comes from the line of Ricardo Cavanagh from Raymond James.

Please proceed.

Ricardo, your line is open.

Okay.

Our next question comes from the line of Taras Shumelda from American Century Investments.

Hi.

If we could go back to pricing for a minute, please, can you talk -- and maybe give us a little bit of numerical data in terms of how much pricing declined in North America in the fourth quarter compared to either a year ago or to prior quarter and the trends that you are seeing now and expecting for the full year?

And maybe if you could do the same in volumes, it would be very helpful.

Thank you.

I will let German comment on prices in North America.

Well, if we send Pipe Logix as a fairly well indication of how the market evolved, I will give you some numerical data overall.

The index was something close to $2,700 a ton in the month of January down to about $1,700 per ton in the month of December.

That would give you a very clear concrete indication of the price pressure that we have confronted over the year, which was, by and large motivated by the inventory buildup that we saw in the first part of 2009, later part of 2010 -- sorry, 2008.

This is, I think, the best reflection that I could provide you to more or less understand the situation, the pressure that we have felt in North America over the last 12 months.

Thank you.

And are you seeing any improvement now and, if so, where is the index level now?

Well, yes.

I think, again, back to Pipe Logix, we've seen the last three months with a price increase of about 4%.

I think it's both a reflection of cost pressure.

We've seen scrap going up and holds going up and therefore an ability to pass that on.

Together with the notion that the inventory has come down, in particular on some alloy items as we have indicated in prior conference calls.

So, we have in fact announced a price -- two price increases to the spot market and therefore it's a trend that we have seen and, at this point, we believe that we're going to continue to see in the coming months.

Okay.

And then on volumes, can you comment on what's happening to North American volumes now compared to either Q4 or average for 2009?

Well, volumes, Giovanni, in the opening remarks expressed that welded volumes net of the project segment, which is, by and large, if you will, contained of -- form of North American sales have gone up in a very substantial way, north of 50%.

Going forward I think we're going to continue to see volumes going up.

Again, the reflection of inventories coming down to a level of about six, seven months, still higher than historic optimal levels, but yet again a substantial improvement from what we've seen during the year.

I just wanted to make sure I heard you correctly.

50% -- it's 5-0 or is it 1-5 -- 15%?

It's 5-0.

It's north of 50%.

5-0.

And it's relative to what -- to Q4, relative to the average run rate of 2009?

It is, in fact, Q4 is relative to Q3.

Oh, in Q4 relative to Q3.

And what are the trends so far in 2010?

We'll be reporting these naturally in our next conference call.

But I could probably anticipate that we'll see North America, particularly in the US.

Also a very important volume increase during Q1.

I said north of 30% at this point.

Okay.

Thank you so much.

Yes, one comment on this.

In fact, the increase in volume in the fourth quarter has been substantial, as German was saying.

The point is that the contribution has been -- the increase in contribution has been limited because of the cost effect due to the low level of operation of the plant.

Now this will change over time.

During 2010, recovering volume will help in checking the level of cost and increasing the contribution that we expect on this sector and the welder.

Our next question comes from the line of Julien Laurent from Natixis Securities.

Please proceed.

Yes, hi.

I want to know what was the share of the CapEx dedicated to the new plant in Mexico in 2009, please.

Well, in 2009, the -- possibly the expenditure of the CapEx -- we expected the CapEx in the plant in Mexico to be in the range of $800 million and during 2009 we should have spent around -- something more than $200 million in this.

But the commitments are higher than this.

The only point is that the shipment of the rolling mill from Germany and so are planned to happen now in March.

So, the level of cash out is still limited, below the level of advancement of the plant.

Thank you.

Our next question comes from the line of [Rogus Renouser] from [Kippler].

Please proceed.

Yes, hi.

Good morning.

Just a few follow-up questions from my side.

Can you give us an update on the utilization rate of your US facilities, very sans now and how do we expect the load to progress during the course of the year?

Are you also seeing that you're going to full load like [Monowikus] stated yesterday?

And maybe on -- secondly, on the pricing outlook, do you think this $100 per short ton increase is sufficient to cover the rising costs knowing that the raw materials will be increased -- raw material benchmark prices will be significantly increased by the 1st of April?

So, when should we expect the next round of price increases for the US market?

And maybe finally on the provisions, could you give us a number behind the provisions on the inventory write-downs you have taken in the fourth quarter?

On the first question, I will let German answer on the level of utilization.

Utilization, as you know, went down to a level in the range than 20% in the period in February and August.

Then recovery now should be around 40% increase.

German, how do you see the perspective?

Well, the level of utilization, in fact, during the month of January, was exactly close to 45%, 50% of our welded pipeline in the States.

We're expecting that to continue to grow in the coming months, probably reaching the level of about 65%, 70% by mid second quarter or so.

As far as the pricing comment is concerned, in fact, anticipating the cost of raw material increase we've seen in the form of accrual index increase or scrap index increase, negotiations around raw materials.

We have, in fact, proposed the market first at $75 per ton increase the 15th of January effective immediately and consistent, in fact, with the cost environment that we've seen aligned with your indication, we have again proposed a new price increase of another $75 effective February the 15th.

So in short, we are seeing some cost pressures clearly and we're trying to anticipate them in the form of price increase there.

Now, I'll turn it over to Paolo.

Yes, anyway, from our point of view, I mean, some of this cost will get into the cost of our supplier, but this doesn't mean that they get immediately into our account.

I mean, the [hautro] coils that we buy from welder could have a delay in getting up.

I mean, they will have some dynamic on its own.

Now, the question of provision, I will ask Richardo to give a comment on the provision for slow moving that we introduced in our balance sheet.

Yes.

The charge of the period have been $25 million.

At the end of each quarter, we analyze the inventories and according to that, we understood that the provision of about $25 million we have to charge to the cost of the --

This is inventory that is aging, is staying in our dock more than one year.

The rule that we have is to bring it down in value and this is the provision.

It doesn't mean that, I mean, some of these investors will go out during the coming months.

Okay.

Maybe just a final one.

Paolo, you commented that the US OCTG inventory are currently around seven months -- six to seven months now.

Do you think the absolute tonnage has already reached a trough or by when do you think that the absolute inventory levels have seen the low point in this cycle?

German, do you have a good feeling about this.

Could you comment on this?

Yes, I think in absolute terms, we've seen or estimated something close to about 2 million tons of inventory and I think this gives some room for that to adjust down consistent with the level of activity that we see.

Now, this absolute numbers and average months, consistent with the level of activity, so let's remind ourselves that the inventory is, by and large, made of carbon materials and therefore it's consistent with the wholes that we've seen on alloy material, consistent with the higher level of utilization it is now and going forward.

Okay.

That's helpful.

Thank you.

Thank you.

(Operator Instructions).

The next question comes from the line of Filippo Prini from Banco Leonardo.

Please proceed.

(Inaudible -- microphone inaccessible)

Sorry, we didn't hear.

We can't hear.

Can you hear me now?

A little better.

Please speak up.

Can you hear me now?

Badly, but --

We hear very --

Far away.

Far away.

If you can speak strong --

I'm going to try to speak up.

First one, in 2010, are you expecting to keep generating cash from [next]?

And the second one is clarification.

When you are expecting for 2010 margins in line with 2009, are you calling for a DBA roughly in line with 2009?

Sorry, I just heard the second question, if I'm right.

You are asking if when I say similar to -- the margin is similar to the margin of 2009, the margin of 2009 has been in the range of 28%.

What should we expect to have 2010 in a similar range, in a similar number.

Okay.

And the first one I'm going to try to repeat.

Are you expecting still cash generation from net working capital for the year?

From working capital.

I think you're asking if our working capital will -- I think there is a limited scope for reduction and starting from the second Q, the second quarter, I think we would need to increase again our working capital for supporting a higher level of volume.

Okay.

Thank you.

Our next question is a follow-up from the line of Stephen Gengaro from Jefferies.

Please proceed.

Thank you.

As I sort of listened to your commentary, when you talk about the margins for 2010, particularly, it seems like you're a little on the cautious side given what should be rising volumes.

And I would think that would help sort of offset some of the average price from sort of an absorption perspective.

Can you kind of give us a sense for how you're viewing that?

Well, I think we comment on this during the conference.

We expect the volume to increase starting with second quarter.

Absorption will allow us a containment of our cost during the year.

If you compare 2010, 2009, the level of utilization of our plant will be substantially different.

And this, in the end, has an effect in term of efficiency.

There will be some impact anyway on the cost side because of iron ore and some of the basic materials.

But this is -- will be the driver.

Now in terms of price, the price in our shipment will stabilize in a moment starting from the second Q and the mix will include some interesting high end components.

I mean, there are areas in which we are making good advance.

For instance, our North Sea supply during the second half of 2010 will be all doubles.

Our only operator there are taking our taking our technology.

They will incorporate this and I think the full materials that we will ship then will be doubles.

This issue like this, a niche that we are creating through technology and R&D and development we support our position in the high end.

Okay.

As -- just as a quick follow-up, sort of asked a different way, would you expect sort of a dip in the first quarter margins and sort of an exit rate in the back half of 2010, a couple hundred basis points higher or is that an incorrect pattern?

Yes, I think we gave you the same of a weak first quarter, recovering and as a whole where we expect to do.

We were disappointed that this quarter because of, let's say, the level we saw in high end components and the level of margin that we had.

But when you look at 2010 as a whole, I think this is where we should be.

Very good.

Thank you, gentlemen.

Our next question is a follow-up from the line of Alessandro Abate from Credit Suisse.

A very, very small, brief question.

We spoke about welded pipes.

Can you give us some more light about seamless pipe volumes that we're expecting in 2010?

Thank you.

Sorry, I understand your question about seamless pipe --

Seamless pipe volumes.

Right.

We spoke about welded --

Clearly, the -- we expect that the volume will start to increase starting from the second Q, the second quarter.

And it should increase during the coming quarter of 2010.

So and then that should come higher than 2009 level.

Yes, I mean, the -- I don't think we could today be too precise about fourth quarter of 2010 and how some of the market will react.

But in general, this is what we expect -- a pick up in volume seamless during 2010.

Thank you.

This concludes the question-and-answer session for today's program.

I would now like to hand the presentation over to Mr.

Giovanni Sardagna, Head of Investor Relations, for any closing remarks.

Well, okay.

Thanks, everybody for taking part to this conference call and we look forward to see you at our investor day in New York, 15th of April.

Thanks.

Thank you very much.

Thank you, gentlemen.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect and have a great day.