Tenaris SA (TS) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2010 Tenaris earnings conference call.

(Operator Instructions) I would now like to turn the call over to Mr.

Giovanni Sardagna, Investor Relations Director.

Thank you, Alicia, and welcome to Tenaris 2010 second 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 therein.

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 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.

I would like to start by mentioning that we will host an investor presentation in London on October 14 and we look forward to see many of you there.

A webcast and a recording of the event will be available for those of you who will not be able to come.

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

During the second quarter of 2010, sales decreased to $2 billion or 5% compared to the second quarter of last year.

However, increased 21% sequentially as we benefited from a strong recovery in most of our main markets.

Our EBITDA reached $531 million, which was 6% lower than the corresponding quarter of 2009, but 22% higher sequentially.

Our EBITDA margin at 27% was stable, both sequentially and compared to the one posted in the second quarter of last year.

Despite the seasonal effect in Canada, sequentially, our seamless sales volumes increased 29% and our welded sales volumes, excluding projects, also increased 29%.

In North America, we continue to benefit from the improvement in terms of apparent demand as activity levels continue to recover and pipe inventory levels remain at normal levels, around five months.

We benefited also from stronger shipments in the Middle East, North Africa, and South America.

Average selling prices continued to decrease.

They were down 28% compared to the corresponding quarter of last year and 4% sequentially.

During the quarter, as sales of high-end seamless products were 46% of out total seamless volume compared to the record high, 53% posted during the second quarter of last year and 45% recorded in the first quarter of 2010.

Second quarter results were still negatively affected by very poor results of our projects operating segments where we expect to recover only in the last quarter of this year.

During the first half of the year, our capital expenditures increased to $348 million compared to $226 million recorded in the corresponding semester of last year as we completed our new premium threading facility in Saudi Arabia and we are advancing as scheduled in the completion of our new rolling mill in Mexico.

Now I will ask Guillermo to say a few words before we open the call to questions.

Thank you, Giovanni, and good morning to all of you.

Our results this quarter, as we anticipated, include a strong recovery in OCTG shipments to the Middle East and South America.

More generally, they reflect the recovery we are seeing most of our markets, particularly in the United States, where inventories have declined to more normal levels and oil and gas drilling activity has increased significantly in the year to date.

Our incoming orders continue to increase and remain above the level of our shipments.

The utilization ratio of our industrial system continues to improve and it is approaching 80% of its peak level in October 2008.

The recovery in demand is also being reflected in modest price increases on a like-for-like basis on our incoming orders and this will help us offset the impact of raw material cost increases and maintain our operating margins at stable levels for the remainder of the year.

The recovery in demand will extend to our Projects segment.

We are starting to receive important orders from Petrobras in Brazil which, along with other projects in the rest of the region will lead to higher shipments starting in the fourth quarter of this year.

Our investments are proceeding on schedule.

Our premium threading facility in Saudi Arabia is already fully qualified to thread TenarisHydril connections for Aramco and the official opening of the facility is scheduled for September.

Our new mill in Veracruz, which once in full operation, will be the most competitive mill of its kind on the world, is on course to produce its first pipe in November.

We now have 3,000 persons working on installation.

Over the next two months, we will also be making important investments in our mill in Italy to expand our range of high-end products.

This extends the shutdown, will limit our effective seamless capacity in the next two quarters, but by next year we will be well positioned to accompany any increase in demand from our customers.

We continue to improve our competitive positioning in the US and Canadian market where we expect to see continued sales growth in the second half.

We have introduced our alliance model, based on a full range of premium, seamless, and welded products to customers operating in the shales and is finding increasing acceptance.

Already, our sales to the shales place account for more than 40% of our OCTG - US OCTG sales.

In Canada, favorable oil prices at current levels are encouraging our customers to move forward with thermal projects where we offer customized threads and connections for the operations.

On that note, I will open the call to questions.

(Operator Instructions) And the first question comes from the line of Michael LaMotte with Guggenheim.

Please proceed.

Good morning, gentlemen.

Good morning.

If I could follow up quickly on Projects.

The margin in the second quarter was certainly better than we were expected, given volumes were so low.

Just wondering if you could expand upon how we saw the margin improved sequentially without much change in volume.

Ricardo, do you want to make a comment on that?

Yes, please.

In the last quarter, in our Projects segment, we have a little increase in our margin, but with a limited number of sales.

Basically, our tons were very low if you compare with previous quarter.

And basically most sales - the increase is related to the mix of sales for this quarter.

But remember, the mix is a little bit affected by the small volume sales.

Okay.

So that's a pretty powerful mix component considering, I would imagine, the absorption issues with the low volume.

As the Petrobras volumes start to come through in the fourth quarter, what kind of impact do you think that will have on margin?

Is it a lower price mix so that the margin will stay about the same as those volumes come through?

Yes.

We are going to increase our volumes, but with lower margins.

Okay.

It's not as a favorable mix as it was in the second quarter, Michael.

So what you will see is the deterioration in terms of the margins because of the mix.

Okay.

Thank you.

And just a couple more quick ones, if I may.

On the welded side, given the fact that you have that direct sales model - and correct me if I'm wrong - I believe it's 70% of the volume is now direct sale.

Will that - some of your competitors have talked about much slower volume growth sequentially, Q2 to Q3, because of a slowdown in distributor purchases.

I can assume that not having that offsetting factor in the third quarter you can still do double digit kind of welded volume growth into the third quarter.

Is that correct?

German, could you comment on that?

Yes, Michael.

The short answer is yes but this is a US phenomenon more than anything else.

And it's not only welded.

It's, in generic terms, our sales in terms of volume in the US will show a growth in the coming quarter.

Okay.

As sort of a follow-on to that, German, if I think about the volumes coming out of Mexico, can you talk a little bit about what Pemex's plans are and the slowdown that we're seeing in the third quarter, impact on Mexico, and offsets, potentially, of bringing product into the US?

This is Guillermo, Michael.

I think what we're seeing in Mexico is very much aligned to what we were discussing during the last conference call.

I think it got a little bit worse, probably because of the weather problems we had during last month in Mexico.

But what we are seeing is the big reduction we were contemplating in Chicontepec.

And we are foreseeing, probably, an activity level in Mexico for the second half of around 115 to 120 rigs.

I think that if we take that into how much that's going to affect us, I think we are not going to be as affected as some of our peers that are in the service industry because we are covering the needs not only of Chicontepec, but of the full country.

So what we are seeing is probably in a reduction in Mexico for the rest of the year compared to the first half of the year of around 10% in terms of what we're seeing today.

I think that next year there's a lot of discussion right now of -- and Pemex is requesting for large budget increases.

It's still very early to know if those increases are going to come and for how much.

I think we're going to see some increases coming on.

And I think that Pemex wants to increase some of the activity of Chicontepec, but we won't see this until probably the second half of next year.

This is a little bit the view we have in Mexico right now.

Okay.

That's very helpful.

Thanks.

Thank you.

The next question comes from the line of [John Sisto] with Jefferies.

Please proceed.

Hi.

It's Stephen Gengaro.

I had two things.

The first, as it pertains to the Gulf of Mexico, do you think there's any change in the product quality requirements or uses by customers and is that a potential plus for you in your margins going forward?

Thank you for the question, Stephen.

I think that what we are seeing and the perception we have is that we're going to see tougher regulation and we're going to see tougher procedures of the oil companies working in the Gulf of Mexico.

But I would like German, which is very close to this market, to make a comment on that.

Thank you, Guillermo.

Good morning, Steve.

Short answer again.

I think yes, there is going to be a cut flight to reinforce quality on a market that was, by nature, a high-end type of market.

Of course, the regulation, the actual operating frame has been discussed as we speak.

And again, it was a high-end market before and it's going to remain so and so much so going forward.

That's helpful.

And then - and as we look out - and you guys did a good job in your analyst day talking about the products used in the shale areas, have you been seeing any major changes or any changes in your framework as far as - we've seen, seemingly, the service, intensity the shales has surprised people in general.

And I'm wondering, on the pipe side, if either the demand requirements or the type of pipe has increased vis-a-vis your expectations and how we should sort of think about that calorie content of pipe into the shales going forward.

German?

Yes, Steve.

The shales continue to be very vibrant at an activity level, accounting for more than 600 rigs as we speak.

And I think it's going to continue to be so for the balance of the year.

In terms of product mix, the shales continue to be an area where about 80% of the requirements out of heat-treated material, in the last few months we've seen an increase in terms of the level of premium joints requirements.

I wouldn't give you, Steve, the specific number, for competitive reasons, but in generic terms, we've seen an increase in the level of demand of premium connections.

But I would like to take the opportunity to pretty much reconfirm the trend in terms of welded acceptability that we have expressed before.

We continue to see the operators, at a technical level, accept 70% to 75% welded material.

And then just finally, I mean, how should this play out over the next few quarters from a margin perspective?

Well, naturally, the shales specifically are requiring a slightly richer mix than the average US market.

But in generic terms, Steve, I think this is reflected today, considering that, as Guillermo indicated in the opening remarks, today the shales account for the substantial volume of our OCTG sales in the States.

Very good.

Thank you.

The next question comes from the line of Frank McGann with Bank of America Merrill.

Please proceed.

Good morning.

Just to follow up on some of the comments you've been making in terms of the overall level of business in margins, it seems as if there's a concern about margin - lower margin as we go forward here.

And I was just wondering if you could comment, just globally - obviously, the US margin and the welded is that increases will tend to reduce the richness of the business mix.

But I was just wondering if you could comment overall in terms of your - what you're expecting second half profitability relative to the first half, given strength in other markets and how you see the overall business developing.

Hi, Frank.

This is Guillermo.

Let me give a little bit my perspective in terms of the margins.

I think we have several dynamics which are working and which were going to affect the margins for the second half.

We have experienced an increase in the raw material side.

We have not been - you have not seen that reflected still in the results for the second quarter because of the FIFO effect.

We're going to see that coming on stream on the third and on the fourth quarter.

We're seeing a leveling of those increases right now.

But the effect is going to be there for the second half.

So that's going to have a negative effect.

Also moving forward, when we see the volumes in the market, as I mentioned in my opening remarks, we're going to have Italy with an extended stoppage.

Generally, as you know, in summer, we are - we stop for around four weeks.

Now we're going to stop for almost eight weeks.

So that's going to limit shipments on the seamless side, which I believe the way we see them on the third, on the fourth quarter, I see them either at second quarter levels, maybe a little bit higher on the fourth quarter after the stoppage is done.

And we see increases, as German was saying, in terms of the volumes on the welded side.

So that also is going to have an effect on the margins.

On the positive side, what we're seeing is that we're gaining pricing power.

We see prices on a like-for-like process going up.

I think that's going to have a positive effect on the third and on the fourth quarter.

And when you put all these things together, what we are seeing is a certain increase on the revenue side and we see, in terms of percentage-wise, we see the operating or the EBITDA margins staying at the levels that we are contemplating - or that do so on the second quarter.

This is a little bit the perception we have today in terms of how the margins are going to move going forward.

Okay.

Thank you very much.

You're welcome.

The next question comes from the line of Paula Kovarsky with Itau Securities.

Please proceed.

Hi.

Good morning, everyone.

I actually have two questions.

First question.

There seems to be a bit of a consensus in the market that if US gas inventories keep on being fulfilled on pace they are, we might see peak inventories towards year end, which would probably press prices down.

Would that be a threat to the kind of expected results you have for the second half of the year, at least in conventional gas, and would that be somehow compensated by what shales and eventually oil?

So that's the first question.

And second question, in terms of things - how things are going in Brazil, mainly, what we are hearing at the Street is that Petrobras is kind of delaying some of the projects, delaying some of the payments because of the little delay on the capitalization.

Would that be something at could affect this more positive trend to the second half for Confab and to which extent you were also accounting on shipments of seamless or connections to pre-salt in that statement?

Thank you, Paula.

I think, in terms of your first question, the perception we have is that we're going to see a limited increase, still, of the activity in the States.

We're going to probably lose rigs on the conventional side.

But the view we have today is that it's going to be offset by an increase on the oil and on the shales.

But I would German to give us a little bit his perception and especially on the side of the inventory that you were mentioning right now, the buildup of inventory you are perceiving right now.

Thank you, Guillermo, and I will simply add that, like everybody else, we are carefully looking at slightly north of 240 rigs that are operating in the area of conventional gas.

Yes, this is probably the weak spot of the activity level in the States now.

And it's one that we continue to see and monitor very closely.

Now it is also true that with more than 600 rigs devoted to oil, we have substantially surplused the peak that we saw in 2008.

So this is offsetting and is, I think, is a very stable segment going forward, given the pricing dynamics for oil.

And we talked a little bit about the shales.

So overall, there is an offsetting phenomenon and, yes, we are monitoring very closely the conventional gas space.

Okay.

Then Alejandro, can you talk a little bit about Brazil, now you see Petrobras, Confab, etc.?

Yes, Paula.

In the case of Brazil, it's true that it's a delay related to the expectations in drilling in the pre-salt.

But you know that it's not a direct correlation with infrastructure investments sometimes.

And what we are seeing and what Guillermo has stated in the backlog increasing in Confab was related to gas lines, where we have - we are confirming some of the orders that will increase the backlog for our projects welded in Confab.

Okay.

And - but anything in terms of more potential for volumes for Tenaris in similar connections or this is only Confab, really?

This is mainly Confab related.

We are still selling an important volume of OCTG welded, as we have been doing the last quarter.

Okay.

Thank you.

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

Please proceed.

Yes.

Good morning to everybody.

Got two brief questions, if I may.

The first one on tubes prices.

Which is the level you are envisioning for the end of the year for the tubes division?

The second one is just a clarification on your previous statement of Italian production because I missed how many weeks of stoppage you are envisioning in Italy in this quarter - in the next quarter.

Thank you.

Well, as I was mentioning before, what we are seeing and there is some caution in terms of this conventional gas situation and maybe the general state of the economy.

But what we are feeling today is that we are gaining pricing power.

And with this pricing power, we expect, on a like-for-like product basis, we expect to see stronger prices moving forward into the - into next year.

I wouldn't like to mention specifically amount because at this point in time because of competitive reasons, we don't do it.

But I feel - and in terms of my prior statement, that we're getting these raw material price increases and we're getting a deterioration in the mix.

We feel today - and in terms of the prices, we're talking today for the third or for the fourth quarter.

We are seeing that that's going to allow us to offset these two negative trends on the margins that we're saying.

Remember that we're talking about additional amounts of welded and we're talking about additional amounts on the project side of the business.

In terms of Italy, we are working in terms of where to position Tenaris moving forward.

We have taken several important decisions and we are working hard in order to accomplish them.

One is the mill in Mexico.

The mill in Mexico should give us a lot of flexibility moving forward in terms of following up increasing needs of our customers.

I think it's going to allow us to support additional requirements that would come from Chicontepec, for example, and also from Latin America.

And in terms of what we're doing in Italy, we're doing an investment, an important investment in Italy in order to change the range of the product and in order to be able to produce higher value-added products in Italy.

Also with this - within our vocation to really go to the high, high end of the market, we're closing this investment in Saudi Arabia in order to have a much stronger presence in the Middle East.

So Italy is part of this process.

But it's going to have to - we're going to shut it down for two months.

And these two months are going to touch the third quarter and also are going to affect, to some extent, the fourth quarter.

Okay.

Thank you.

The next question comes from the line of John Sisto with Jefferies.

Please proceed.

Hi.

It's Stephen Gengaro again.

Just two quick follow-ups.

The first, on the Italy situation, is the cost in place there, is that, for those two months of being shut in, are they part of what weighs on margins - or not weighs on margins, but sort of keeps margins from rising in the second half?

Well, the main effect on the margins is that you won't see an increase in the volumes of seamless, which has a higher margin.

And you're going to see an increase in the volume of welded.

So you have to see that on a percentage-wise, at the time that you're increasing volume in a sector that has a lower margin then that drives your margin down.

And what we're saying here is that, although we are not going to be able to follow up the increase in the welded with the seamless because we're going to lose this production capacity during these two months of the second half.

Okay.

That makes sense.

And then, just as a final - when you look back at the - at sort of the EBITDA levels that you saw in '07 - '06, '07, '08, kind of in the low 30s, what do you think it takes to get back there?

I mean, do you think that's a reasonable target to think about at some point over the next six to eight quarters or - I mean, do you think it's possible?

And what drives that process to get back there?

Without giving guidance, but just sort of in general terms.

We would love to get those sense.

And we would love to experience that.

But I think, at this point in time, it's very hard to make a prediction.

It's a matter of supply and demand.

It's a matter of market equilibriums.

I can tell you, for example, today we're looking at certain products where we start to see supply limitations that is giving us a capacity to increase a bit more the prices.

But I just wouldn't make a comment in terms of saying can we or can we not go to those levels.

We work together, but that's something that I guess everybody is doing and today we cannot really comment on that.

But I mean, but structurally in the industry, is there anything that limits that if the demand side picks up?

If the demand side picks up, that's obviously is going to help us and that was the main driver in the past.

You have also - but you have to consider today that we have an additional capacity coming into the market.

So I think it's a balancing situation.

And I think it's hard today to make a prediction.

Okay.

Thank you.

You're welcome.

(Operator Instructions) And the next question comes from the line of Subhra Das with Credit Suisse.

Please proceed.

Hi.

Good morning, gentlemen.

I have a few questions, if I may.

The first question is regarding the sales in Europe.

It seems that the sales in the tubes segment has reduced quite a lot in the second quarter when you compared the - in your sector [parts].

The total sales in Europe is down lower revenues in Europe sales rather than is in the [look].

[Of] such a decline in the tubes division sales in Europe.

And if you are seeing any [segment] or is that more like it is [rather] than--

Excuse me.

We have a very bad connection and it's - we cannot understand what you are saying.

I know if you can talk a little bit slower or change the phone or something because it's - we are really not being able to understand what you are saying.

Okay.

Let me again.

The sales in Europe was much lower in Q2 compared to Q1.

And total sale - the total sale percentage is - has reduced lower than you considered sales in tubes division.

So this - sales pattern, like lower reduction for the total Europe segment rather than higher reduction in steel sales in Europe.

Was this - was there a specific reason for that?

We're having the same problem.

I understand you're talking about the sales in Europe.

From there it's hard to understand.

But let me tell you, we have in - I think what we are experiencing in Europe is that during this year we are seeing a big increase from what we were experiencing, for example, in the first half of last year.

Especially in the industrial, on the mechanical side.

We are more than double what we were shipping in the first half of last year.

Having said that, we are not back to the levels that we were experiencing before the crisis.

We're still around 30 or a little bit more below what we were experiencing before the crisis.

And I think the big return in terms of what we're experiencing this year is that during 2009, we had a huge difference between apparent consumption and real consumption.

Whereas apparent consumption, because of inventory movement in the whole supply chain of these products really took the demand that we were seeing was much lower than the real demand of the final products where those products go to.

And what we're seeing this year is really a return in terms of having the apparent demand and the real demand much more in line.

But we are weaker economy.

And I think these levels are the levels that we are contemplating are going to stay in - for the second half, more or less.

I don't know if that answers your question because we couldn't understand, really, what the question.

But we're trying to--

Okay.

And I [Q2] sales versus Q1 sales.

Sir?

Sir?

Sir, I'm sorry.

Are you on a headset?

Sorry?

I have more questions, please, if I may.

I understand, but they are unable to actually register your question.

Are you able to pull the mouthpiece away, please?

Sorry?

Hello?

Okay.

You may try again, sir.

Okay.

My next question would be regarding your CapEx guidance.

You spent $350 million of CapEx in H1.

And you said you had planned for about $1 billion for the current year.

Do you still have that CapEx guidance?

Yes, we have - what we're contemplating is, for the first half 2010, our CapEx will be a little bit below $1 billion.

They're driven very much by the project that I have already mentioned.

But I would like Ricardo maybe to make a comment in terms of the CapEx program for 2010.

Okay.

[As] Guillermo said, we are planning to have a CapEx for the second half of the year of around $650 million.

Therefore, we'll reach the $1 billion CapEx investment for this year.

Mainly, the Mexican new mill, Italian project which I already mentioned, another important investment also for the USA market.

These all facilities will allow Tenaris to have a state-of-the-art facilities, rolling mills that will be ready, I mean, in full form, in order to produce for the mid of next year.

Important, the rolling mill in Mexico that, for us, is at a state-of-the-art facility that we have developing, using the technology that we have in all our facilities around the world.

I would like to - just to complement Ricardo's comments.

Just giving you a little bit of perspective in terms of how we see the cash situation.

As you know, we have a positive net cash situation.

We have a very strong financial structure today.

And although we're contemplating this very high level of CapEx.

Although we had these increases because of additional volumes and increase in the market in terms of working capital.

I think we're going to maintain our policy in terms of on the dividend side.

What we're seeing is that we're contemplating to finish the year with more or less the same net cash position in order to have the flexibility at a certain point in time to be able to make a move since we think we have an opportunity.

Okay.

Okay.

The next question is in the Mexico plant.

You said you would be starting it another [way].

Are you seeing any kind of start up costs that may be associated with that Mexican cost - Mexican plant start-up?

And if yes, then what would be the approximate start-up cost without any company revenues or something like that?

Yes, let me tell you.

Remember that this plant is adjacent to the actual plant we have.

The two plants are together.

And this is helping us to have very, very limited start-up costs.

We are seeing a very low level of start-up costs.

But I would like Ricardo to give us the specific numbers that he is looking at.

Yes.

Regarding numbers today, we can say that we can divide them in two kinds.

I would pre - I would say pre-production cost that should be basically some expenses in personnel trend, etcetera.

That should be no more than $4 million.

And then we will have some costs relating to the learning curve of production and this should be around $2 million, $3 million.

So we are talking about these magnitudes for next half and first half of next year.

And just to give you an idea, a little bit, in terms of the Mexican mill, as we mentioned before, we hope to have the first pipe coming out of the rolling mill in November of this year.

We hope to finish the finishing lines and the heat treatment by the first half of next year, which means that that facility probably will be operating by the second half of next year, fully finished and operating, let's say, on an integral basis.

The next question.

Maybe, Alicia, we go to the next question.

Absolutely.

The next question comes from the line of Sergio Torres with JPMorgan.

Please proceed.

Good morning, everybody.

I have a couple of questions related also to the new plant in Mexico.

The first one is if you could walk us through the - if there's any opportunity, in your view, to improve margins from two fronts, from either saving of the current - savings of that the new plant will bring from the existing processes for the small diameter pipe and also the potential for - to reallocate production away from other high-cost plants and bring that into Mexico.

That will be the first part of my question.

And the second part would be what has to happen before you reactivate the project of having that rolling mill fully integrate with a steel mill?

It looks like you could commission a new plant rather quickly, but I would like to hear your views on that.

Thanks.

Well, as you mentioned, the benefits of this plant is 1) we believe this is going to be a very low cost producing operation.

And today, the system is working at a high level of capacity.

And really this - what this plant is going to allow us to do is not only, in terms of increasing the capacity, but also in terms of managing the other plants on a more efficient way because we're going to be able to increase, for example, the production runs on the same pipe, on the different mills which has always a very positive effect in terms of your costs.

Because of the sizes and because of the range of this mill also, it's a mill that was needed to follow Chicontepec because Chicontepec pipe requirements are basically small diameter pipe requirements.

And this was a weakness we had in the mill in Mexico.

The mill in Mexico, to go to small diameter pipes was very - it was a high-cost operation.

It's going to help us, for example, on today's supply to Pemex.

It's going to improve our cost structure there.

So it's not only in terms of the additional capacity, but it's also in terms of the additional, let's say, flexibility in terms of production and in terms of our location.

I think that next year's second half, we should start to see a positive effect of the margins in terms of operating the mill.

And also, it's very important in terms of the signal we are sending to the customers.

The customers remember that we have - we are following a model where we're pouring, in many of our alliances, the full range of products.

And what we want is for the market to see that we have a comfortable cushion in order to supply any additional requirements they might have.

We are following, not only in terms of this plan, but we're following also in terms of technology-wise.

We are investing a lot in the technology side together with this plant on the cost side in order to really have a very strong presence in the market and maybe we can comment on a couple of examples on that sense.

In terms of the steel and what has to happen to move with the steel, I think that today, for the initial levels of production that we are seeing, we have the internal capacity to supply our own steel and so really, what we would like to see is how the market develops in terms of volumes to take the decision to start the second stage.

Also see other alternatives to - that would allow us to increase today our supply that we have today from own internal plants.

So it's a decision we have to analyze a little bit more in terms of the market.

In terms of what I was mentioning to you from a technological side that is going to come - and how we are looking at the market, maybe Alex can talk to us a little bit in the Goliath, for example, our Goliath experience, how we are working this.

Yes.

No, in terms of international market that's, as you have seen, the rigs are already in the 2008 level.

So the general conditions of the market are positive.

Plus in the international market there might be a chance of use in the rigs that are coming available from the Gulf of Mexico.

And this will have an impact in - a positive impact in 2011.

In terms of specific projects or complex projects where we are having the - our most demanding products being delivered, as Guillermo mentioned, the Goliath project is very a very important project in Barents sea.

It's operated by ENI and we have been awarded the full project - our 22 wells with extended reach with - that is perfect for our premium connections in a very low temperature environment, so our dopeless connection is a must in this environment.

And take advantage to say that we have sold two million feet of dopeless in the last year, so we can really say today that the technology has been adopted by the major players for this environment.

Great.

Thank you.

At this time, we have no additional questions.

I would like to turn the call back over to Mr.

Giovanni Sardagna.

Please proceed, sir.

Well, if there are no other questions, I would like to thank you for taking part to this conference call.

And once again, I would like to remind you that we will host an investor presentation in London, October 14 and we hope to see you there.

Thank you, everybody.

Ladies and gentlemen, thank you for joining today's conference.

This does conclude the presentation and you may now disconnect.

Good day.