Tenaris SA (TS) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2011 Tenaris S.A.

Earnings Conference Call.

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

(Operator instructions).

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

Giovanni Sardagna, Investor Relations Director.

Please, proceed.

Thank you, Veronica, and welcome to Tenaris' 2011 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 herein.

Factors that could affect those results include those mentioned in the Company 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 CFO; German Cura, Managing Director of our North American operation; and Alejandro Lammertyn, the Managing Director of our Eastern Hemisphere operation.

I would like to start by mentioning that we will host an investor plant visit in Veracruz on September 20, and we look forward to seeing many of you there.

The event will give us the opportunity to walk you through our new rolling mill and meet with Paolo Rocca and other members of our senior management.

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

During the quarter, sales increased sequentially in each of our operating segments, but sales growth in our Tubes operating segment was held back by lower sales in Canada and lower shipments of deepwater line pipe projects in the Middle East and Oceania.

During the second quarter of 2011, sales increased 21% to $2.4 billion, compared to $2 billion recorded in the second quarter of last year and 3% sequentially.

Our EBITDA reached $548 million, which was 3% higher than the corresponding quarter of 2010 but 4% lower sequentially.

Our EBITDA was affected by some unexpected delays in shipments, mainly in Mexico, and some one-off events, coupled with the continued cost increases that exceeded increases in average selling prices.

Average selling prices were up 9% compared to the corresponding quarter of last year and 4% sequentially.

During the quarter, our sales of high-end, seamless product were 50% of our total seamless volumes, compared to 46% posted during the second quarter of last year and 47% recorded in the first quarter of 2011.

Results of our Projects segment have also recorded significant year-on-year and sequential increase.

However, this quarter, the mix in our Projects segment has been particularly favorable and might not be repeatable in the remaining two quarters of the year.

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

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

Our results for the quarter came in below where we were expecting due to some invoicing and cost effect, which we did not anticipate.

However, the market outlook remains good, and we look forward to better results in the second half.

First, let me turn to North America, where we had seasonable impact from Canada this quarter.

Sales in the US market have increased, and we are successfully introducing our new, premium connection and sour service product developed for shale application.

We are also seeing sourcing activity for the Gulf of Mexico deepwater starting to pick up.

In Canada, activity is also stronger this year, and the increase in thermal oil projects is driving a higher demand for our premium product.

This somewhat mitigated the seasonal effect, but sales in Canada still fell 38% compared to the previous quarter.

In Mexico, our invoicing was temporarily impacted by some changes that were implemented in our contract with Pemex.

We now invoice when the pipe has been run in the well, and this is introducing some delay in our shipments.

Additionally, tropical storm Arlene affected our operation and delayed some export shipments.

Mexican drilling activity in the second half will be higher, as Pemex is increasing its investment.

In the eastern hemisphere, we will see the impact of higher activity in Saudi Arabia and the Middle East in general with a rich mix of premium and sour product.

This will flow into our results in the second half.

In that region, North Africa excepted, we are seeing a gradual increase in sales and order, reflecting higher exploration activity in general and in deep water and European shale plays in particular.

This bodes well for demand in the medium term, particularly for more complex products as and when projects progress from the exploration to the development phase.

In South America, activity continues to increase in Colombia and in the Brazil offshore sector, while, in Argentina, exploration activity is starting in shale plays.

YPF has announced discoveries, including a liquid-rich deposit.

In this second quarter, the results of our Project operating segment was particularly strong, reflecting sales of high-margin products in Brazil.

Operating and fixed costs increased more than we had anticipated and was not fully offset by increases in our average selling prices.

Our operations are mainly in countries whose currencies are appreciating in real terms against the US dollar.

To some extent, sales in local markets act as a hedge against this effect on our costs.

But such cost increases in Argentina and in the other exporting countries for our system are impacting our margins.

Additionally, in the past two months, our people in the operation have been engaged on many fronts with the start up of investment in the new plant in Mexico, in Italy, and in other areas of the world in addition to their normal tasks.

This has had an impact on the role efficiency of our Industrial segment.

In the second half, we expect an improvement in our sales and our product mix, driven principally by higher activity in Middle East and North America.

This improvement will be more visible in the fourth quarter.

As for the third quarter, we will have the seasonal impact of lower sales of line pipe and mechanical products with European distributors.

In terms of margins, we expect an increase in average selling price to translate in increased margin.

However, given the results of the first half, our operating margin for this year may fall short of last year's.

Thank you.

Veronica, we can now open the conference for everybody and for the question and answer.

(Operator instructions).

Michael LaMotte.

First question has to do with Mexico and Pemex's plans.

I guess the shipment -- Can you address specifically what the delay was and perhaps the volume impacted and then speak a little bit more specifically about what the growth might look like over the next 12 months versus the last 12 months in Mexico as a result of the ramp-up in offshore activity?

Let me tell you we are -- In our plant, we are not really very much behind our original schedule.

We rolled the first pipe in November last year, and then we started the start up of all the operation in the coiled area of the plant.

Today, we are probably running this plant in the range of 50% of its capacity.

So we are ramping up.

This is -- I'm talking about July.

This is improving.

We expect by the end of the year to be running the plant maybe around 70% if all goes well.

When I mentioned in my opening statement the stress in our system, I would say that the start up of the plant has really absorbed the attention and the capability of all the people -- many of our people, and this has left some inefficiencies or some delay in production in some of the other areas of the Mexican plant.

And this could also be, as I mentioned, happen in some of the other areas in which we have important investment.

As far as Mexican market is concerned, what we really see is Pemex increasing its activity.

The number of rigs is going up, and I think this is one of the positive elements for us.

The domestic market is moving on.

We expect Pemex to renew the contracts that are expiring in the beginning of the first part of next year, and this also-for the contracts for drilling rigs this also will sustain activity over time.

I may ask, on this question, maybe Guillermo Vogel to elaborate a little on Pemex perspective.

Yes.

As Paolo mentioned in his opening remarks, we had a loss during the quarter because we changed the way we invoice to Pemex.

We used to invoice to Pemex at the time we delivered the pipe to the well, and then we credited whatever pipe was not used in the run of the well.

Now, in order to reduce the bureaucracy, what we have done is that we're invoicing at the time the pipe is run into the well.

But, at the same time, we reduce the days for collection.

So, in terms of cash flow, we are almost on a breakeven situation.

And, in terms of following the operation and simplicity of operation, we improved the system.

But this, on invoice terms, we lost almost 10 days -- 10 to 12 days of invoicing to Pemex, and this obviously affected a little bit the EBITDA for the quarter.

In terms of how we see this moving forward, if you remember, we started the year with around 100 rigs in operation.

The first quarter, we were -- If I recall correctly, we were operating around 115 -- on average, 115 rigs.

Now we are at 130 rigs.

And, if you see the tendering process for the rigs, especially for the offshore operation, I think, for the end of the year, we're going to be seeing going another 10 or 11 rigs.

So, when you compare, let's say, first half with the second half, we are seeing an improvement in the second half, and then we're seeing an improvement of next year.

So we are a little bit more optimistic in terms of Pemex moving forward.

That's very helpful.

That's good clarification.

Thank you.

Paula Kovarsky.

Two questions, the first question on -- You mentioned prospects of higher activity out of the US.

So, if you could, give us a little bit more color on when do you expect the volume to catch up and in which countries and which regions.

And the second question is -- You mentioned that it's very hard to believe that the average operating margin will be similar to last year's and probably lower.

Could you give us a sense of order of magnitude of how much do you expect it to be worse?

Or where exactly do you see margins going in the second half of the year?

On the first question, the demand outside the North America, if I understand rightly, in general, we see a gradual increase in rig activity.

We are convinced that what we said in the last conference -- We are at the beginning of the energy cycle.

We see demand picking up, unless worldwide economy gets into a double dip and you have, let's say, recession that may change some of the decision of the oil companies worldwide.

But, except in North Africa, we see, as a whole, this new cycle getting in.

But I will ask Alejandro Lammertyn, in charge of all the eastern hemisphere operations, to give us some more information or indication about this.

I would say that the structural change that we are seeing in the market in the next semester will be related to our position in the Middle East.

As we were expecting in the last conference calls, the activity has increased.

We see Saudi Arabia growing from 70 rigs last year to 130 or 140 in 2012, and this is making a buildup of inventory and more tendering.

There, we will have the effect in next semester.

We are also seeing increased activity in the Emirates that will be reflected during next year.

In sub-Saharan Africa, the activity of exploration continues in the new areas, like Ivory Coast and Ghana, and we are seeing also an increased activity in Angola that was delayed from last year.

So these are the main areas that we see growth.

We are not seeing growth in the Caspian Sea, where the major projects are still being delayed.

We are seeing also increased activity in southeast Asia in the areas -- mainly in Australia and Indonesia.

And we are seeing in the North Sea also increased activities in Norway and Denmark and not in UK due to the tax effect.

And how would you place competition?

Do you think -- ?

In terms of your main competitors, do you think -- ?

Who's better positioned to capture this growth?

Or is it room

I would say that, in the case of Middle East, we have captured a good portion of the growth share.

In some other areas where we are competing, in the areas of exploration, is where we find the biggest competition from our main competitor.

I would add, on this issue on competitive environment, what we perceive is, of course competition in the low-end segment of the market.

There is capacity.

Many players.

And this is something that we perceive is there since -- a long period of time.

I mean this is not something new.

Then, on the premium segment, the one in which we are focused, the increase in the market is there.

We consider this market is increasing in the premium by around 20% between last year and this year and will continue to increase next year.

But, in this market, the issue is to install technologies in the projects that are transitioning from the seismic stage, the exploration, before the development.

And, in this development, we sometimes found ourselves competing with the first tier, qualified companies trying to establish position and then be prepared for the development.

This is something that happened in the past, for instance, in Iraq.

There is, in some cases, competition in some areas for taking position.

But, in general, the market is increasing, and we think that we can -- we should be able to raise and increase our prices on this.

This also has a relation -- an impact on the question of our margin.

I think we closed last year with around 26% EBITDA margin.

In the first half of this year, considering the EBITDA of the second quarter, we are probably slightly below 24 percentage points.

In the next semester, this will increase, in our expectation, but it will be difficult to have for the entire year -- to reach the 26% that we had last year.

We were confident on this, and we said so in the last conference, but the results of this quarter and some of the non-anticipated factors of this quarter will drive us slightly below the figure of last year.

Yes.

Just quickly, back on the competition argument in exploration moving into development in countries where, apparently, the three main players are indeed competing among themselves, which is somewhat different than what we've seen in the past, where each of the companies were stronger in a specific region, do you see this dynamic changing?

I mean increasing competition among the first-tier players.

I wouldn't say changing.

But the point is there is a new cycle in energy development, and there is -- For instance, consider areas like west Africa, from Liberia, Ghana, Equatorial Guinea, Ivory Coast, this area offshore.

These are areas that could be very promising and very important in the future but areas in which today the operations are conducted on a smaller scale, shifting from seismic into exploration and start to develop.

It is a positioning going on here, and there could be more -- In some of these, we have competition to install the technology.

Today, to begin and to participate in a project and install technology, in our case, is TenarisHydril the design of the well, is the idea of the lean well, lean design.

It's important because, if the project starts with this, then you can maybe possibly count on -- provided that the service and quality of the product is supporting your point, to count on, let's say, soil development in the future.

This is the area, and this could also apply to other regions of the world.

It could be Australia.

It could be some of the southeast Asian offshore business.

These are the areas in which I perceive increased competition, not only established -- in the area in which the development stage is ongoing.

Okay.

Thank you.

Thank you very much.

(Operator instructions).

Blake Hutchinson, Howard Weil.

Looking at the numbers, it would appear that gross margins were fairly well behaved, meaning that material costs and input labor costs were fairly stable.

What's noticeable is that there was about -- as adjusted for some charges in the first quarter, about a 10% ramp in G&A.

Can you help us understand what part of that ramp up is either labor or currency related and therefore permanent versus what portion of it might have been kind of one-time troubleshooting?

And then, from there, should we consider that 19.5% of revenues is simply a level we need to be assuming?

Or can the G&A line kind of flatten out as we grow revenue in the back half of the year?

We were maybe probably more optimistic on this quarter, so we appreciate your comment.

But let me comment on some of the effect that is affecting this quarter from the point of view of G&A.

Basically, the countries in which we operate are having some revaluation of the exchange rate in real terms, which means, considering also local inflation that translates usually in salary increase and cost of labor.

This is true -- It is affecting us, especially for the countries in which we export, but it's also impacting on the general and administrative costs.

Think about the Europe-based operation.

Think about the Brazilian operation.

Japan, there is also having a strong appreciation against the dollar.

Mexico and Argentina -- In the case of Argentina, the currency is not revaluating, but inflation is very high, and this is turning out in the cost of labor that is increasing in dollar terms.

We estimate that this effect -- We were anticipating part of this because we were leading to this.

But the -- around $10 million impact was clearly beyond what we foresee in the first part of the year.

This has affected, let's say, our EBITDA and, as Guillermo was saying, compounded on the question of lower volume for Mexico and for the tropical storm that could also have an impact in the range of $15 million on our EBITDA.

I think this is the main impact.

There is also included, let's say, in our fixed-cost component, not general and administrative, on the fixed costs -- we have impact from the R&D.

Well, R&D is from general and administrative.

This quarter, our R&D investment has been a record, around -- close to $30 million.

This is higher than in the past and, to some extent, also, is due to contracts for R&D, research and development, that comes in during the quarter slightly beyond what we expected.

This is also affecting general and administrative.

I don't know if this is, let's say, the main issue, or maybe, Ricardo, you can clarify better if there are other components that are on these topics.

Regarding specifically SG&A, I would say that there are close to $15 million that, because of what Paolo explained, exchange rate and inflation in salaries in Argentina, will be a permanent effect for the future if we expect to maintain the same level of exchange rate, euro, pesos, Mexican pesos.

One shot for this quarter will have an effect of $10 million, the settlement with the DOJ, so this is only for this quarter.

So I would say, for the future, close to $15 million today -- $15 million plus $10 million.

As an average today, our forecast is that we are going to finalize the year with an 18.5% SG&A, sales index.

Thanks, guys.

That's an extremely helpful description of what's going on.

I'll leave the floor open to somebody else.

(Operator instructions).

Amy Wong, UBS.

My question is on what you can see for your average sales price going forward.

How much of that is going to be due to kind of observable, actual pricing increases in the market of your premium and commodity product, and how much of it is going to be -- improvement is going to be due to your price mix?

Thanks.

I think, looking forward, that we will have some of both.

We will have some price increase, but mainly the price increase that we expect should be driven by the change in the mix and a higher share of premium product because the low end of the market -- you can see in the pipe logix evolution is quite stable.

We cannot expect so much price increase, even if in the -- in areas like the US, this depends very much from the import into the US, and maybe this may change over time because the level of import is significant at this point in time.

But what we should expect is really price increase deriving from a change in mix and some increase on the specific price for premium product.

Great.

Thank you very much.

Michael LaMotte, Guggenheim.

Alejandro, I wanted to follow up on volumes in Australia.

I know that market is -- I guess has some commodity products at the -- in Queensland in the CBM side and, obviously, very high premium with the northwest shelf offshore.

Can you share with us sort of what the growth looks like over the next 12 months in that market and what the mix is likely to be based on project timing in those two areas?

Clearly, Australia is an area that has been positively affected by what happened in Japan.

The LNG has revived, some of the LNGs where we are seeing an increased volume coming in the high end.

We are seeing in the development phase an increase mainly in the pipeline infrastructure that will come, I would say, during next year -- 2012 and 2013.

And we will see also more premium related to development of offshore.

But, in the premium side, the volume will not be substantial.

It will be important, but it will not be substantial.

Okay.

And, on the pipeline side, is that going to flow through Projects, or is that more line pipe and field pipe that we'll see in Tubes?

It's more related to our pipeline in seamless, not in the Project side.

Great.

Thank you.

Raphael Veverka, Exane BNP Paribas.

I just had one -- another question on costs actually.

Are you expecting an incremental impact on raw material costs in the second half?

In other words, will we see a bit more or another increase in your cost per ton because of that effect?

Thanks.

I would separate the seamless from the welded.

In the case of seamless, we are -- I think that our inventories are basically in line with our reposition costs.

And the reposition costs should not increase further from now on.

There could be some reduction in the cost of metallics, of iron ore and metallic load, and maybe compensate some increase, as I was mentioning, in some of the labor or other components of services in the countries in which we have inflation in dollar terms.

But this should basically compensate in the cost of sales.

As far as welded is concerned, there could be some cost increase because of the prices that we acquire material in last quarter, maybe getting our cost of sales in the next quarter for the cycle approach.

But then what we are -- The cost of material that we are purchasing today is clearly -- should be below and is below the average price that we have in stock today.

So it may increase next quarter but will then improve on the fourth quarter.

Okay.

Thank you very much.

That's very clear.

Marcus Sequeira, Deutsche Bank.

I just have two quick questions.

One, if you could, comment on inventories -- OCTG inventories globally.

And, second, if you could, comment on the new capacity coming on stream over the next 12 months and that impact on prices.

Thank you.

I think, the inventories, it's important to look at North America.

That is the area in which the very large part of inventory is concentrated and, then, to the Middle East.

German, first, a comment on the situation of inventory as you feel it in North America.

Marcus, the view we have is that inventories for OCTG in the States primarily are more or less aligned to 5.5 months' worth of consumption.

In absolute terms, this is just north of about 2 million tons, which is fairly aligned with what the industry has seen in generic terms.

Alejandro, maybe you want to comment on the Middle East.

On the Middle East, I would say that the inventory level is today below what is needed for the ramp up of drilling that I mentioned before.

That's why there is increased procurement, and we will see the effect during next semester.

So, as a whole, we have in all our situations a considerable increase in volumes that we expect in premium in the next year.

Inventories should be in line with what is forecasted for next year.

On the second question, the question of capacity, you're right.

There is capacity coming in, but it will take time, in our view, for this capacity to translate into capacity of premium and specialty product segment.

It will take time.

This is something that we will see.

Probably, in 2013, there will be increased pressure on this.

Now, the market is growing, and so there should be room for additional capacity, including our capacity in Mexico.

And we have also to consider that some of our competitors are based in Japan.

Japan today, with the yen at JPY77 - JPY78 against the dollar, is not so much competitive in terms of cost, so there could be some shift -- some reduction in production and some closures in other areas, just to leave room for the capacity coming on stream.

Unless the price increase will allow this, driven by the volume -- will allow all the facilities, even the higher-cost facilities, to stay in the market.

Thank you.

On your mix, if you could, comment on what was the mix in this quarter and how much you expect to reach in the second half, as you said, that sales of high-end products should increase.

Well, in this quarter, we are in the range of 50% of high-end, and this will increase in the coming quarter and the future.

Some of this increase will be particularly important.

There will be sour service for the Middle East.

There is, I would say, super high-end, from our point of view.

And this will be part of this change in mix that we expect for the next semester.

Thank you very much.

(Operator instructions).Christian Audi, Santander.

Mr.

Rocca, this is a follow-up on the mix question, just to clarify.

You mentioned that maybe this quarter the mix in seamless was around 50% high-end.

You expect that number in the second half of the year to increase to what level?

And how about 2012?

Well, let's say, it will increase.

I wouldn't give the number because, in the end, it will depend also (inaudible) shipment.

We have the order in our backlog, but sometimes the shipment may be anticipated or delayed, and this may change, let's say, the final number.

It will increase, and this is, let's say, the method that we can anticipate, at least from what we see today.

If we look at 2012, well, we are aiming for a further increase in our mix.

And the investments we realized as our CapEx during the last three years have been focused on increasing our capacity and our ability to serve the most demanding market to improve our mix.

I think that we are aiming for a further increase of our mix in seamless during 2012, and I think we have the capacity to do it.

And what was the level mix in the first quarter and last year?

What would you say that the seamless, high-end mix looked like, please?

Well, we were in the range of 45% to 47%.

In the first quarter, it was around 47%; something less in 2010.

This is continuously increasing over time.

And so, just to finalize, Mr.

Rocca, given that we are in an environment -- I'm just trying to understand big picture.

Given that we're in an environment where we've seen higher oil prices in the first half of this year and, then, as you pointed out, an improving mix, which hopefully will continue to improve, please, help me understand how do we get an EBITDA margin deterioration in the first half of this year.

I'm trying to understand.

Has that been a mix-driven issue, or has that been a lack of pricing-power issue that, although your mix improved, you were not able to get as much pricing power on the high end as you would have expected, because I'm just trying to deal with this situation of you being a high-end-focused company with a lot of success in a high-oil-price environment yet generating an EBITDA margin that is among the lowest we've seen in years.

So can you help me understand what's driving that margin deterioration, please?

Yes.

Well, first of all, let me tell you -- talk a moment about, let's say, the increase in demand for premium product.

Our -- What we see is an increase and expansion of this segment.

This is possibly not comparable now to what the service companies is seeing.

So there is a service intensity in this energy cycle that is driven by the increase level of service to everywhere in terms of fracking, in terms of pumping needs and so on.

And so the service companies are really seeing for every well, for every line, an increasing, multiplying demand for the service.

In our case, the pipe intensity of this cycle is lower than a service company, even if we add a lot of service to what we do, but, still, we do it on the basis of the wells that are driven.

So our dynamic is lower on the one side.

In terms of pricing power, I think that we are continuously gaining nice market -- pricing power on the premium segment.

And this is extended to most of the market with some limitation in the areas in which, as I mentioned at the beginning of the conference call, there is a positioning competition among the top high, top-tier companies for establishing position there.

So our pricing power is there.

But, also, in some cases, we are competing for positioning, and this turns out into stable or, let's say, not improving pricing for this.

The reasons why we are showing a reduction in EBITDA, I think, are more related to costs and efficiency (inaudible).

In this quarter, on one side, the cost effect, because of the currency on one side, the appreciation, as I mentioned before, has impacted on us.

The second point is inefficiency in the plant.

We estimate this in the range of $15 million of inefficiencies that we had during this quarter that add up into our cost.

This has been a factor.

Some lower volume, some increasing cost of labor for real currency appreciation at real term and inefficiencies in the plant related to the different startup.

These I think are the factors.

But we consider that, over time, we maintain our outlook.

We see the market growing, demand expanding.

And, hopefully, we'll be also able to reduce and improve the efficiency of our system in the coming months.

We are all -- In this moment, this is a very important challenge for our organization, to recover efficient operation and also to pursue cost reductions in the area that are affected by increasing cost of labor.

We have several programs around the system to focus on the G&A and on the fixed costs that are in the cost of sales without reducing our focus on key issue for our differentiation, R&D differentiation, commercial action, and service-related activities.

Andrea Scauri, Mediobanca.

I have a question related to your investments.

I'm sorry.

I don't know if my question has already been answered because I joined later the conference call.

But I see that you made $461 million in the first semester, and I was wondering if you can provide a figure of total investments for this year.

And a second question related to this one was the level of cash that you expect by yearend.

I mean, I think you're supposed to generate cash in the second half of the year.

Thank you.

We are continuing our CapEx program but at a reducing pace.

We expect to invest around $350 million in the second part of the year against the $460 million that we did in the first.

So we should reduce our CapEx because we are completing our project in Mexico that has been the major absorption of CapEx this year.

Okay.

You're supposed to generate cash in the second half of the year to increase your cash level back to, let's say, if I'm not wrong, $200 million.

We estimate that after positive of operating cash flow and after the CapEx, as Paolo explained, we are going to generate cash in order to increase our final net cash position.

Okay.

Thank you.

By the way, in this quarter, the operative cash flow has been quite strong.

If you notice, operative cash flow for the second quarter has been $350 million, which has been applied to CapEx and dividends, mainly to CapEx and dividends.

Rochus Brauneiser, Kepler Capital Markets.

I jumped on the call a bit late, so I didn't follow the presentation.

So forgive me if I'm just asking things which have been answered.

I would like to get a little bit of a better sense on the real pricing environment in the US market.

I think there has been some uncertainty recently about whether the nominal price increase announcement fully went through.

There was this (inaudible) small price increase announcement for the first of April and a similar magnitude for July and now, obviously, a similar thing for October.

Is this just what has been announced, and how does that compare with the price increases which effectively went through?

When we look at the pipe logix figures, obviously, year to date, the seamless side was only up 150 and welded even less.

The second question relates to the welded side of OCTG in the second quarter, where volumes were down against the positive market trend in the US.

Maybe, can you give us a sense what happened there that volumes were down?

And can you also comment how the EBITDA per ton performed on the seamless side in the second quarter versus the first quarter?

And, I think, Mr.

Rocca, you mentioned some competition amongst the top-tier players in the US market.

Who are the top-tier players, in your view, which are competing for the premium shale business in the US at the moment?

Well, let's start with the pricing and the welded volume.

German, you may answer on this.

Sure.

Well, Rochus, let's say that pipe logix has evolved just short of 1% during June and July, despite the announcement we made, and I think it's fair to recognize that that is a reflection of the influx that we've seen that particularly affected the low-end component of the US market.

This is particularly worrisome when we look at imports from Korea.

The Koreans have brought to the US market in the first half of 2011 something close to 300,000 tons, which is an unprecedented number.

This is well above what they even brought in 2008.

Now, as far as the high-end pricing and, particularly premium, as you mentioned, for competitive reasons, obviously, I'm not going to be able to disclose specifics.

But we have seen, particularly in the last few months, some positive trends.

In other words, the price announcements that we've made are in fact somehow being absorbed by the high-end component of what we do (inaudible).

German, you can comment on the question of competitiveness in the US market.

The competition among the major three players that was mentioned by me more referred to the situation outside of the United States, in new places like Africa, Australia, or areas in which the projects are shifting from seismic to exploration and development.

These are areas in which we perceive, anyway, some competition positioning.

But, German, concerning the US.

Now, volumes, Rochus, when we look at North America in general, I should say that welded volumes in the US have in fact grown quarter to quarter, sequentially.

The big reduction, in fact, comes as a result of the Canadian spring break, which, by the way, this last one has been a fairly severe one, weather related and what not.

So, overall, you should probably leave with the view that sales in the US have grown sequentially, and this has been well more than offset by the Canadian spring break.

On the other question, I answered before on the question of -- the reason why our EBITDA in the second quarter is below the first quarter and also below our expectation.

We were expecting an EBITDA in the range of -- probably around $50 million more than what we really get.

Very briefly, I can tell you, with lower volume for Mexico, change of the contract, and bad weather for the tropical storm that impacted us, we consider in the range of $15 million.

The currency effect, increase cost of labor, and real exchange rates impacted that in the range of $10 million.

Cost inefficiency because of inefficiency in the plant, around $15 million.

And some special contracts in R&D that enter into specific contract into this quarter, raising our level of expenditure in R&D in this quarter slightly beyond what we expected are the cause of, let's say, the difference on the EBITDA from what we expected and where we stand.

And I think Ricardo gave indication before the impact on G&A.

Maybe a final, briefly.

What was the, based on your seamless shipments, your utilization rate in the quarter?

Was that about 80%?

Is that correct?

Well, in this moment, we have capacity in the rolling mill.

We are stretched in the capacity utilization in the sophisticated product lines.

And, in this area, new investment and expansion of capacity are coming in -- are in the process of startup.

So utilization for this area is high but is changing because of capacity additions and demand.

But, anyway, it's in the high range.

Okay.

Thanks a lot.

At this time, there are no further questions on the line.

I would now like to turn the conference back over to Mr.

Giovanni Sardagna for closing remarks.

Well, if there are no further questions, we would like to thank you for participating in the call.

Thanks.

Thank you very much, everybody.

We expect you in Tamsa for the investor day.

Thank you.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.