Tenaris SA (TS) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2013 Tenaris earnings conference call.

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

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

We will conduct a question-and-answer session towards the end of the conference.

(Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Giovanni Sardagna, Investor Relations Director.

Please proceed, sir.

Thank you, Andrew.

Welcome to Tenaris 2013 first-quarter 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 here in.

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 Chief Financial Officer; German Cura, Managing Director of our North American operation; and Gabriel Podskubka, our Managing Director of our Eastern Hemisphere operation.

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

During the first quarter, sales increased 2%, $2.7 billion compared to $2.6 billion recorded in the first quarter of last year.

However, they decreased 3% sequentially as higher sales of premium OCTG product in Saudi Arabia and sub-Saharan Africa did not fully compensate for lower sales in South America and the impact of lower market prices for less differentiated products in North America.

Our EBITDA for the quarter reached $699 million, which was marginally below the EBITDA we recorded during the corresponding quarter of the previous year and the last quarter of 2012.

Average selling prices in acute operating segments were up 4% compared to the corresponding quarter of last year, but marginally down sequentially.

During the quarter, our sales of iron seamless product increased to 58% of our total seamless volume.

During the first quarter, cash provided by operating activities was $563 million, allowing us to move from a net debt of $271 million at the end of last year to a net cash position of $121 million at the end of this quarter.

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 first-quarter results reflected the mix improvement we are seeing from increased demand for our premium products in the Eastern Hemisphere and the impact of lower pricing on less differentiated products, particularly in North America, as well as lower sales in South America and two European [data customers].

We expect these trends to continue playing out throughout the year.

[Since] our premiums our OCTG product in the Middle East are increasing as Saudi Arabia ramps up its investment in gas drilling and continued to invest in the capacity required to offset increasing rates of depletion in its oil-producing fields.

Our premium training facility in Dalmine is operating now at full capacity and we are launching the expansion of the facility.

Demand for our premium (inaudible) line pipe product in sub-Saharan Africa is also higher with the exploration of the pre-salt basin in Angola, higher activity in Nigeria, and increased exploration activity throughout the region.

In the Far East we expect a better year with projects like [Whiston] moving into the development phase in Australia.

In the first quarter, sales of our premium connection product increased 10% sequentially to set a new quarterly record.

More advanced drilling techniques and more extreme drilling conditions are driving higher requirements for our product.

To meet these new requirements we are introducing new products for specific application.

In North America the immediate outlook remains uncertain.

The US land rig count continues to decline during the first quarter, and in April the natural gas rig count hit a new multiyear low.

In Canada, drilling activity in the first quarter in terms of meters drilled was at similar levels to last year but demand in the second quarter will be affected by the spring breakup.

A combination of flatter demand and higher level of imports from countries like Korea has affected prices and margin in the region.

However, with a higher natural gas price, a reducing backlog of drilled but unconnected gas wells, and ongoing infrastructure developments, we can expect a pickup in demand before the end of the year.

The Gulf of Mexico, however, remained a bright spot.

Activity continue to increase and we have successfully developed a new integral well connection and a special riser connection, which meet the challenging requirements of lower tertiary projects like the Shell Mars B. Our new integral wedge 623 Dopeless and the Blue riser connection will be onshore at the Offshore Technology Conference in Houston in next week.

In Brazil, we are currently delivering shipment for the [Cabuna-Tirasma] pipeline, but in the second half of this year we will have substantially lower line pipe shipment due to delays in the forthcoming project.

In Argentina, we have concluded an alliance agreement with YPF providing for just-in-time services and stock management.

This agreement will be important to support the development of the Vaca Muerta shale play.

In Venezuela, shipment continued to be affected by payment delays by (inaudible).

Outside the oil and gas sector, the competitive environment is being affected by low levels of demand from a European industrial sector.

We continue to reposition our operation with a focus on niche sectors where we can achieve effective differentiation.

In this environment, our results for the quarter remain in line with those of the fourth quarter.

With our strong cash flow from operations, we have now a net positive cash position.

This will enable us to continue our investment plan to position the Company for an expansion of activity in the medium term.

We can open the floor now for questions.

(Operator Instructions) Ole Slorer, Morgan Stanley.

Thank you very much.

I wonder whether I could open up with a little bit more clarification on what's going on in the North American market right now with respect to the leading-edge pricing and inventories.

And if you could just comment specifically on any big difference that you see between low-end welded and semi-premium and premium products?

Thank you, Ole, for your question.

North America, as I mentioned in my prepared remarks, we have some uncertainty concerning how the rigs for gas could recover.

Maybe in the fourth quarter of the 2014 or this could happen later.

As far as the pricing in the different segments, I will ask German to make a comment on how we proceed.

This is an area in which we see pressure on the less differentiated product.

You see this reflected in the pipe logic, but I would like German to give us a view on how we perceive this in different segments.

Good morning, Ole.

Thank you, Paolo.

Very few comments, Ole.

We continue to see some pricing pressure on the, what we call, low-end part of our market.

This is particularly emphasized given the level of imports that we continue to see.

Surpassed again 51% this last quarter and particularly coming from South Korea, majority of which, as we all know, is (inaudible) low-end stuff.

At the other side, we have the premium connection space where we see a pricing environment that is a lot more stable where it's some markets in Deepwater Gulf of Mexico were, as we have announced, introduced new products which are fairly unique given the application solutions that we present and where we could in the end expand a little bit the price in (inaudible) environment overall.

What about the --?

Semi-premium, it's a bit of, I would say, a component of the premium environment.

So the market called semi-premium (inaudible) different applications so it's probably not correct to generalize it.

We have from API plus, stuff [called] semi-premium, to premium connections which belong to a lower application [basically].

Yes, I may add that clearly there is a push from the oil company operating in the shale space to reduce their costs as much as they can.

And we see some shift from full premium connection into semi-premium on one side.

And in the semi-premium connection sometimes it's more difficult to get full differentiation, so this may have an impact on price itself.

But I think the big question mark for us in the North American market is how the higher price of gas and the reduced number of non-completed wells dedicated to gas may impact on the wells drilled in the fourth quarter and the beginning of 2013.

Not easy today to make a forecast on how fast rig count and well drill may recover in the US.

From my point of view, for sure this will happen and will happen in the course of 2014, but is not clearly to understand when this trend would start.

Short comment on inventory, Ole, is they remain at a level of about five months.

This is a fairly stable level and majority of which, again, is of a low-end nature from a mix perspective.

Okay, that's useful.

So particularly you highlighted the fact that certain semi-premium applications are now displacing premium as, I suppose, people get more familiar with the drilling of shale wells.

Any specific region where this is happening and is it happening in any big way?

Well, this is particularly the case, Ole, on shale oil application, which we've seen expanding through the year that we saw the pricing dynamics that we just comment.

And it is somehow associated with formation knowledge increasing and operators, back to the point of Paolo, trying to optimize the cost structure as much as they possibly can.

But I think the underlying factor is shale oil where the environment is (inaudible).

I understand.

If I may just follow up quickly on Mexico, there is a lot of noise around Mexico and the energy reform.

What specifically are you hearing from your main customer in Mexico, or maybe even some of the new players invited in with respect to activities?

Is that centered around the South, the North?

Is it going offshore yet?

Specifically, right now, what are you hearing from your customers in Mexico?

I will let Guillermo Vogel to comment on Mexico.

As a general statement, let me tell you that we are very positive on the trend in which Mexico is moving and on how the country is reacting at this time and on the course of under the new government.

But, anyway, Guillermo, you may comment on how we see trend in the movement caused by the energy reform now.

Sure, Paolo.

Good morning to everybody and thank you, Paolo.

I guess I would say, Ole, that for sure there is a tension and people are working in terms of having an energy reform.

This reform is what we see that is going to happen probably by the fourth quarter is going to follow up the fiscal reform.

And is going to follow up the fiscal reform because the way that -- the final product when a fiscal reform comes is broadly to try to reduce the dependence in terms of the income that PEMEX generates to the country.

And so that's going to give space to a more aggressive or less aggressive energy reform.

In terms of what we see and what we have heard, I think that this is going to create much more space for independent drillers in Mexico.

What we foresee or what I would foresee is that there is going to be spaces opened in areas like Chicontepec, in areas like the mature fields, in the shales, probably in the deepwater.

But this is going to --- we are going to see effects on that in terms of our business until probably the second half or the fourth quarter of next year.

This year what we are seeing is a reduction in the North, reduction in Chicontepec activity which has been substituted by a more aggressive operation in the South and a stable operation.

If you see the numbers for 2012, you see that there was an increase over 2011 which was interesting.

We see a small increase in 2013.

We see a better mix for us in terms of more activity in the south.

We bring a better mix for us.

And then we see an increasing 2014 and probably we're going to see the full effects of our reform until 2015.

This is more or less what we are seeing today in Mexico.

Very useful, Guillermo.

Thanks.

Then, finally, just on Vaca Muerta, how real is it?

How quickly can this go to be something that moves the needle for you on your Latin American volumes overall?

Or is it still just a science project?

I think -- all the play, the Vaca Muerta play, is very -- interest is important and the country is importing gas at high cost today, so there isn't a clear interest on part of many players in moving on.

I see YPF moving on this and looking and building up the financial strength through different means to increase the level of operation in Vaca Muerta.

I don't think there will be an explosive grow, but things are moving.

We expect gradually the number of rigs to pick up during this year and in 2014.

It will depend from the ability of YPF to attract financial or operational partner that could contribute to this.

But I would say that not only YPF, but also the other operator, are moving rigs into the field, so gradually this will pick up.

Well, good luck with Argentina.

Thank you very much for answering all my questions.

Blake Hutchinson, Howard Weil.

Good afternoon, gentlemen.

Just want to first touch on the --- your business in Saudi Arabia.

You mentioned on the last call that you had a major tender for materials pending, similar to what we saw in 2011.

Wanted to understand whether that was already impacting results positively, or we would expect the results of that to actually improve, even from here, resulting from here as we get through the year.

Yes, thank you, Blake.

I think the Saudi Arabia pickup is impacting now and will impact more in the next --- in the coming quarter.

But I will ask Gabriel to comment on how we see the expansion and the program of Saudi Arabia in the near future.

Yes.

Thank you, Paolo.

Good morning, everyone.

The international market looks solid and we see consistent growth in the Middle East and sub-Saharan Africa.

And within this scope, Saudi is the bright spot.

We see an increase of our drilling activity.

Today we are running at a pace of 140 rigs.

This compares to 120 rigs of last year, and we expect this to expand further.

We reach --- we will probably reach 170 rigs by year-end.

This has triggered our zeal to further expand our local capabilities in Saudi to cope with an increase of demand.

These hydrocarbons are highly corrosive and they demand high-end technology for which we have a clear advantage.

So we see Saudi as an important part of our growth in 2013 and, as Paolo said, this is already starting to be seen in the first quarter and further to come throughout the rest of the year.

Okay.

Then just following up, you mentioned -- the one region that I think we mentioned most briefly in the commentary in the release is the Far East.

Increasingly this represents a high-quality content deepwater offshore market.

Paolo, I just wanted to get your thoughts in terms of strategically about with regard to do you feel like your franchise has what it takes right now to address those markets?

Or you need to make some further investments to capture similar share to where you are in the rest of the world?

Well, thank you for the question, Blake.

You know, the Southeast Asia, from our point of view, is especially interesting in two areas.

On one side we are very strong in Indonesia and we have an important facility there.

So we cover from Indonesia all, let's say, the areas and the activity in the country and close by.

On the other side, we are focused on the project on deep offshore from Australia to the entire region, including Indonesia.

In these projects we go for the OCTG component for the riser, for the offshore deepwater installation pipelines, flowlines.

This is an area in which we found niche of high-end product that we can exploit positively.

One of this is -- of this area one of these projects that is very encouraging for us is the (inaudible) and the projects that are going on in Australia.

There is a third area that we are looking on carefully.

It's the shale in China.

We are supplying Shell operations in China for shale.

The point is how fast shale could grow or could expand, especially for gas.

In China, we are focusing there.

We have a facility and we also started producing our most sophisticated product in our facility in Qingdao with the destination of this shale account.

This is today not a relevant volume or margin for us, but it could be very, very important in the future, depending on how fast Chinese companies and Shell and Western companies may decide to move their program.

But maybe more specifically, Gabriel, you can give some indication of how we see the most interesting project that we are following in this area on this.

Yes, thank you, Paolo.

Indeed, for us, Southeast Asia is an important deepwater play where we have an important presence in deepwater projects.

In Indonesia there's an upcoming development that are going on and it will happen during the end of 2013.

We are also participating in important [complex] projects in Australia.

And, as you said, shales in China is one of the most promising areas in the midterm.

We don't expect this to have a material impact in the short term, but this is something that, depending on the pace, this will be an area of focus and growth for Tenaris for sure.

Great, thanks.

That's a great overview of the region.

I will turn it back.

Frank McGann, Bank of America.

Good day.

Two questions, one just in terms of the overall global supply/demand balance now that you are seeing in your key products.

Your regional overview covered a lot of this, but I'm just thinking in terms of looking forward with the capacity additions we have seen from some players and yourselves adding capacity as well, how you see the supply/demand balance over time.

Is there a risk that supply could outstrip demand and we could see a more competitive pricing environment than we've seen already?

Secondly, in looking at Brazil and Colombia, you mentioned that Brazil the second half would be week.

I was wondering if you comment just a bit more, give a bit more detail on the specific projects that are being affected there that could affect your demand.

And Colombia do you see signs that the weakness that you highlighted in the earnings release that affected the first quarter could be released somewhat as you go through the rest of this year?

On the first question, I understand well the question of supply and demand.

Really you know in the past we addressed this by separating the different segments.

I, frankly, think that in the low-end segment of this market, which is very important, there is all around the world, from China to Russia to the rest of the world, a large volume of pipes used in mature fields that has --- on which we have very limited opportunity of differentiation.

In this area there is no doubt excess demand and low capacity utilization on part of -- especially on Chinese producers.

This is something that is also impacting into the US market.

It is a very large market that has a component of this to input.

German and myself in the prepared statement I mentioned the Korean imports, but there are also imports from other sources that comes from this world.

That is a world in which excess capacity is [literal].

Then there is a very differentiated world of premium products for premium connection, complex line pipes, and complex products.

Also in different fields, not only in oil and gas, or directly driven by oil and gas, but also driven by the industrial segment.

Now in this area the rate of growth that we expect in coming years is in the range of 8% per year.

This is substantially higher than the low-end segment.

The low-end segment, part of the reason for excess capacity has been that the growth of this is low-end segment has been substantially lower, in the range of 3% per year.

This is what we expect for the future.

Now in the premium segment, I think there are specific problems in which production capacity is tight and sophisticated (inaudible) capabilities (inaudible).

Probably in 2013 will not be the moment in which we will really feel the pressure on this segment because the gas, drilling for gas in the US will not be, let's say, going at a very high rate.

On the contrary.

Now as soon as the gas drilling pickup in the US, also the demand for premium will increase, and we contributed to a tightness of the equilibrium between demand and supply [at this time].

And this is a we expect.

This is something that I think will come out basically in the medium-term; I'm saying 2014, basically.

At that point, remember there are also other areas in which there will be demand of premium.

It's not only Saudi Arabia, but we can see something more from Venezuela, something more from Argentina, something more from Mexico.

Because, in the end, Mexico, in my view, in the medium-term will substantially step up its level of energy operations.

Mexico today is importing.

The marginal gas is coming from Peru and it is LNG.

It is a high price.

So again there is interest, renewed interest also Mexico for gas production; not only imports from the States.

Deepwater all around the world.

Shale, they are concentrating in the US; could expand out in other markets.

High-pressure, high-temperature field in different parts of the world.

Frankly, I think that the demand/supply in premium with the capability of satisfying the need of the oil company will be tight over medium-term.

We are --- our investment plan are designed to accommodate this.

To be the first mover in some area and to be in a position to satisfy increased demand over time.

Second question is Brazil.

Brazil, there has been a delay in projects, important projects that (inaudible) that we have in our book is in our backlog.

We need to --- we were thinking that, or we think now that this would start in 2014, so we will have the second semester of 2013 in which our sale of line pipe will be particularly low.

On the contrary, the sale of OCTG in Brazil are doing well.

We are introducing -- we have signed an agreement with Petrobras, as we mentioned, for a multiyear agreement that includes premium joints.

We are also including wedge technology to satisfy the need of very demanding offshore wells.

When you mentioned Colombia, Colombia, as you know, we have strong local presence and we are in the middle of a project to increase our heat treatment and finishing capability.

Colombia is a very important country for us, but we expect basically in 2013 the level of the market will remain, more or less, in line with markets in 2012.

Some of the exploration work that is going on in those channels, if it turns out to have positive results, may drive an increase in demand, but also in the medium-term.

We do not expect this increase to happen in 2013.

Okay, thank you very much.

Michael LaMotte, Guggenheim.

Thanks.

Good morning, guys.

Most of my questions have been answered, but, Paolo, maybe you can help me with the balance sheet little bit.

If I look at your capital requirements over the next couple of years with Baytown, there are long-duration investments and yet your balance sheet continues to be more short-term debt as opposed to long-term debt-exposed.

Net debt is now positive cash.

I am wondering two questions.

One, as you go to build out Baytown, would you look out to potentially term out more debt against that facility?

Two, have you given any consideration to using debt as a means of accelerating the dividend?

Thank you.

You're right, we are committed in this moment on an investment plan in many different regions of the world in brownfield projects or greenfield projects, like the Colombian or the expansion of the Saudi Arabia is a substantial intervention also.

So we have an important investment plan, but the new plans in the United States basically, as you rightly mentioned, will also add to our capital expenditures.

But it will be distributed over time.

So we expect our investment level to be in the range of $750 million, $800 million per year in the coming years.

Remember, we think that we can put into operation our Bay City plant in beginning, mid of 2016.

So the investment will be reviewed in 2013, 2014, and 2015.

Our program of investment should stay in this range for the next three years.

Thank you.

Paolo, just following up on the dividend question.

I know you have generally used debt to finance acquisitions.

You now have a lot of dry powder.

Maybe you can talk about use of balance sheet within the options of M&A at this point, as well as using debt to increase the dividend payout potentially?

I think we will have --- as you know this is not -- anyway it depends on shareholder, but I think we will pursue a stable policy of dividend payout over time.

The company is generating substantial amount of cash.

We have a very strong financial position.

We are considering all of our options.

I mean, even the investment in our facility that is needed to keep the pace of competition and to differentiate our production level in industrial systems and our product line is not really changing the substance of cash generation.

You can see this this quarter.

Even considering investments in the range of $180 million a quarter, we are reducing the debt (inaudible) to a positive position.

We are considering options and we will always look for opportunities that could strengthen our differentiation and allow the Company expansion in different directions.

But at the meantime, we are investing in our facility.

Great, thank you.

Stephen Gengaro, Sterne Agee.

Thank you.

Good morning, gentlemen.

Two questions, if you don't mind.

The first is, I think, pretty straightforward.

You talk about the Canadian seasonality and we kind of look back at historical patterns, but can you give us a sense for the magnitude of sort of the Canadian piece of the business?

Thank you, Stephen.

If I understand correctly, you are asking of the extent of seasonal variation of activity in Canada.

Now let me make one comment first before passing to German for further comment on this.

This season -- I think that this season for Canada should have been basically below the level of demand of the last year.

What you see in this quarter is a level -- at least from our point of view, is a level of the market basically in line because the cold weather in Canada has allowed the rigs to continue work in the second part of March.

It is not usual.

Last year it was not the case.

So we will have some higher consumption in this quarter and probably some lower consumption in the second -- in Canada in the second quarter.

But, German, comment on how we proceed the seasonality.

Consider the two different -- the different fields in which the rigs operate.

Thank you, Paolo.

Good morning, Stephen.

I say that that is (inaudible) usual seasonality variances that we have seen.

Even this particular year will see something probably higher than the average of the last two; reason being is exactly that.

The [notion] of March was particularly longer than what it has always been.

Beginning of April as well.

By now we are in the full-fledged of the breakup, so we will see in Canada during the second quarter which is, relatively speaking, lower than it was.

Now we don't disclose specific volume numbers as far as Canada is concerned, even for competitive reasons, but I usually go back to the fundamentals where we are concentrating on our position in the thermal, which continues to be growing segment in Canada, remains very important business area for Tenaris.

I have said in the past, and I will say it again, that we have about 70% and even north of 70% market share on that growing space.

There is also a component of low end where we have an important participation, but somehow it is also exposed, like in the States, to both imports and also low-end domestic production competition, which is (inaudible) effectively by [logics] and price pressures.

But, overall, we remain very confident about Canada.

It's a country where we have production of all seamless and well bed.

We are equipped to service all of the domestic needs, and seasonality aside, we continue to put enormous emphasis and focus.

Okay, thank you.

Then as we look at some of your commentary, specifically in the press release about revenue and margins for the balance of 2013, what are you -- are you looking for -- outside of the Canadian side are there things you are looking for?

What are you focused on to give you a feeling that you are at a positive inflection point from a margin perspective?

I know you are somewhat optimistic about North America coming back as you get towards the end of the year, but are you -- what is it going to take, do you think, to really get that positive inflection point on margins like we've seen in prior cycles that has really not shown up yet?

And is there a structural change in the industry that is creating a large headwind for that not to happen?

Is something different, or is it just a timing issue?

I think that from our point of view that it could be several points that are relevant for our margin and in which probably we can expect in the medium-term some support.

We mentioned for the full market in which we are deeply rooted; this is Mexico on one side, Argentina on the other.

The dynamic of Brazil is also important.

Then there are issues that are relevant for everybody.

It is gas price and gas activity in the US.

This may drive substantial volume of pipes and they -- not only are high end, but it's high end and low end.

This could make a difference.

There are infrastructure limitations today.

They are very relevant for the level of demand in Canada and the US.

I think that gradually infrastructural program issue will be sold and the price, the net price that the producers are seeing in Canada and the US will gradually increase.

This is a factor that could cause clear inflection.

Some reduction in put and the size is also something that would be important.

Then there is the question of price of oil worldwide.

Today some concern about the rate of growth in China, the level of price of commodities worldwide, and economic growth and recovery in the US.

All of this are creating some uncertainty in what we can expect from the price of oil on the medium-term.

This is a factor.

The moment in which we perceive a clear turn for a more solid recovery in any or all of this environment I think there will be participation of some of the projects all around the world.

This is from Middle East to South, Sub-Saharan Africa to Far East.

And this is a driver of pure, complex product that could also immediately drive demand for differentiated products.

By the way, the level of margin that we have today, which is between 26%, 27%, we are moving in this range, is very high margin within the industry.

We can also --- we are continuously working on the cost side of this, and I think that there are things that remain gradually get through on the margin side.

But, basically, these are, let's say, the drivers that potentially could have an influence on our medium-term dynamics for margin.

Thank you.

And just one quick one.

We do appreciate your relative performance in the industry.

The one quick one; did you mentioned --- I may have missed the premium mix in the quarter of seamless.

Sorry, could you say again?

Did you mention the percentage of seamless that was premium in the quarter?

Usually you say that.

I didn't catch it in the prepared comments.

No, we mentioned the high-end percentage.

There is going up in the range of 58%, particularly in this quarter.

This has been a quarter with a relatively high high-end.

Remember, we mentioned the last conference call that this participation of high-end products will increase during 2013 and this is what we have.

Now from the point of view of our margin, we are also saying that increased pressure on less differentiated products to some extent driving the margin on the other side.

And that is what we see and the reason why we expect a stable forecast for our margins in 2013.

Great, thank you very much.

Geoffroy Stern, Cheuvreux.

Yes, good morning.

Geoffroy Stern, Cheuvreux.

I have a couple of questions please.

The first one relates on seamless volumes.

I was wondering if you could give us some indication in terms of what kind of trends do you expect for the seamless volumes going forward.

Especially when we look over the past two years at your seamless volumes we are seeing any, let's say, significant change or significant increase despite the ramp-up of your new mill in Mexico.

So any indication on this would be helpful.

My second question is on the OCTG in the US.

Could you update us on the potential filing of a non-anti-dumping case against South Korean importers?

Yes, let me start with the second question because I'm not sure I got straight on the first one.

But let's first answer the first question and then I will ask you to repeat a moment your first point.

German?

Good morning.

From a strength perspective, we, as I indicated, are working with the rest of the industry.

We are naturally looking at Korea; not only Korea, other imports as well.

We believe that we might come to a final conclusion the coming months.

And, frankly, there's not much more I can tell you at this point because, as you know, this is a process that is managed industry-wide, where we naturally have very active participation but we are only an important player to the table.

Yes.

Could I ask you to repeat again the first point (multiple speakers)?

Yes, my question was on seamless volumes.

I was wondering if you could help us, let's say, assessing what could be the trend for seamless volumes in the upcoming quarters.

Having in mind or so that over the past two years, when we look at your quarterly numbers for seamless volumes we've not seen any, let's say, material increase despite the progressive ramp-up of your new seamless pipe mill in Mexico.

So I was looking for information on this.

Yes, thank you for the question.

We -- I think we are facing substantially a stable market in which we can sell our seamless product today.

For the reason I mentioned before, the situation we have in some of Latin America and Venezuela, and so today we are not using full capacity from our mill.

But we are taking full advantage of our mill in Mexico to improve the mix of production facility operating in our system.

So in this moment I would say the [mill] is running very well, is operating very well.

It's not going at full capacity, but it is giving a substantial contribution to (inaudible) that is more, let's say, supporting our production system in terms of efficiency and cost more than in absolute volume.

As I mentioned, we perceive that demand and supply in the net differentiated segment of the market is showing today excess capacity in different parts of the world.

This could change and should change gradually during 2013, but probably in the medium-term, more on 2014.

Just a follow-up on this, is it --- because basically your guidance for this year has been somewhat revised downward compared to two months ago, would you stress that the main reasons behind this is the, let's say, deterioration for the less differentiated segments.

Is that correct?

I'm sorry for the --- I didn't catch very well your question.

Could you repeat it?

Noise on the line.

Yes, sorry, I was just asking about the downward revision to your guidance.

Compared to two months ago, what is the main reason behind this?

Is it reason, let's say, by further deterioration in the less differentiated segment or was it something else?

Well, maybe, German, this is something that you can comment on.

I think -- sure, Paolo, thanks.

I think [more diverse] is the notion of precisely that this differentiated space has been under pressure.

This is particularly true in North America.

And probably back to North America, we are expecting and we continue to expect some increase in level of activity towards the end of the year.

The trade I mentioned also will be a major contributor and it's all affecting precisely the less differentiated space.

And back a bit to the rest of the market, I think some of the factors that Paolo mentioned in terms of what may trigger a change I would also (inaudible).

There is no doubt about it.

Hopefully, that answers the question.

Basically, with the level of rigs and the activity, drilling activity in the US is a very important factor for worldwide demand.

The US is so important that this is a factor.

And the fact that drilling rigs and drilling for gas are today at a record low level is for sure impacting also on the less differentiated segment.

Okay, thank you very much for this.

Julien Laurent, Natixis.

Good morning.

I was wondering if you've seen some change in the North American market.

With demand going more towards low end of semi-premium product, if you are confident regarding what will be the state of the market four years from now.

Given that you will commission your new plants, how comfortable can you be regarding the demand four years from now in North America?

Should it be driven more towards low-end?

Thank you.

Thank you, Julien, for your question.

Frankly, we are very positive on the medium-term demand.

We perceive that the gas price in North America and the energy independence which the US could deliver could reach in a relatively short period of time, a few years, is an extraordinary strong driver for increasing consumption of gas.

And these offsetting conditions for relevant increase in the coming years.

We expect the shale gas and oil to pick up strongly over time, in the sense that we are absolutely convinced that the decision to invest in the new facility for seamless pipe in Texas is fully justified by the dynamic we expect from the market.

So the US this is an extraordinary opportunity to bring back some of the manufacturing activity into the US, and this is what we see today.

Not only substitution of coal with gas for power production, but also in data activity.

For instance, you have seen a new plant for DRI production in --- for Nucor in Louisiana, for (inaudible) in Texas, and in (inaudible) an example of industrial activities that are coming back to the States taking advantage of strong gas price differential over time.

There will be also exports, I imagine, over time and all of this will create environment for increase in drilling activity in demand.

Infrastructural constraints will be sold, in my view, over time, not immediately, and this all is positive over time.

The 2013, from my point of view, is the transition year in which the economy of the world is also affecting perspective.

But it's just this transition here on a trend that is an upward trend.

Thank you, Paolo.

I get your point regarding volumes, but is there any way to keep the edge on differentiation in the coming years?

Sorry, could you say again?

Is there a way to keep the edge on differentiation regarding your mix in the coming years if the clients are looking for more standardized volumes?

No.

As I mentioned before, I think the rate of growth in the differentiated area is much higher than the rate of growth in less differentiated area.

I think this is true as a general trend.

Not probably, at least less so, in 2013 in the points, especially in the States.

But this is a clear trend on the medium-term.

So this is the key for product differentiation.

Also, in my view, technology is changing; in shales, in deepwater requirements are changing.

So there is a huge space for design and development of new products that will fill the growing and different needs of the oil company.

On these grounds, we mentioned the Dopeless; we mentioned the new products like the 623 Dopeless that we are now selling to Shell for the Mars B. In this sense there is room and we are, I think, getting very good response from our client.

Remember, in this month we assigned for instance --- well, we got awarded a multiyear contract with Conoco, multiyear contract with Noble, agreement for North America and Canada operations with Shell.

So we perceive interest and drive on the differentiated area segment of the market and we are ready to accompany and guide this.

Thank you, thank you.

Amy Wong, UBS.

Hello.

My question relates to your outlook on Brazil and saying that there has been some delay to the project execution.

Can you just elaborate whether that was delays on your end or have you been --- have your customers been delaying their orders to you?

Yes, well, you are saying if the -- which are the reason of the delay?

Yes, the reason for the delay for the line pipe.

This is -- I think there our delays in definition on some of the projects, we see this in the realization of the refineries but also in the exploration and production.

And this is not only initial for Petrobras.

It's initial also for some of the other players that are operating in the space.

For instance, in the case of the [Rota Cabriona] this is a project that is really neat that it is needed to bring gas to the coast and to allow for drilling for oil with associated gas.

If needed, we do.

But probably we will be producing and selling this only in the beginning of 2014.

One year ago we were thinking that this project could have been the delivered in the second half of 2013.

These are the kind of delays that are impacting on us as a supplier.

I would say the infrastructure, the investment in infrastructure in different parts of the energy system is going on as targets are not changing.

But the pace of realizing this is lower today than we thought maybe one or two years ago.

Just a quick follow-up on the margin profile for the year.

You are saying that it's expected to remain close to the current levels.

What kind of reasons and will we see any kind of the volatility behind the margin when we see --- expect to see through the remainder of this year?

Sorry, Amy, could you repeat again?

We had noise through the line.

Could you repeat it over?

Sure, the question is on your margin for the remainder of this year.

What are the factors that are going to be affecting that margin from a quarter-to-quarter basis and what kind of profile will we be expecting for the next three or four quarters?

Well, as we said in our press release, I think 2013 we expect our value to be more and less in line with what we have today.

Possibly the next quarter could be a little stronger, because in the end our third quarter always has our top producer plants in Europe.

Like in the first quarter we had stoppages in Siderca and in Argentina is the Southern Hemisphere.

These stoppages have an influence, because in the end we had a (inaudible) so we may lose something that we have in our cost because of this.

Second quarter traditionally is a strong quarter.

Probably in the third we will feel the impact of stoppages in the European mill.

But all in all, we expect to be able to maintain stable margin over 2013.

All right, that's very clear.

Thank you.

Thank you.

I would now like to turn the call over to Giovanni for closing remarks.

Thank you, Andrew, and thank you, all of you, for participating to our first-quarter 2013 conference call.

Goodbye.

Thank you very much.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.