Tenaris SA (TS) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2013 Tenaris S.A. earnings conference call.

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

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

(Operator Instructions).

As a reminder, this call is being recorded for replay purposes.

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

Please go ahead.

Thank you, Leeann, and welcome to Tenaris 2013 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 during the call.

Factors that could affect those results include those mentioned in the Company's 20-F and other documents filed with the SEC.

With me on the call today are Paolo Rocca, our Chairman and CEO; Guillermo Vogel, Vice President of Finance and member of our Board of Directors; Edgardo Carlos, our Chief Financial Officer; German Cura, the Managing Director of our North American operation; and Gabriel Podskubka, our Managing Director of our Eastern Hemisphere operations.

I would like to start by mentioning that we will host an investor presentation in London on October 4th.

And we would like -- we will look forward to see many of you there.

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

During the second quarter of 2013, sales increased 1% to $2.8 billion compared to the second quarter of last year and 6% sequentially.

The sequential increase was driven by higher sales of premium OCTG products in the Middle East and Far East, which offset a strong seasonal effect in Canada and lower sales of line pipe products in Europe.

Our EBITDA reached $730 million, which was 4% lower than the corresponding quarter of last year but 4% higher sequentially.

Our EBITDA margin of 26% continues to maintain a good level but was impacted by higher SG&A expenses, mainly due to higher freight and commission expenses driven by the lower share of shipments to our local markets.

Average selling prices were up 4% compared to the corresponding quarter of last year and 3% sequentially, supported by a good product mix.

During the quarter, cash flow from operations remained strong at $611 million, and we ended the quarter with a net cash position of $214 million after the payment of $354 million in dividends paid in May.

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

Thank you, Giovanni.

Good morning to all of you.

Our second quarter results reflected the different market dynamics that we are facing around the world.

While sales in the Eastern Hemisphere regions rose strongly, this was largely offset by a decline in sales in North America, where our sales were affected by an unusually wet spring in Canada and the halting by PEMEX of operations in Northern Mexico.

Our sales in the Middle East and Africa reached a quarterly record of $626 million.

Sequentially, we increased shipments not only to Saudi Arabia but also to Iraq, to the Emirates, and Nigeria.

Nigeria, we also had a good contribution from our local pipe coating subsidiary, which provides insulation and other coating for line pipe products.

In the Far East, we increased shipment to Australia and Indonesia.

It was a good quarter in term of product mix.

Sales of premium connection rose 9% sequentially and in the first half are up 17% over the same period of last year.

We have been expanding our portfolio of products to meet new operator requirements for the most complex deepwater and HP/HT operations.

On our last call, we mentioned our new integral Wedge 623 connection.

This connection has successfully passed a series of testing requirements set for it for the Mars B Shell project in the Gulf of Mexico.

Now, we are introducing a new premium connection specially designed for complex high-pressure, high-temperature applications.

Our Blue Max connection has been selected by Maersk Oil for its forthcoming HP/HT offshore well drilling campaign in Norway.

And in July, our BlueDock connector was successfully run in a rig trial by Petrobras in Brazil.

Sales of our Dopeless connections also reached a quarterly high and we are seeing considerable interest from customers in the Angolan pre-salt and throughout sub-Saharan Africa.

The differentiation we are building in our premium connection product portfolio will help to sustain our competitive position in the medium term.

At the same time, we continue to strengthen our relations with key customers.

During the quarter, we successfully renewed global long-term agreements with ENI and ConocoPhillips.

In the United States, we are advancing with the project for our new seamless rolling mill in Bay City.

In July, we received the necessary environmental permits to advance with earthworks and construction activity.

I will now turn to the outlook for the rest of the year.

We expect to maintain our margins over the semester at the current level.

In the third quarter, however, in addition to the usual seasonal effects, including plant stoppages and slower European sales, our sales and margins will be affected by line pipe project delays in Brazil and a less favorable product mix.

In the fourth quarter, we expect to see strong sales and margins with a high level of sales in Eastern Hemisphere regions, a pickup in sales in North America, and a more favorable product mix.

As we said in the last call, 2013 is for us a transition year in an environment where we see good opportunities for medium-term growth in many regions and many segments where we are well positioned.

I will open now the call for your questions.

Thank you.

(Operator Instructions).

And your first question comes from Ole Slorer from Morgan Stanley.

Please go ahead.

Well, thank you very much.

And congratulations with pretty good execution here at what looks to be close to a trough of the cycle.

My question is, as we look towards the fourth quarter, you highlighted a recovery in North America.

I would agree with that, based on the latest well efficiency versus rig count data.

But, the recovery in North America, I wouldn't think would be driven by premium, yet you are suggesting that the mix will improve as we go into the fourth quarter, despite a pickup in North America.

Could you help us kind of explain the forces that contribute to that?

Thank you, Ole, for your appreciation and for the question.

I will leave German to give you a view on how we expect the North American market to pick up.

But, as a general comment, let me tell you that we expect the mix to improve for the entire operation of Tenaris.

We see that the most dynamic segment in the Eastern Hemisphere and worldwide are basically requiring premium connections for different operations.

North American specifically I would think would remain more balanced.

But, anyway, German, please comment on this.

Thank you, Paolo.

Good morning, Ole.

And I think I would agree, Ole.

The view we have is that demand in North America has and will remain healthy.

The issue in North America, volumes in North America that we see are under pressure and low more associated to the level of imports.

And this is particularly true for the lower end component of the demand.

Now, the inefficiencies, in particular the notion of WTI closing the gap to Brent, is somehow bringing an additional cash flow that most of the customers intend to translate on potential increased level of activity.

But, from a mix perspective, I think North America will remain balanced, a mix that is by and large aiming at oil.

Yes, so, therefore, I think it's interesting that you highlight that despite -- I mean, Canada, too, right, will see a very strong recovery in the second half of the year.

And again, that's not exactly the most high premium, given it's onshore.

But, yet, you mention that the entire corporation will see an overall swing towards premium despite this strong recovery in North America land, which isn't exactly the highest end.

And also, if you assume that something comes out of the trade case and that we reduce the import of welded pipe, you still think that you can increase the mix for the corporation as a whole towards more premium in the fourth quarter?

I mean, that suggests a very strong ramp in the other parts of the world.

And I'm just trying to understand how that plays out.

We effectively expect the premium demand on a worldwide level to give the push that we are mentioning in our statement.

Let me tell you, on premium, the Eastern Hemisphere projects for HP/HT, for deep offshore, for some shale in complex environment is driving increased demand in premium.

And in this environment, I think that the prevailing trend will be set by this increased demand in premium in the Eastern Hemisphere.

I think this will be the driver of the activity.

And in some moment, we will also see some recover pricing power in premium during next year.

Well, thank you very much.

That suggests a strong close to the year.

Thanks for that.

Thank you.

And your next question comes from Bill Sanchez from Howard Weil.

Please go ahead.

Thanks.

German, I guess as a follow up for you on North America, specifically I guess the second half guidance, but I wanted to just talk about the third quarter, I guess I'm a bit surprised, given that you do expect to see Canada snapping back in 3Q relative to 2Q that we wouldn't still be expecting to see sales perhaps up in 3Q relative to 2Q.

It sounds like the press release is saying 3Q should be flat with 2Q.

I'm just wondering if US continued to improve a bit, is Mexico creating still a headwind for you guys?

I know the Northern region slowdown was called out in the press release.

But, my understanding is the south is going very well for Tenaris.

It's very high-margin work for the Company.

Could you just talk a little bit about the progression 2Q to 3Q in North America sales?

Yes.

Thank you.

I will ask German to deal with this.

And then maybe I get back for some comment on the third Q.

Sure.

Thank you, Bill.

Good morning.

Well, very generically, Bill, I think starting with Canada, I think we'll see a 3Q that would be naturally a little higher.

We're coming out of a 2Q which has been particularly slow, particularly wet, level of activity in the area of about 20% less comparing Q2 to Q2 last year.

Now, the States, as I said already, the level of demand continues to be healthy and even probably more than that.

We don't really believe that we have a demand issue in the States.

And I tell you the view we have is that the notion of, as I said, WTI improving levels would only contribute to that level of demand.

The point, though, is that we continue to have levels of imports at levels of about 50%.

We continue to see some pricing pressure in the low end, Pipe logix just came down 0.7% only days ago.

And -- but, we don't believe that will change anytime soon.

Now, as for Mexico and the situation in Mexico, probably Paolo, I'll turn it back to you for comment there.

Yes, well, first, a brief comment on the impact on the third quarter in general for the Company.

We're mentioning in our statement that we will have a particularly weak third Q. This is basically driven by the combination of stoppages in our mills that is beyond what we usually do in the summer in the Northern Hemisphere.

This year, we will have stoppages from Dalmine to Mexico to Canada to Japan to Romania for maintenance.

I mean, nothing extraordinary, but there will be a concentration of stoppages in seamless especially.

And second, we will have weakness, clear almost stoppage of shipments of line pipe projects in Brazil.

This is something temporary.

We will be shipping important products to Rota 3 in -- hopefully in the -- during the beginning of 2014.

But, for this semester, July to December will have a particularly low level of shipments in line pipe.

And the third effect, in Argentina, we are in the process of signing a long-term agreement with YPF.

In this agreement, we will deliver just in time for the wells in Argentina and will pick up the stock of YPF.

This will imply that the apparent demand for us will be reduced, particularly in the third quarter and maybe to some extent also in the fourth quarter.

It's also temporary thing in the context of a very good level or increasing level of activity in the region.

In Mexico, I will ask Guillermo to give us a view how we see the evolution of demand in the region, in the country.

Yes, thank you, Paolo, and good morning, Bill.

Yes, Mexico, as was mentioned by Paolo and as we mentioned in the last conference call, we experienced a reduction in almost the whole in the northern region.

When you see our shipments to PEMEX second quarter versus the first quarter, we lost like 10% of the volume.

And we see this more or less at this level that we experienced in the second quarter to stay the same in the third quarter.

We -- the whole Northern region were offset partially by more activity in the Southern region and the sea region.

And then we see -- we're going to experience an increase again in the fourth quarter.

We think that the Northern regions, we're going to start to see more activity when we go deeper into the third quarter and then again a little bit increase in the fourth quarter.

And what we expect in Mexico, as we mentioned also last conference call, is that probably next week, we're going to have the presentation of the energy reform by the President to Congress.

So, we're going to have much more color and much more light by the end -- within the next two weeks on how the reform is coming.

I think the reform is going to come and is going to be good news for us.

We won't see any immediate effect.

We think we're going to start to see an effect on that on the activity by the fourth quarter of next year as the -- of -- and we're going to see the full effect in 2015.

But, so, we see a partial increase and more dynamic in the fourth quarter.

And from there on, we're going to start to see a gradual increase in PEMEX.

Thank you.

Yes, thank you for that.

If I could ask one follow up, just on the housekeeping side, perhaps just around the G&A and also tax rate here, so think about the second half of the year, because when I look at the gross margin performance, it was actually pretty commendable in 2Q, yet we saw a big spike in the percentage of G&A based on revenues here.

Can you give us a sense on that and tax rate here for the back half of the year, please?

Yes, Edgardo, could you expand on SG&A and on tax -- ?

-- Sure -- .

-- Rates for the period?

Good morning, Bill.

Good morning, everybody.

During this quarter, basically, we reflected an increase in logistic cost very much associated to our sales in Middle East and Asia and to some extent, the impact of delay in payments that we have in our business in Venezuela.

Looking forward, as a percentage of sales, we will see some deterioration probably of this ratio in the third quarter as the fixed component basically will remain unchanged in a lower invoicing.

However, in 2013, we would expect to have basically in the range of 18.5%.

Coming to the tax rate, we would expect to finish probably this year in the range of 25%.

Thank you, Edgardo.

And continue.

Thank you for the time.

I'll turn it back.

Thank you.

Thank you.

Your next question comes from Guggenheim Securities.

Please go ahead.

Thanks and good morning.

This is actually Wilson Waggoner filling in for Michael today.

Just had a couple questions I guess kind of following up on the accounting side.

The depreciation cost jumped after being flat for about three quarters in a row.

Just wondering, is $152 million the new baseline, or what's kind of the cause of that increase?

I just -- I don't think of 2013 as a year in which fixed capital is coming online.

So, if you could just expand on that a little bit.

Yes, Edgardo, could you comment on this?

Sure.

Yes, we had some increase due to the fact that we had the CapEx coming into our financials in this quarter.

So, we are expecting for the rest of the year basically in line with this second quarter, so in the range of $400 million in total for the year for depreciation of fixed assets.

Okay.

Thanks.

That's helpful.

Just one more.

Hot rolled coil prices, which we use as a proxy for modeling your steel cost, been following since May, but it spiked back up to the December level kind of over the last couple months.

Which quarter do you think this is going to reflect in your P&L?

Where are we going to see your lowest realized steel costs?

And just if you can speak a little bit about that kind of going forward.

Well, I think in general terms we saw a reduction in the price of hot rolled coils and then in last months some pickup, particularly in North America.

But, we will see the reduction in hot rolled coils to be reflected to some extent in the third quarter in our accounting.

Maybe, Edgardo, you can expand on this.

Sure.

Basically, the reduction in the cost of coils that we purchased in the first quarter of this year has been fully reflected in the third quarter, while the pickup of the last increase in June will be reflected primarily in the fourth quarter.

Okay.

Great.

So, about a six-month lag there.

Great.

That's all from me.

I'll turn it back now.

Thank you.

Thank you.

And your next question comes from Stephen Gengaro from Sterne Agee.

Please go ahead.

Good morning.

Good afternoon.

A question on this pending trade case, as you sort of think about history these OCTG trade cases have generally come out pretty positively.

And while we don't have the details, like when -- before you acquired Maverick, for example, the -- to my understanding is part of the issue behind getting these things approved is to prove some type of injury or harm to the North American producers.

So, how are you thinking about this trade case and the potential outcomes and then ultimately the potential impact on you if it comes out favorably?

German?

Good morning, Stephen.

Well, let me first very briefly, Stephen, talk about the process and the injury aspect of it.

The case was filed July the 2nd.

We had a preliminary hearing July the 23rd at the International Trade Commission in Washington, when we fundamentally explained the argument as industry.

We had a direct and active participation in it.

We're expecting a preliminary determination by August the 16th, where fundamentally the ITC would determine whether the bases are there for the case to proceed or not.

Now, from an injury perspective, I'll go back to what I said before.

We continue to see the demand at healthy levels, demand through driven efficiency increase, despite a very -- a fairly stable rig count, level of imports which have reached 50%.

Korea in particular, just so you know, has brought to the States about 420,000 tons in the first six months.

Korea during 2012 brought about 1 million tons.

When we did the case back then, based on your comment, their participation in the market was about 200,000 tons.

And this is naturally translated on a variety of different things, but among many, despite the healthy demand situation, Pipe Logix coming down 11% over the course of the last 12 months.

Now, the case proceeds so on.

I wouldn't really, Stephen, speculate on the result.

We I think need to conduct a process, all going well as we all know, is something where we don't expect any result at least until March next year.

And I think, at this point, I wouldn't really speculate on what the final outcome would be.

Hopefully, that answers your question.

No, that's helpful.

And the other part of the question would be -- and maybe you could help us understand this a little bit more -- to the extent the case is won and imports drop off, is there any concern that those imports find another home and disrupt your business somewhere else, or are they of the quality level which is too low to have an impact in other markets?

Well, German, on this?

Well, given the nature, Stephen, of the welded OCTG production, we believe this may touch very few markets other than the States.

The States continues to be the single biggest low demanding pipe applications market in the world.

And this is by and large what the Koreans and the Vietnamese and the others are producing.

So, short answer, the view is that they will have serious difficulties to reallocate the volumes that we've seen in the States in the international market, given the nature of what they produce.

Yes, I would summarize by saying that we have I think a very strong case on injury if you look at the level of operation and profitability of the industry operating in the US in the same segment.

As far as the -- let's say the transfer, the movement, repositioning of these exports, there is no other market like the United States in which you have a strong rate of distribution and the size of the demand for low end is higher than in any other market.

So, there is a limited scope for expansion.

Also, as we say the past, in this segment, worldwide, there is overcapacity.

There is overcapacity in low end because of the excess capacity in China and in other countries in this low-end segment.

So, there will be, let's say, even more excess capacity and aggressiveness in this segment worldwide.

Great.

No, that's very helpful color.

Thank you.

Thank you.

Thank you.

And your next question comes from Raphael Veverka from Exane.

Please go ahead.

Yes, good morning and good afternoon.

Thank you for taking my questions.

I had two questions in fact, first one on North America.

So, with the market stabilizing, are you confident that prices are bottomed out, even in low-end products, or could we expect a little bit more pressure by year end?

And my second question is on the Middle East, where once again, your sales have been especially strong.

And you mentioned further improvement in the quarter.

In your view, is there a strong restocking component in this sort of trend, especially at Aramco?

And do you see a potential slowdown by maybe early next year, or you see that (inaudible) supported by real demand?

Thank you.

Thank you.

And I will ask German on -- give additional light on how we perceive the pricing environment in the different segments.

And then, Raphael, we can -- I will ask to expand on the situation in the Middle East and Saudi stocks.

Thank you, Paolo.

Good morning, Raphael.

I think the low-end component in North America and the States in particular, I would say that I don't think we've seen the end of it.

We've seen Pipe Logix only a couple of days ago with minus 0.7%.

So, I don't believe that we're going to see major reductions going forward.

But, month after month after month for so many at this point, we've seen this minus 0.5%, minus 0.3%, minus 0.7%.

And I sense that this may continue to be so.

Now, the position at the high end, though, I think it's quite different.

We've seen renewal requirements of high-end items for both the shales and the Gulf of Mexico, for instance, where we've seen pricing dynamics behaving in a much different way.

Gabriel.

Yes, thank you, German.

Good morning, Raphael.

To answer the question on Saudi dynamics and stocks, we believe that the level of tendering that we're seeing from Aramco is driven by an increased demand.

The rigs are -- been increasing and will continue to increase.

Aramco started this year with 140 rigs.

And we are confident they will reach the 170 rigs that they are planning to have by the end of this year.

This is driven mainly by the Kingdom efforts to offset oilfield decline, depletion that is in the rate of 8%.

And in addition to this, there is an increase in domestic gas demand in the rate of 7%.

That is also driving part of this increase.

The delta of rigs that we are seeing is targeted also part in the offshore and part in the gas, which is also playing to our benefit since it will signify more demanding applications.

So, this is in a nutshell.

There is a true increase of demand.

Logically, there is also an adjustment of the stock levels to the new increased stock of demand.

But, this is what we see today.

Okay.

That's very helpful.

Thank you very much.

Thank you.

Thank you.

Your next question comes from Paula Kovarsky from Itau BBA.

Please go ahead.

Hi, guys.

Good morning.

I'd like to ask a bit of a perhaps a longer-term question, thinking about '14, '15, and the supply-demand equation in North America for OCTG and for seamless in particular.

What we see is that there's another 3 million tons of OCTG capacity coming on stream within the next three to four years.

And some of the capacity that came on stream this year would be already enough to replace part of the reduction in imports.

So, I would like to hear from you, what's the view on this supply-demand which apparent -- I mean, it looks a bit loose.

And how do you see that affecting prices going forward?

And perhaps you could also place the impact of a success -- a more successful reform in the -- in Mexico.

How would that affect the dynamics in your view?

Well, I think that, clearly, it's difficult to have, let's say, a clear view on the scenario for the energy development in the United States in the long run.

But, there is effect.

Gas price and gas resources in the US are a structural issue for all of the US economy and US industrial development.

So, there is a competitive advantage that is there to stay for very long period of time.

We see projects that could increase the demand for gas in North America in the medium term.

And if you consider an increase in drilling for gas combined with the increased drilling for oil and shales, you may have different scenario that could imply substantial increase in volume and demand in the States in the long run.

Imports to be reduced also and contribute to the demand in the region.

On the capacity side, I think your figures are very high.

One consideration is in that the plants do not run purposely to their maximum capacity, or they may not even reach maximum capacity.

It's very marginal cost, and the (inaudible) is very high.

So, capacity will be used within a rational level, not at the full level.

Second, there is capacity for high-quality pipes and also for differentiated product.

And there is capacity for low-end product.

The market in that condition in the medium run will be segmented in a different way.

There will be different segments.

We cannot have one statement covering all in this product.

I think, when I look ahead, I'm very confident on Canada and US and also Mexico in the long run in term of additional activity in the oil and gas.

There will be some exports from Canada.

There will be some exports of gas from the US basically combined with increase of demand.

So, in the long run, I'm very confident on the need and the opportunity that the energy sector will offer in the States.

In Mexico, it will depend from the terms of the energy reform.

But, maybe, Guillermo, if you look at medium term or long term, how you see the evolution of the energy sector in Mexico?

Yes, Paolo.

When you see what has happened up to now, what you see is that PEMEX has been captive in terms of how much they can invest because of the fiscal requirements that the country imposes on the entity.

And when you see that there are specific segments, high-potential segments that have been unattended because of this lack of resources, and you have three examples which are very clear.

You have deep waters, where deep waters last year, there were only six wells drilled.

And this year, there is the expectation of another six wells.

You have the shales with very similar dynamics.

And you have Chicontepec, where even this -- this quarter, we had lower production than last quarter.

So, these three big segments are within the reform.

My expectation is that, one way or the other, they're going to be open for drilling.

There probably is going to have a big -- there's going to be a transition where the country's going to continue to require this, as you know, the fiscal -- the income coming from PEMEX.

But, there's going to be the opening of these three segments for foreign investment or foreign participation or private participation.

And so, what I see is that I see an increase in the drilling activity for, as I mentioned before, probably we're going to see up to fourth quarter next year, 2015.

But, I see that these three segments are going to be active.

And that's going to be good for our business in Mexico and the northern region.

Would you agree that this all depends on the private investments, meaning, I mean, I think it's kind of common understanding that the fiscal reform will not be enough to provide money to PEMEX.

Perhaps most of the money goes into -- goes more into investments and infrastructure.

So, would you agree with that?

I mean, is it something that really relies on private investments flowing into Mexico?

Yes, I think that the fiscal revenue that is obtained from PEMEX are going to be maintained on a -- probably on a transition period, maybe 10 years.

In terms of maintaining PEMEX, its actual activities, and that all these three segments that I was mentioning before, in order to be active, they're going to for sure require foreign or private participation.

And I think that's the whole aim of the reform that is going to take one way or the other.

I see an aggressive reform.

I think we're going to see some constitutional changes.

And then -- and so, I think that we're going to start to see that.

And that has to be the end result of the reform that is going to be proposed hopefully next week.

Okay.

Thank you.

And quickly about Brazil, when do you expect Petrobras to resume the orders on line pipes?

We expect to start shipping pipe again in the first quarter of 2014 for big projects, for Rota 3. And then we think that the development of offshore will be recovering the normal pace.

In this moment, we have a good activity in the drilling OCTG but delays in projects.

Okay.

Thank you.

Thank you.

Your next question comes from Geoffroy Stern from Kepler Cheuvreux.

Please go ahead.

Hi, good afternoon.

Geoffroy Stern from Kepler Cheureux.

I have several questions.

First of all, I would like to come back on the trade case in the US.

If I understood you correctly early on in the call, you said that you were not expecting any major implication before March next year.

But, if I'm not mistaken, the case was filed on July the 2nd.

So, if by mid-August the ITC decides to go on in this case, why should we not see a drastic fall in the imports fairly quickly and in turn potentially a pickup in prices?

That's my first question.

Yes, German, could you summarize the timing of the -- of this?

Sure, Paolo.

Thank you.

Well, good morning, Geoffroy.

Probably, I wasn't clear, Geoffroy.

I apologize for that.

But, what I tried to say was that, whatever the end result, the case would not be formally completed as a process until March.

Now, the preliminary determination would come August.

And as we know, the cases have pre-established times for both the DOC and the ITC to conduct their investigation and process.

Now, I also said -- and we don't really want to speculate at this point as to what the result may be and the potential implications of the result.

And I think we would like to leave it at that point today.

Okay.

And the second question with regard to your volume for the coming two quarters, could you be a bit more specific for Q3, Q4?

Basically, do you expect overall your volumes, your 2Q volumes in H2 to be comparable to H1?

As we said in the opening remarks, we expect the semester, the next semester to -- we expect to maintain our margin in line with what we have and basically on the present or the present level.

But, there will be an imbalance in the third Q for the reason that I mentioned, additional stoppages and Brazil, some stock reduction in Argentina, some lower shipments.

We'll be well below what is normal and customary for our seasonal seasonality.

But, we think we will recover in the fourth quarter.

But, you're not sure yet (inaudible) to quantify the potential dip in Q3 in terms of volumes?

For the semester, the -- as I mentioned, we plan to be otherwise on line.

Now, I wouldn't give the precise figure.

Really, there's some of this factor and shipments could vary between now and the end of the third quarter.

Okay.

And just a final one, if I may.

Looking at your backlog with the recent award and so on, when you look at the average price mix, so obviously outside of the US, what can you -- I mean, what did you see compared to what you, let's say, delivered in Q2?

Do you see, especially when you look at the deliveries for, let's say, Q4 and Q1 next year, do you see an improvement versus Q2 on average, or do you see something a bit more flattish?

We see -- as we mentioned, we see strong demand inquiries negotiation for differentiated product, line pipeline in different areas, from the deep water, West Africa, Gulf of Mexico, and Northern Europe.

I mean, there are segments in which we are -- we have a very strong position, a very dynamic.

Deep water is one of these.

High-pressure, high-temperature project, very demanding, out online, complex line pipe offshore are -- we have -- we are discussing and specifying technically some of this.

So, we feel that, on the high end, there is a strong backlog.

I would say that the industry is managing projects with a scenario in which the price of oil will stay in the range between 100, 110 worldwide and especially at this level also the WTI.

So, this is also driving more cash flow and more movement in some of the complex projects in North America.

So, when we look at this segment, the dynamics, backlog for 2014, in the high end, where we consider, let's say, a very solid situation.

All right.

Thank you very much.

Thank you.

And your next question comes from Santiago Wesenack from Raymond James.

Please go ahead.

Thanks, and good morning and for taking my question.

Well, in fact, it has already been answered.

So, I'm sorry.

Thank you, Santiago.

Next?

Thank you.

The next question comes from Caio Carvalhal from J.P. Morgan.

Please go ahead.

Hi, good morning.

Yes, also, my questions have been already partially addressed.

So, I think some very specific data points that I want to check with you.

One of -- the first one is on volumes.

We saw a sharp decrease in volumes in North America.

Reasons were pretty well explained over the call and over the release.

I just wanted to know, when we look to the third quarter and the fourth quarter, if we should look volumes close to the level we are in the second quarter, means below, let's say -- well, basically, with overall sales below $1 billion.

And so, one question is level of sales in North America in the second -- in the third quarter compared to the second quarter.

And also, slightly connected to that, it's related to the trading case you have against the Asian importers.

When we had the similar situation with the Chinese a couple of years ago, before we had the conclusion, we saw a certain increase in prices just on the back of the expectation that -- I mean, that the result could be favorable for the pledgers.

So, I was expecting basically to see prices a little better in the third Q. And what I want to check with you guys is that, does something change so we are likely to see prices still pressured at third Q so this situation is not going to happen now, or no, actually, prices is likely to look a little better in third Q already?

These are my -- basically, there's just two questions I have.

On the first question on volume in North America, how you see the next two quarter, German?

I think it is a correct observation.

We will see the Canada effect particularly improving on Q2, which was particularly low.

Therefore, it is likely, Caio, that we're going to be probably seeing overall volumes either more equal to Q2 -- sorry Q1 than not.

These, of course, are all moving parts, both in the States.

Guillermo comment on Mexico as well.

But, the Canada reduction during Q2 has been substantial.

And we'll see an important recovery from that perspective.

Now, on the trade case and the potential implications, I would cautious you the notion that, while we filed the case in July, number one, inventories remain at a very high level.

I said that, during the first semester, we've seen only of Korean imports in the level of about or north of 400,000 metric tonnes.

And then also, we're looking not only at the existences on the ground, but the import licenses.

And import licenses are also fairly big.

So, we don't really see any major movement and in the short run in the third quarter, as you indicated.

And beyond that, as I said before, we don't really want to speculate at this point as to how things would move.

Yes, as far as price are concerned, as I mentioned before, there is a completely different situation between low end and high end (inaudible).

In the case of low end, there is a lot of excess capacity.

And this will be even -- make it worse because of the antidumping in the United States.

In the case of high end, in the coming, let's say, during -- from now to next year, we think that it will be more pressure and more pricing power, more demand.

So, in an environment which capacity's not really expanding and on the contrary, the demand of the project is putting additional requirements on product and on capacity for this more, let's say, high-end segment.

Okay.

Thank you.

Thank you.

(Operator Instructions).

And the next question comes from Julien Laurent from Natixis.

Please go ahead.

Good morning.

Three questions on my side, the first one about the new mill in the US.

What is the next expected milestone regarding this new facility?

When do you think that you will have to order the equipment to run the facility in 2016?

The other question is about Canadian markets.

If I remember well, for the trading case against the Chinese, the Canadian markets were the first ones (inaudible) the Chinese.

Will that be the case also against the South Korean imports?

And last, could you just provide for depreciation in 2013?

Is it $600 million?

Thank you.

One--well, the first question, well, we're in the process of the final definition of some of the, let's say, (inaudible) with different vendor.

We expect by October to be in a condition to define the -- and to place the order for the key equipment for the facility.

German, on the trade case?

Well, on Canada -- Julien, good morning.

In fact, you highlight an interesting point.

While the US continues to be by far the single biggest low-end market in the world, Canada happens to be the second one.

And it is likely that, if as it happened by the way, if this case were to be successful in the States, then it is likely again that some Canadian -- sorry, some Korean production may be diverted to Canada.

But, I think there are many ifs.

We wouldn't really speculate at this point as to what may or may not happen.

I turn it back to you, Paolo.

(inaudible).

Just my last question about depreciation, please?

Sorry?

Yes, just my last question about the depreciation for full-year 2013, could you just (inaudible)?

Okay.

Yes, the depreciation, as I said, in terms of the fixed assets will be in the range of $400 million plus the depreciation on intangibles of $200 million, so overall will be in the range of $600 million a year.

Okay.

Got you.

Thank you.

Thank you.

Thank you.

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

Okay.

Thanks a lot for taking part in this conference call.

And well, we hope to see you in London October the 4th for our investor presentation.

And thanks a lot.

Thank you very much.

Bye.

Thank you.

And thank you for your participation in today's conference.

That concludes the presentation.

You may now disconnect.

And have a great day.