Tenaris SA (TS) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2015 Tenaris SA earnings conference call.

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

(Operator Instructions).

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

I would now like to turn the conference over to your host for today Giovanni Sardagna, Investor Relations Director.

You may proceed.

Thank you, Stephanie, and welcome to Tenaris's 2015 second quarter results conference call.

Before we start, I would like to remind you 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.

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 operations; 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 September 30, and we hope 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.

Our second quarter sales at $1.9 billion were down 30% compared to last year and 17% sequentially.

Sales have been affected by the strong decline in drilling activity and by inventory adjustments, which are ongoing in the Middle East and in North America.

Our EBITDA margin at 14% declined significantly, reflecting restructuring charges and the lower absorption of fixed costs, driven by a lower utilization of production capacity.

During the quarter, we recorded $89 million of severance charges to adjust the workforce to current market conditions.

Our EBITDA margin without these severance charges would have been at 19%.

Average selling prices were down 2% compared to the corresponding quarter of last year and up 4% sequentially, thanks to the inclusion of certain high-value products in the sales mix for this quarter.

During the quarter, cash flow from operations remained strong at $548 million.

And we ended the quarter with a net cash position of $1.8 billion 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, and good morning to all of you.

The fallback in the price of oil over the past months reinforced the view that the current crisis in the oil and gas sector would be prolonged and that it will have a severe impact on all players in our industry.

Like our competitor, we have been affected in various ways, but the crisis is also reinforcing our competitive differentiation and highlighting the value of what we offer to our customers.

The first line in product, our extensive product portfolio extends beyond the complete range of product connection, our premium connection of casing, tubing, line pipe, and mechanical and structural pipe product.

With our sucker rods, coil tubing, connector, oil tools, and accessories, we supply a wider range of products to the oilfield than any of our closer competitors.

Through our research and development program, we're introducing innovative technologies which are changing the way our customer operates.

Our dopeless technology, for example, is now sold with 80% of our premium products in the North Sea and 50% in the Gulf of Mexico.

It makes offshore drilling operations safer and more environmentally sensitive as well as reducing cost and improving product performance.

And our new BlueCoil coil tubing technology gives our customer the opportunity to extend the lateral section of horizontal wells.

On services, the second important aspect, in the United States and Canada in the coming months, we will be delivering directly to the rig site a relevant share of our OCTG sales.

This disintermediation of the supply chain reduces costs and improves services and reliability for our customer.

By the end of the year, we will have in operation new service yard in Midland and Freeport, Bay City, for which we will deliver pipes, accessories, and field services direct to the customer rigs in Eagle Ford and the Permian.

This strategy will be strengthened when our Bay City mill enters into operation in 2017.

Cost competitiveness is also an important issue.

If we exclude the restructuring cost, our EBITDA margin for the quarter would've been 19%, a level which compare favorably with our competitors and other players in the oilfield service and equipment sector.

We are executing our cost-reduction plan rapidly and working on all aspects of our operation, including our fixed cost to increase our cost competitiveness.

Last but not least, our financial strength, we have generated a free cash flow of $900 million after capital investment of $500 million in the first half of the year.

And we have $1.8 billion of net cash on our balance sheet.

Our financial position is an assurance of long-term reliability and give us the ability to continue investing in our industrial system and developing new product and services.

In this very harsh environment for our industry, I think Tenaris is well differentiated from our competitor and well positioned for a recovery that, in terms of our results, we should start to see unfolding gradually from the fourth quarter.

Thank you.

We are now open for any questions you may have.

(Operator Instructions).

Bill Sanchez, Scotia Howard Weil.

Couple of questions.

First, either for you, Paolo, or Edgardo, just trying to understand a little bit more on the second half 2015 thoughts around price per ton, which was very good in Q2.

I know you guys pointed out the fact that you had some high-value products that had flowed through.

Trying to get a sense, how does third quarter kind of price per ton look on average?

Could that be similar to what we saw in 1Q, I guess is the first question.

Second question would be -- is, just looking through the press release, it appears we're still calling for an EBITDA margin trough here in third quarter.

Just trying to get order of magnitude of how much decline perhaps we're expecting 2Q to 3Q and then a potential recovery in 4Q, especially as the raw material cost savings start to kick in.

Thank you, Bill.

I think that, as we say in the -- in our press release, we expect our price to get lower in the next quarter, especially because of the mix that is particularly unfavorable in the next quarter.

This will be reflected and will get into our account before improving again gradually from that point on.

This is in line what we said last -- in the last Q. The next quarter will be -- I think we will have an -- our -- we will bottom in our results because of this impact on the price.

This will also be reflected in our EBITDA if we consider it, let's say, as adjusted EBITDA without considering the restructuring.

Edgardo, I don't know if you want to add something on our financial forecast for this.

Yes, basically -- good morning, Bill.

Basically, what we see probably coming into the next two quarters, as Paolo said, we are bottom up on the third quarter.

But, we will still having some small impact compared to the restructuring because the -- we just presented in the second quarter into the third and the fourth quarter.

So, our EBITDA ratio will continue being affected to some extent for that.

But, clearly, we are expecting to recovery from the bottom in the third, going to much normal level in the fourth quarter at the time that we get also some efficiencies coming from the cost structure that we are expecting to have full impact basically on 2016.

Okay.

And I guess, fourth quarter, should we start, Edgardo, seeing the first real signs of the lower raw material cost really helping EBITDA margin performance?

Yes.

Yes.

But, we need to take into account that, at the same time we are benefiting from the low cost of the raw material, especially scrap and hot roll coils, we -- at the same time, we are seeing some -- the pressure of the price that has been reducing, particularly pipe logic coming also into pipeline.

In -- I think, in the fourth quarter, you will start to see first recovery in volume.

This will have an impact on our absorption.

On the other side, as you were saying, some of the price of our inputs, the lower cost, let's say, that we are registering today will also be reflected -- start to be reflected in our account.

This will have a positive effect.

Like we say in the last conference call, our cost go down gradually, but at some case, like in the case of currency devaluation, we are getting some benefit that is coming -- getting into our account even now.

So, you will see basically in our view a recovery starting in the fourth Q for our EBITDA margin as a consequence of all of these effects.

Fair enough.

If I could ask just one more question with regard to the timing of the Saudi restocking tender, when do we expect that to move forward?

And I guess, more importantly, when do you expect to start seeing volumes being delivered again next year?

As you know, the Saudi are back on the purchasing track.

And they started issuing new tender.

But, I would ask to Gabriel to give a review on how this will then continue in the first and second Q of 2016.

Okay.

Thank you, Paolo.

Good morning, Bill.

We expect a low level of shipments in the Middle East until the end of the year, given the destocking that we commented and you're mentioning before.

On the other hand, drilling activity in the Mid-East is very strong.

We are still having in Saudi more than 200 rigs today, and Kuwait and Abu Dhabi are increasing rigs.

Tendering activity has been important, UAE and Kuwait, important tenders that are being analyzed.

And as Paolo anticipated, we're starting to see Aramco back in the market after 12 months of practically no tendering activity.

So, we have concrete signs that there's going to be a lot of OCTG being bought for 2016 and onwards.

And this is what we expect.

So, depends on the results of this.

We will see and expect a higher level of shipments in the Middle East in 2016.

Thank you, all, for the time.

I'll turn it back.

Frank McGann, BofA Merrill Lynch.

Okay.

Good day.

Just to follow up kind of on that question, looking out, the fourth quarter improvement that you expect into 2016, conditions seem fairly weak right now.

And pricing has weakened again.

I was just wondering, how rapid a recovery do you think we could see or that you're expecting in the fourth quarter and in 2016?

Is it likely to be fairly sharp, or is it more likely to be just a marginal recovery?

And the fourth quarter pickup that you're looking for in terms of volumes, is that primarily a result of just the end of inventory adjustments, or do you really think there'll be some genuine underlying demand increase?

Thank you, Frank.

In -- as I mentioned before, we will see the recovery starting in 4Q.

We summarized the reason before.

There will be a recovery in volume mainly due to the lower impact of inventory reduction.

We are not expecting a change in the level of rigs in the United States or any major change worldwide.

What we see in term of rigs worldwide, we see that the low-cost producers are consistently continuing to invest.

This is the case for Saudi, for Kuwait, for the Emirates, and other areas of low cost.

But, this in the end is basically compensating on a worldwide level with other reduction in other areas in which -- and I mentioned Colombia, Ecuador, or areas in which the pressure, the price of oil is getting closer to the cost, and they are forced to adjust.

This environment, our improvement's coming mainly from reduction inventory and gain of market share in selected markets in which we are making inroads.

Now, this has an impact, as I say, because of lower absorption, higher level of production in our facility, and reduction of inefficiency.

On the other part, we will, as I mentioned before, see the kick in of our -- of the lower cost of some of our input.

Just to give you an order of magnitude, if we should look at the results of today with the repositioning cost we may have in this, we would have something like a 3% additional EBITDA ratio in our account.

This is the -- let's say, the difference between what we have in our cost of sales today and what we would have in case of using repositioning cost.

On the other side, also, our price in the coming two quarters will reflect the lowering, the lower level of pipe logic that is kicking in, in some of the contracts, in some of the renewals that we are getting.

So, these two effects I think will basically compensate.

The increasing value will give us some additional EBITDA.

This is what we expect for the fourth Q.

Okay.

Thank you.

Maybe you could just -- in terms of capacity utilization in your plants, approximately what level is it right now?

And what -- where do you think it could recover to, say, in the fourth quarter or next year?

Well, this is very different from the different regions.

We do not give a clear figure of where we stand.

What I can tell you is that, in some regions, we're working full capacity.

In some other, we are working at reduced level of operation.

In some case, as you know, like in US, we had to shut down some plants.

Okay.

Thank you very much.

Nick Green, Bernstein.

Good morning.

Thank you for taking my question.

Nick Green from Bernstein here.

I wonder if we could talk about the dividend, please, for 2015 dividend that would be paid next year and potentially even the following year's dividend as well.

I appreciate -- and you said in previous conference calls that, clearly, Tenaris's cash position is strong.

And also, you will have a benefit of working capital release from this year.

But, I'd draw reference to the 2009 period, where you also had a very strong cash flow, free cash flow, and you did choose to cut the dividend by about 20%.

So, I was wondering if you could talk through your thoughts on whether the 2015 dividend will be maintained at last year's levels, $0.45 per share, or whether you think there's a chance that you may choose to cut it in view of the additional CapEx that still needs to be sent at Bay City.

Thank you.

I wouldn't get into the specifics of which would be the dividend decision.

What I can tell you that the Company's having a strong cash flow, as I mentioned in the first part of the year, and will continue to have a strong cash flow in the coming quarter.

Also, it's true that we have an important investment program, especially to complete our plant in Bay City.

And this is something that we are proceeding and maintaining at the pace that we established.

But, even in this [consideration], the free cash flow of the Company will be in equilibrium, balance, or even positive in the future.

And I think we can maintain the dividends in line with what we have done in the past.

Okay.

So, just to -- so, just so I can get my head around it, given -- do you mean in the recent past, or do you mean back in 2009, where the business made a prudent decision to trim the dividend by about 20% in 2009 versus its 2008 level?

As I said, you also had very strong free cash flow in that year as well.

I'm just trying to get a clearer sense on -- I don't want to try and pin you down to dividend numbers, but to get a clearer sense that, in that crisis, the business chose to take a prudent decision and trim the dividend.

Do you think that -- is that the kind of thought process (inaudible)?

As we can see the situation today, remember, in 2009, we also had at that time a very important investment program in the construction of the new mill also in Mexico at the time.

I think we will do what we can as to maintain the dividend in line with the past one or two years.

Okay.

That's very helpful.

Thank you.

And if I could just have one follow-on question, you've been successful to date in your -- in the cost cutting and the cost-reduction programs you've undertaken, which is great.

I wonder if we could run a scenario of where 2016 was better than 2015, as it's clearly still a very tough year.

Do you -- are you able to talk through some of the additional levers that you may have available to you to further remove cost from the business?

Thank you.

Well, I think we are -- there are always room for further cost reduction, depending on the situation and depending on the outlook.

In this moment, we are committed to a very strong program of repositioning in the United States.

We are also pursuing very relevant targets worldwide in areas in which we have to strengthen our position.

So, we are designing our cost-cutting program according to the level of operation in the different regions and the target for repositioning that we have for the future.

As I mentioned before, we can act on variable cost in the cost of our input for sure.

We are acting on allocation of material in the different regions according to the competitive advantage that we can have also within our system.

We are acting on the cost that, as I said before, are fixed, but in fact, are always variable because we can act on this.

And we will -- at the moment, we do not plan any major restructuring or redefinition of our -- of the profile of our operation worldwide.

We have no major restructuring implying closure of plant in our plan for the time being in 2016, also because we anticipate that the reduction of the level of stock and our penetration in some of regions will allow us during 2016 to recovery in terms of volume.

We also expect that, gradually, the level of rigs during 2016 will start back to increase worldwide.

Even a modest increase in the price of oil could support an increase in demand.

And I think we are very well positioned to capture a high share of an increase in the demand worldwide.

Okay.

That's very helpful.

If I'll just have one final question, please, and I'll turn it over, it's -- to broaden the topic out a bit and focus on the Vaca Muerta if we may, I just wanted your thoughts on whether the shale opportunity in the Vaca Muerta in Argentina, do you think that's been helped or hindered by the oil price coming down to the level it's come to?

Thank you.

Well, obviously, the reduction in the price of oil is always increasing the risk for development of the shale, the Vaca Muerta, in the area that is more devoted to oil or also for the component of liquid.

But, the policy that the government is following up to now to maintain basically the price of gasoline internally and to -- is allowing in fact YPF and most of the operators to maintain their level of investment in this moment in the oil component of the Vaca Muerta.

If you look at the number of rigs, the number of rigs in Argentina is relatively stable.

Now, as far as gas development in Argentina, this is the area in which we expect activity to step up because the fundamentals are there.

Argentina is importing between 30% and 40% of the gas that it needs.

It's coming from Bolivia.

It's coming from LNG.

It's arriving at a price that is relatively high on the spot, could between $8 or $9, but in some of the contracts, even higher.

And with Bolivia, it would be in the range of $7.5 million Btu.

In this condition, it makes sense to develop Vaca Muerta.

I think this is something that has very strong fundamentals and will happen.

The point is, how fast and how strong will be the investment?

Part of this will depend from the changing government.

Argentina, as you know, is in an election year.

There will be a change in government by December.

And so, it would be important to see the policy.

But, the fundamentals are clearly driving increased level of activity in the area of gas development.

Okay.

Thank you very much for your help.

Michael LaMotte, Guggenheim.

Thanks.

Good morning, gentlemen.

Paolo, first, if I look at the cost-reduction efforts, it looks like you've gotten perhaps about $50 million or so out of SG&A and maybe another $50 million or $60 million out of the cost of sales.

Do those numbers sound about right, roughly $100 million of cost savings versus the fourth quarter run rate?

And could we see a little bit more just sort of residual flow through effects into the second half of the year?

Thank you, Michael.

I think the -- as I mentioned, the -- in this quarter, we are seeing the impact of the reduction in our inventory.

This is very strong in getting into the cost of -- our cost of sales.

We have been very successful I think in reducing our inventory.

But, obviously, this has an impact on the margin and is reflected in our IFRS.

In terms of the number, maybe Edgardo, you can comment more specifically.

What I perceive is that some of the -- our restructuring, for instance, in Europe, has been negotiated, has been decided, but will be implemented in the coming six to eight months.

So, some of this is and will be executed, but will take a little more time to get into our accounting.

But, Edgardo, maybe you can comment if the reduction SG&A.

Yes.

Thank you.

Thank you, Paolo.

Hi, Mike.

Yes, I would say that probably the numbers of the reduction in this quarter for SG&A probably is a little bit less than you're saying because, as Paolo was saying, most of the restructuring of our workforce occurred at the end of the quarter.

However, let me try to give a picture of how the SG&A structure that we have.

Basically, one-third of the SG&A is pure variable compared to volume.

So, in this quarter, what you see is a reduction in dollar amount because of the reduction in volumes associated with this quarter versus last quarter.

Then we have a very important component.

I would say one-third is fixed, which is basically related to depreciations and taxes not related to volume.

And therefore, those are going to be there and remain in an environment with lower sales.

Probably, in the third quarter, we'll increase our SG&A ratio.

And then the third component, which is almost one-third, is the labor cost and services associated with SG&A.

This is the part that we are working very heavily.

And this is part of the restructuring cost that you see in this quarter.

I would say, as Paolo was mentioning, that depending of the problem, especially in the Italy and in some other regions, we will see the full effect of this reduction probably in 2016.

And we will see some gradual recovery of savings of the people that are leaving the Company in the next two quarters.

Very helpful, Edgardo.

Thank you.

(inaudible) the start of the call, the buildout of the services infrastructure in the US in order to deliver the majority of pipe to (inaudible).

I imagine that there is some cash cost [associated with] the labor and the facilities associated with [ramping up for that] (inaudible), too, I know we've been talking a lot about absorbing manufacturing cost.

But, has it been an issue on the services side as well?

Sorry, Michael, but we got the line was very (inaudible).

Could you repeat the center of the question, and we try to respond if we can listen to a little better?

I don't know -- .

-- The question relates to this side of the business and in particular cost absorption with preparing for delivering more volumes (inaudible).

Well, if I understand well, the question is about absorption.

No doubt, the volume of our operation will -- the volume of our shipment will increase in the coming quarters and starting from fourth quarter.

This will contribute to reduce the subabsorption in our cost of sales.

But, this will be more clear and evident in the first and second Q of 2016 when, also, we expect our shipment to increase.

This will occur in the United States, but also in Middle East, where -- the area in which the destocking is fading away and, in the case of the United States, also area in which the level of imports we expect will go down and will allow us to recovery market share against imports in the coming three quarters.

Stephen Gengaro, Sterne Agee CRT.

Thank you.

Good morning.

I have two questions.

I think, to start with, you talk a little bit about the US market and the more direct sales to customers on a larger basis.

Can you give us some color on the impact of that, both in terms of what the inventory cost could be to you and just so the dynamics of that market and how it impacts you?

Yes, thank you, Stephen.

Really, I think that the oil development in the United States is transforming itself over time.

And we want to contribute to this transformation because, in the end, there is a strong push by the operator in reducing the cost in this very harsh competitive environment for oil.

And we need to support them in doing this.

We think we can change substantially the way the market works.

Going directly to the rigs implies reduced cost related to the operation because of operations that are duplicated in the line, because of different cost involving this, and also because of reduction of inventory.

On these two aspects, we can change the way the system works and, as I was saying, disintermediating the supply chain, reducing the time to market for some of the product, and at the same time, improving the productivity of the rigs and of the operation of our customers.

But, German, maybe you can comment also on example that we have which we can -- we are deploying (inaudible).

Sure.

Thank you, Paolo.

Good morning, Stephen.

Let me see if I could provide some indication, Stephen, that could help clarify the point.

The industry has historically worked with inventories at about five months.

We believe our service could reduce that substantially by going just in time.

And overall, in our experience, we've been able to service these just-in-time agreements with about a month's worth of inventory.

So, that's point number one.

But, then also, importantly, in terms of cost and more cost savings, the system aims at changing and eliminating embedded elements of inefficiencies.

Today, this is five months' worth of inventory on regular basis, requires inspection services, returns, obsolescence, damage.

And this is ultimately what we intend to change, to an extent eliminate.

So, there's a time element.

There's also an inventory management aspect which translates on, in our opinion and experience, important savings.

An example of this is, during the quarter, we extended our existing sourcing agreement with, for instance, Pioneer for both the Eagle Ford and the Permian regions.

And there, we're going from, say, a pure sourcing into a full-fledged service, where we'd be delivering the pipes at the rig site.

Yes, thank you, German.

We had example of this in the United States.

Pioneer is one.

Also, in Canada, the Seven Generations is another example, no, of -- .

-- It's an important and new customer, which again will translate on not only market share gains, but the extension of the full-service component that I just described.

Yes, this is also changing to some extent our profile because we are -- we need to add a number of services on the field that goes from field assistance to supply of a complex range of services and products related to the use of tubulars.

To some extent, this is -- the environment in the shales in the US is transforming in this competitive environment, but we are also.

And we want to be part of the solution, but we are also transforming ourselves.

So, thank you.

So, it sounds like the efficiency of the -- sort of the delivery system far outweighs any inventory carrying cost you may incur.

And this has been our experience in many other parts of the world in which we've been able to manage complex system with many rigs with a fraction of the inventory that were used by the operator because, again, in the end, the entire issue here is to tide the programing of the rig that were scheduled and the working schedule of the rig with the production facility of our facility.

When the system is big enough to have fallback position in the system, we may be able to align and organize our production in a way that reduce substantial the inventory in the middle.

Now, remember also that this is not only applied to the drilling operation, but is also applied to all of the service in the field, the completion, tubing, the workover, the whole -- the service on tubulars that needs to be performed on the more than 1 million wells that are in operation today in the United States.

Service goes for the rigs, but goes also for the maintenance of wells in operation and the operation workover or intervention from sucker rods to pipe that needs to be done on these wells.

Great.

That's very helpful.

Thank you.

(Operator Instructions).

Felipe Santos, JPMorgan.

Yes, good morning.

Just some quick questions here.

The first one is simple.

Do you expect any additional impact on severance or impairments from the (inaudible) some operations, especially in the US for the next quarters?

And the second question is more looking forward.

How would you say that your visibility for the 2016 and 2017 in this growth in this reverse scenario that we still -- that you see low raw material prices, how clear is your view for -- that we should have an improvement going forward and how you are thinking for the next year?

Thank you.

Thank you.

The first question on the eventual additional impairment, well, as we know, we -- as you know, we perform impairment tests on our assets and according to the view and the expected scenario that we have in front.

And today, we see no need of additional impairment in this position.

If the situation, the price of oil goes down to $30 or there are major changes in the way the market works on import or on other aspects of the business, we for sure take -- will take this into consideration.

But, for the time being, we see no need to do any additional adjustment, impairment.

On the second issue, how we see the recovery coming out from the crisis, I think there is lack of visibility on how the situation will evolve in our field because everything today is under move the position of Saudi Arabia, as I was saying before.

The low-cost producer, the reaction of the shales, the situation of the offshore development, the more complex development, the oil companies are analyzing this environment, are taking decision in their investment plan.

I don't think that we can -- they have visibility today on how each of the players will react to the situation that is being created in -- on the long term and medium term by the shale development, by the pace of development and growth of shales, and by the resilience of the shale development in an environment of relatively low price of oil.

There is a process of adjustment in cost.

This will also determine the future of this.

So, what we see is the increase in our market coming from the reduction in inventory, reduction in imports, repositioning success, and penetrating some markets.

This was something that we can have visibility on, but not much more than this.

It's difficult to predict, for instance, the level of rigs operating in United States by the end of 2016.

This is today something that will be very difficult to predict.

Okay.

Thanks so much.

Andrea Scauri, Mediobanca.

Yes, hi.

Good morning, gentlemen.

I have a couple of questions.

The first one is on competition from Koreans.

If I'm not wrong, now, Koreans represent 50% of the overall US market.

I was wondering if you could elaborate on the potential antidumping measures that could be taken by the Department of Commerce and, in particular, if there are chances to see an accelerated decision from the US Congress in order to have a kind of protectionism approach to this relevant issue.

Second question, on M&A, I was wondering if you are still monitoring the situation or, either way, you are more, let's say, active given the current scenario that is prolonging.

Thank you.

Thank you, Andrea.

German, on the question of competition from Korea, luckily Korea is not at 50% of the market.

It's well below it.

And this share is getting lower over time because of the antidumping law last year.

But, anyway, additional comment, German, on what -- how you see the evolution of the competitive environment in North America.

Well, thank you, Paolo.

Good morning, Andrea.

First off, I think it will be fair to say that Korea flies at about 17%, 19% market share in the States.

And their imports are coming down.

They brought about 400,000 tons of pipes of OCTG pipes during Q1 down to about 125,000 tons during Q2.

Now, as we have indicated, together with the industry, we intend to file an administrative review petition as part of the existing trade case.

But, they're statutory times.

Therefore, that will not be done -- cannot be done before September.

And it takes about a year for the Department of Commerce to ultimately get to the final determination.

And we don't anticipate, also in light of the various trade cases that have been filed at the Department of Commerce, that they would be able to cut that time short.

Now, with respect to the new laws, very briefly, I think, in July, the new law passed.

Modifications provided the Department of Commerce greater flexibility and latitude to address the margin calculation issues with respect to price distortion aspects or cost distortion aspects of the importers into the United States as well as the injury treatment.

In the past the ITC was mostly looking at gross margin.

The new law provides aspects as to not only restrict the injury to gross margin analysis but also the ability of the domestic industry to service its debt, production, utilization, return on investment, etc.

Hopefully, that address your question.

Okay.

Yes, on the question of M&A, we continue to monitor the situation in the market, the option that we have, the evolution of the scenario that we have in front of us to see that there are opportunities or there are areas in which we may strengthen our competitive advantage in this complex scenario.

Okay.

Thank you.

Luigi De Bellis, Equita SIM.

Yes, good morning.

Two quick questions from me.

The first one is on the restructuring cost.

Could you quantify the total amount expected for 2015?

And a second question on the pipe logics, with the current oil price, when do you think we'll touch the bottom for pipe logics price?

Thank you.

Thank you, Luigi.

On restructuring costs, the big part has been accounted for in this quarter.

But, there will be some tail in the next -- can you comment, Edgardo, on what we expect?

Yes, basically, within the first half, we have almost $110 million.

And we are expecting to have at least $25 million each quarter until December this year.

So, this remaining portion is basically $50 million.

Yes.

On the evolution of pipe logic, this is a more difficult question because, in the end, as I was saying, there is a price discovery underway for the price of oil in the world, trying to reach an equilibrium(inaudible) price discovery on -- in our sector that is getting into the pipe logic to understand when the reduction in the inventory, the reduction in the imports, may support a recovery in the pipe logic.

From my point of view, we are bottoming up, or in this moment, or we should bottom up.

But, this is my opinion, probably is wishful more than a prediction.

We will see.

Okay.

Just a follow up on the sector environment, we continue to see your competitor with growing difficulties.

So, in your view, how much the sector needs consolidation, and how Tenaris will move in this context?

As I said before, for us, the important thing is to imagine Tenaris five years from now and to understand which is the profile that will make this Company bigger and stronger in an environment.

Up to now, I think we have proven that our profile is allowing us to have a gap in term of EBITDA ratio and profitability against any of our competitor and many of the oil company service companies.

But, when we imagine this, probably, for now, we should think not only of opportunities, but of opportunities that may complement our positioning in a way that is solid and stronger for the long run.

And this is what we are looking for, analyzing what is happening.

Thank you very much.

Pedro Medeiros, Citigroup.

Hi, guys.

Thanks for taking the questions.

It's -- those are very objective questions.

The first one is, can you confirm whether this quarter had any impact from inventory devaluation that we could classify potentially as nonrecurring, assuming the movements that you saw on your feedstock class and overall pipe and OCTG prices?

Second question is, does the import duties that were enacted in Mexico for pipe imports from the US, India, and Spain affect you in any way?

Does it benefit or harm your potential business in Mexico?

Yes.

Thank you, Pedro.

The first question is concern, for sure, this quarter, we had important level of provision for our slow-moving inventories.

It's logic because our inventories are going down.

The market is going down.

We are selling less.

And so, it is, I would say, unusually higher.

But, we should expect that some of provision for slow moving will also occur in the coming quarter.

Maybe, Edgardo, you can give an idea of the size and the differential between these to previous and later -- .

-- Yes.

Basically, in the last two quarters, we have almost the same and little bit more this quarter in the range of $18 million to $19 million as a slow-moving adjustment in which the inventory that stay in our stock for more than a year.

Coming forward, we look probably to have an additional charge, probably less than $20 million in the third quarter, and hopefully that we're going to be getting back, recovering part of the inventory at the end of the year.

So, we are not expecting additional charges at the end of the year.

Okay.

This is, let's say -- it's quite -- this is something that happens in moments like this in which the industry is substantially slowing down the level of operation.

Some of our clients are delaying programs.

And we remain with some of the stock in our hands.

But, this will probably get in -- take a different sign in the future.

Now, on the second question on the imports, I do not expect any impact on our operation.

But, Guillermo, maybe you can add something on this trade decision.

Well, yes.

Yes, Paolo.

Hello.

Hello, Pedro.

Well, as you know, there was a dumping case that was brought up by the welded pipe producers, mainly by Tuboacero in Mexico, on large-diameter welded pipe.

We just got the preliminary determination.

The case was brought up against Spain, against India, and against the United States.

It's a preliminary determination.

The duties were pretty heavy, were around the level of 60%.

But, it's a market where we're not participating in Mexico.

So, for us, it really has no effect moving forward.

Okay.

Thank you, Guillermo.

Thank you so much, Guillermo and Paolo.

Okay.

So, if there are no other questions, we would like to thank you very much for your participation.

And we could close here our conference call, no, Giovanni?

We hope to see you at the -- our event in London at the end of September, and yes.

Thank you very much.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

And you may now disconnect.

Have a great day.