Tenaris Q1 2024 Earnings Call Transcript

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Provided by Quartr
April 26, 2024

There are 12 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Q1 20 24 Zanaris S. A. Earnings Conference Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Giovanni Sardagna.

Operator

Please go ahead.

Speaker 1

Thank you, Gigi, and welcome to Tenaris' 2024 Q1 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 this call. With me on the call today are Paolo Roca, our Chairman and CEO Alicia Mondolo, our Chief Financial Officer Gabriel Podkuzka, our Chief Operating Officer and Luca Zanotti, our President of our U. S. Operations.

Speaker 1

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. Our 4th quarter sales reached EUR 3,400,000,000 down 17% year on year and flat sequentially, as an increase in volume and the full consolidation of the coating business acquired in the previous quarter offset the impact of lower selling prices in the Americas. Average selling prices in our tubes operating segment decreased 15% compared to the corresponding quarter of 2023 and 6% sequentially. Our EBITDA for the quarter was up 1% sequentially to 987,000,000 dollars Our EBITDA margin remained flat at around 29% as the reduction in average selling prices was offset by a strong operating performance, a positive contribution for our newly acquired coating business and a $25,000,000 gain from legal claims resolution in Mexico and Brazil. With operating cash flow of $887,000,000 and capital expenditures of $172,000,000 our free cash flow for the quarter was $715,000,000 Following share buybacks of $311,000,000 during the quarter, our net cash position increased to $3,900,000,000 up from $3,400,000,000 at the end of last year.

Speaker 1

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

Speaker 2

Thank you, Giovanni, and good morning to all of you. We have had a good start to the year, maintaining our sales and EBITDA at the same level as in the Q4 of last year, despite the unfavorable pricing environment that is affecting our sales in the Americas. This will reflect the strength of our global positioning as well as a solid performance across our business lines. In the coming quarters, however, our results will be affected by a soft U. S.

Speaker 2

Rig count, affected by low natural gas prices, by an increase in the OCG imports and an extended decline in prices. Our free cash flow will remain solid. During the quarter, our newly acquired Tenaris Focal Pipe Coating operations, where we successfully completed an exceptionally large project with concrete weighted coating for a pipeline in Mexico made positive contribution to our sales and EBITDA. Tenaris Shocor was also awarded a $108,000,000 project to supply wet insulation and anti corrosive coating for the offshore pipeline for the ExxonMobil Whiptail development in Guyana. This project will be supplied during 2025.

Speaker 2

Around the world, offshore projects are moving forward. And with our extended reach, we are providing a wide range of integral solution for this complex development. The Middle East is another area which has seen growing activity. In Saudi Arabia, we are benefiting from the increasing demand for their gas development program and the consolidation of our GPC large diameter welded pipe operation. In the United Arab Emirates, with our new premium trading facility in full operation, we have been awarded a 2 year extension of our Rig Direct contract.

Speaker 2

While our long term agreement with Qatar Energy LNG has also been extended for 3 years to cover the drilling in the North Westfield to supply the latest expansion program. In Canada, we have been successfully repositioning our operation and extending our Rig Direct program following the Canadian government decision to impose normal value on Chinese post CTG imports and the investment we made in our Sousa Marine Mill. As the LNG Canada and other LNG projects move forward, operators are increasing their operation in the Montney Shale, and we recently awarded a long term rig direct contract to supply a major operator there. We participated in the CERAWeek conference last month, where we were able to share view on the energy transition and the prospect of the oil and gas market over the long term. What came out from the discussion was the sense that a more pragmatic approach to the complexities of the transition is required, with a focus on reducing emission using all means available across the energy industry and its value chain.

Speaker 2

At the same time, due to the enormous cost and complexity of the transition, oil and gas will continue to be required for many years to support the growing demand for secure, affordable energy, particularly from developing countries and to support technological development such as artificial intelligence. This year, in Q3, when we have a seasonal slowdown in demand, we will implement a major investment and maintenance program that has been postponed over the last 2 years of intensive operation. This really will involve stoppages in our 5 steel shops and our main seamless rolling mills. In Argentina, we will install an electric arc furnace that will be fed by a cornstealed scrapper heating furnace and by our DRI plant. Once we complete our second wind farm in 2025, the new furnace will use 100 percent renewable energy to produce steel with a minimal level of carbon emission.

Speaker 2

In the U. S, we will upgrade our copper steel shop installing a new backhaul system to reduce emissions. In several of our facilities, we are enhancing our capabilities to produce high alloy chrome products as demand for these high value products is growing. In Mexico, we will have the 1st major maintenance of our Tamsa medium diameter rolling mill in 4 years, in addition to a maintenance shutdown at our CSC shop. This investment will be executed within our previous CapEx guidance, but they will limit to some extent our capacity during the second half.

Speaker 2

We are now ready for any question you may have.

Operator

Our first question comes from the line of Arun Jiram from JPMorgan Securities LLC.

Speaker 3

Good morning, Paolo and team. Gentlemen, I wanted to get your thoughts on trends in U. S. Pricing. We received the latest PipeLogic number, which did suggest continued declines in the 3%, 3.5% range.

Speaker 3

And so maybe I was wondering if you could give us a sense of your average selling price in 1Q trended where leading edge prices is for the PipeLogic Index. And how does this impact your thoughts on 2Q in the back half of the year?

Speaker 2

Well, thank you, Arun, for your question. You are right in the looking at the decline in the pipe logic as a relevant factor. This is mainly due to increased import in the United States, some soft view on the rig count and the volume. And this, to some extent, is being affecting. But I would ask Luca to give us the view on the perspective of this for the next quarter and for the second half of twenty twenty four.

Speaker 2

Okay.

Speaker 4

Yes. Thank you, Paolo. Good morning, Arun. Yes, just picking up what Paolo was saying before. I believe that in this Q1 first of all, looking at the spot price in 1 single month like April, it really is not representative.

Speaker 4

We see pipe losses reading that were better maybe in the past. And so I believe that we need a more long term approach to these readings. But getting back to what Paolo was saying, here in the Q1, what we saw is an industry that was expecting a little bit higher activity getting into the Q1, Q2 of 2024. And as a consequence, domestic and especially imports increased. So what happened is that distributors went out, start buying mainly from Korea that had a reset of quotas, Taiwan, also in Thailand.

Speaker 4

So the combination of a slightly softer expectations on demand and higher imports led to this pressure on prices. And this will delay the stabilization of the Pipe Logics. When it gets to our pricing, you always have to remember that we have a 1 quarter delay between the Pipe Logics rating and the way it gets into our profit and loss. So you're going to see this even going forward.

Speaker 2

Thank you, Luca. Understood.

Speaker 3

Great. And I wanted to see Paolo, if you could comment on some of the maintenance activities that you plan for the second half. Could you help us think about what kind of impact this could have to volumes? I mean, we've generally been thinking that the company could ship 4,000,000 tons of product this year. But give us a sense of what kind of impact that could happen in the second half?

Speaker 2

Well, as I mentioned in the opening remark, we have been working at full capacity for almost 2 years. And then we will take advantage of this slight reduction that we see in the rig count and in the demand for concentrating some key intervention on our industrial system. Part of this is maintenance, but also we are focusing on some major investment from our point of view, which is the change in the furnace in Argentina and also investment in the other steel shop and in the finishing line of our mill in different parts of the world. We think that we can take advantage of this time for changing our profile in term of emission, increased automation and productivity and also cost reduction over time by this cycle of investment. As I mentioned in the opening remarks, this will be in line with our forecast for CapEx in the range of $730,000,000 during 2024.

Speaker 2

So there is no change with this. Our volume will be impacted only in seamless to some extent, but it's I would call it not something substantial, but it will be impacted in our seamless component. So the welded will remain at the level of last year. The Q3 is seasonally below. Overall, the volume will not be very different from last year volume, but with participation of welded higher than the participation we had of welded last year.

Speaker 3

Great. Thanks a lot.

Operator

Thank you. One moment for our next question.

Speaker 5

Our next question comes from

Operator

the line of Alessandro Pozzi from Mediobanca.

Speaker 6

Good afternoon. Thank you for taking my questions. The first one is on the outlook for the rest of the year. In the Q4 conference call, you mentioned average EBITDA margin of 25 percent for the first half of twenty twenty four. And given that you have printed 29 in Q1, it looks like potentially you are going to have higher margins in Q2.

Speaker 6

But then I was wondering, given that you have the stoppages in Q3, what should we assume for EBITDA margins in the second half of the year based on what you see obviously at the moment? And also my second question is on the DAKs. So we've seen those DUCs halting since they've reached the peak. And I was wondering, is that going to be potentially trigger for having a higher rig count at some point down the line this year?

Speaker 2

Well, thank you, Alessandro. What we expect is that our margin in the first half of twenty twenty four, as you are saying, will be slightly higher than we anticipated because we had margin slightly higher. If you look at the adjusted EBITDA, it is in the range of 28 point something. We think that in the 2nd Q, we will have lower EBITDA than 25%. But as a whole, on average, we will be slightly higher than 25%.

Speaker 2

When we look at the second half of twenty twenty four, there is not so much visibility on price. But for what we are seeing in the evolution of the PipeLogic, we should be prepared to an EBITDA margin between 2020 25%. We don't know, let's say, yet how far the price reduction will go and also our reaction in term of cost reduction that will accompany the pressure that we are feeling. There are many pieces moving here. One of the important pieces is also Argentina recovery in its oil and gas sector.

Speaker 2

There are also, let's say, some uncertainty about the evolution of the rig count. So when we speak about the second half of 2024, we are considering a range. It's very difficult to have, let's say, a number for a semester in which we will have different factor affecting our sale and our profitability.

Speaker 6

Yes. So just in Q3, given the loss of volumes from Seamless, should we assume EBITDA margins more towards the 20% just for that quarter in Q3?

Speaker 2

We will have as I was saying, still the prices for the 3rd Q are not being entirely defined yet. But if the reduction in the pipe project is going on and imports maintain this level in the U. S, we will be slightly higher than what you are saying, but still close to the number you are saying. Now talking about the DUC and the possible influence on drilling, I would ask Luca to give us a view of the possible impact of this.

Speaker 4

Yes, Paolo. Thank you. Hi, Alessandro. On the DUCs, yes, you're right. March 24, according to the Energy Information Administration, We had a number of DAKSA that was the lowest over the last 10 years.

Speaker 4

And for example, if you just go back 5, 4 years and in Permian, we had 3,200 Daxa and in March, we had slightly less than 900. So you might think that, yes, there is a potential upside, and you may be right. This upside is not in our forecast, and we may have it. On the other hand, I do believe that the business model by which E and Ps were building large inventory of Daxa, given the capital discipline is no longer on the table. But you're right, There are 2 aspects that may play on the upside, which is a number of DACHs, 1, and also the fact that with these lower activities, the U.

Speaker 4

S. Is maintaining crude production above the $13,000,000 barrel per day so $13,000,000 barrel per day, which is pretty significant.

Speaker 7

Okay. Thank you very much.

Operator

Thank you. One moment for our next question. Our next question comes from the line from Marc Bianchi from TD Cowen.

Speaker 8

Hi, thank you. I'd like to just first clarify, Paolo, if we could, the progression you outlaid on the margins. I think I heard that the second quarter could be below 25%. The second half would be between 20% to 25% with the Q3 approaching 20%. Did that capture it?

Speaker 2

Yes. In the first half, we will be slightly higher than 25 because we had a good first quarter. In the second half, as you are saying, for the visibility that we have, we will be in that range. And in the Q3, because of the reduction of stimulus, we will probably be above 20%, but let's say, slightly above 20%, 20%, 25% is, let's say, what we can envisage today.

Speaker 8

Okay. That's helpful. Thank you. Can you the press release talked about the Tenaris Shawcor project that contributed to Q1. Could you maybe discuss how much of a contribution that was and help us think about what the maybe normalized contribution from that business should be as we progress?

Speaker 2

Thank you, Mark. The Schuco business is has ups and down depending from large project. It depends on the relevant contract for relevant projects around. But I would ask Gabriel to give you the view on how we see the perspective of shocker for the foreseeable future. Yes.

Speaker 9

Thank you, Paolo. Yes, good morning, Marc. Yes, indeed shocker has contributed importantly to the results of the Q1, given the last stage detail of a large concrete weight coating project in Mexico in the Altamira region. So this has had a contribution of about $80,000,000 in revenue specifically in the Q1 for this project that we will not carry further down in the year. But we are very pleased with the Shopcor acquisition.

Speaker 9

The brand of Shopcor is very well recognized as a global leader, a global footprint of facilities, R and D centers, the track record and product knowledge that complements and strengthens very well the position of Cenarius in the offshore segment. As a matter of fact, Paolo announced in the opening remarks the recent order related to the insulation coating in Guyana development, more than $100,000,000 order in insulation coating with good margins and contribution. So we expect the Shokor business to continue supporting revenues and our position in the Offshore segment. I would normalize annual revenues in Chokor after these Alta Mira projects in the range of $250,000,000 to $300,000,000 annually. This would be a running rate where we see Shawcor contribution going forward.

Speaker 2

Thank you, Gabriel.

Speaker 8

Wonderful. Thank you very much. I'll turn it back.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Dave Anderson from Barclays.

Speaker 7

Hi, good morning. I wanted to ask a bit about the Middle East and how that's going to impact your volumes, kind of thinking about kind of 'twenty five and beyond. You just noted a 2 year extension on the UAE Rig Direct, but I believe that contract has actually been the volumes have been fairly slow because they've been working down a lot of the inventory. So I'm curious if you start to see that spike and start to pick up over the next couple of years. And then secondarily, you also mentioned unconventionals in Saudi.

Speaker 7

And that looks like a massive opportunity there. And I'd love to understand a little bit from your perspective on how you see that changing things. The Jaffora wells, I believe, are quite a bit more OCTG intensive than even the U. S. Onshore conventional.

Speaker 7

If you could talk about those two markets, please. Thank you.

Speaker 2

Yes. Thank you, Dave. Also on this question, I will ask Gabriel an overview for Middle East in general and unconventional in Saudi, which also we share the view that is a very relevant development for Saudi, important for us.

Speaker 9

Yes. Thank you, Paolo. Good morning, Dave. Yes, what we see in the Middle East is that the drilling activity remain strong. We see continued investment in expansion of capacity both in oil and in gas with a very positive momentum.

Speaker 9

Saudi clearly remains the brightest spot. During the last quarter, the Kingdom announced and revised upwards the target of gas production increase for 2,030. Now they are targeting an increase of 60%, previously target was 50%. So we see that the drilling in gas, onshore gas related also to the unconventional that you're mentioning Dave, will more than offset the decrease in the offshore rigs related to oil were also announced during the last quarter. So overall, the Saudi, the strong level of activity also the CapEx guidance for 2020 4 for the year of Saudi was given a range, but it's importantly higher than 2023.

Speaker 9

So we believe that with the backlog that we have, the the position that we have in the country for OCTG and pipelines, Teneris is well positioned to remain delivering strong shipments into the kingdom. The Emirates is also expanding. Paolo mentioned the extension of our long term agreement with ADNOC. We extended for another 2 years. We had the chance to incorporate other coating services, digital services and also expanded our Doppler range in the Emirates, where we have our facility up and running.

Speaker 9

So overall, we also see strength coming from the Emirates in the Middle East. And last but not least, Qatar also during the quarter made an announcement about an expansion, a further development expansion for their LNG project. This is a Northwest field project. This will require drilling of approximately 50 production and injection wells. In Qatar, also our long term agreement with Qatar Energy LNG was extended for another 3 years.

Speaker 9

So this is a demand that we intend to cover with this year. So with all this backlog plus the network of contracts that we have, we have a very good visibility into 20 24 and even 2025 that revenues in the Middle East, in the whole region will keep the current high levels going forward.

Speaker 2

Thank you, Gabriel. We are doing good inroad in the region. It's also a region in which there is competition. And to some extent, some area also, I mean, prices are also preceding, let's say, the competitiveness in our business. Okay.

Speaker 7

Thank you, Paolo. If I could just follow-up on that question. You have some capacity in Saudi itself, and I believe you have a seamless mill. I'm just curious, talk about a competitive advantage, that is certainly a competitive advantage of having production in country. Would you expect to maybe build out that capacity?

Speaker 7

Do you expect to maybe expand the capacity of that facility in Saudi in order to improve your competitive position?

Speaker 2

We are developing plans for expansion. On this sense, even SSP is leased in the local market market and the expectations are very high also from the investor. But Gabriel, you can give us

Speaker 7

some indication on

Speaker 2

how we can make activity that we have in Saudi, which are extensive.

Speaker 9

Yes. Of course, we monitor capacity level with demand expectations. So far, with finishing premium capacity that we have in Kingdom, we feel comfortable to accommodate this demand and this is something that we'll continue to monitor. The same on the welded DRW capabilities. And on the GPC, the new recently acquired facility, we are expanding.

Speaker 9

We are at this point commissioning our second line, which roughly will double the capacity for pipelines and conductors in the kingdom to accompany the trunk lines and expansion of oil and gas transmission in the kingdom. So we are certainly willing and capable of expanding capacity in the kingdom as we see need for it.

Speaker 2

Yes. We are preparing for expansion of the gas master plan that should go on in Saudi. But hopefully, I mean, the new line also will, let's say, increase capacity, but this will be for probably later on the beginning of 2025 or so.

Speaker 5

Great. Thank you

Speaker 7

very much gentlemen. Have a good day.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Luc Lemoine from Piper Sandler.

Speaker 10

Hey, good morning. Luca, you've given us various pieces kind of U. S. Land, but could you just talk about your activity outlook and what you think maybe the rig count will do for the balance of the year and what conversations with customers are like on activity levels?

Speaker 2

No, sorry, I didn't understand the first part. Can you repeat please to be clear on

Speaker 10

the Yes, sure. Just asking about, you talked about tox imports in the U. S, but if you could just talk about general activity and how you see that unfolding for the balance of the year within U. S. Land?

Speaker 2

Yes. Yes, I understand on U. S. Land. Kira, also, Luca, which is your view on basic level of activity that we may expect in U.

Speaker 2

S. From your view?

Speaker 4

Yes. Thank you, Paolo. Good morning, Luc. Look, as we look forward, what we see is certainly some weakness on the dry gas side. With these gas prices, we don't see these increasing.

Speaker 4

Actually, we see this probably going down a bit from where we are today. But the importance of the share of the gas drilling in the U. S. Is limited. So what we expect is some weakness over there that is going to be offset from one upside some upsides on the oil side.

Speaker 4

In general, we see a flattish drilling activity going through 2024. But this is what we see today. We don't know how this will progress in the second half. There are many factors at play in this case, and we need to go a little bit ahead in the year to give a more firm view on the second half of the year.

Speaker 2

Yes. Thank you, Luca. Frankly, from my point of view, with this price of oil in the WTI, the level of uncertainty and volatility in the market. Maybe a further reduction in the interest rate in the States. This is also an important factor in this.

Speaker 2

I think that in oil, there should be if the interest rate is going down in the 2nd part of the year, this would be a pickup or stabilization first, but also maybe a pickup of the level of drilling in oil. But we will see, as Luca is saying, is to a little early today in an electoral year to have an evaluation of what will happen in the second half of twenty twenty. Thank you. And look so.

Speaker 10

Okay. Thanks very much.

Operator

Thank you. One moment for our next question.

Speaker 5

Our next question comes from

Operator

the line of Joseph Sharoo from Bank of America.

Speaker 5

Hi, gentlemen, and congrats for a solid set of results. Two questions from me. So net cash now sits at $3,900,000,000

Speaker 11

If free cash flow is to remain solid across the year, is it safe to assume that the buyback program needs to continue post November? And if so, could we even see a step up in the run rate above your current $300,000,000 a quarter? Secondly, and again, talking about U. S. Onshore, as we see some consolidation via M and A, how has your market share evolved?

Speaker 5

And how much extra tonnage does this represent?

Speaker 2

Yes. Thank you, Joseph. Well, on the first part, we enter into our buyback program. This is not a decision. It's a decision that will have to be taken by the Board in due time.

Speaker 2

We have a larger cash position and as I was saying, very solid free cash flow, even considering the investment and the commitment that we have. This will be kept into consideration. Also, we will, as we say in the past, always look at the option. But I would say that if there are no major changes, it is likely that this program may proceed. On the second point, which is we don't give information about market share usually.

Speaker 2

But Luca, you may elaborate a little on our positioning in this environment.

Speaker 4

Yes. Good morning. On the consolidation, obviously, we don't provide sensitive information. But what I can say, Joseph, is that our presence with our redirect model in the large operators is very strong. So we have been benefiting from the consolidation.

Speaker 4

And if further consolidation is going to happen, we're going to be continue benefiting from this consolidation on this segment. Now bear in mind that in some cases, we are already on both sides of the transaction in terms of supply. So you wouldn't need to take this face value because this will be misleading. But certainly, consolidation has benefited us and if further consolidation would happen on this side of the market, this will continue benefiting us.

Speaker 2

Yes. Thank you, Luca. To some extent, the consolidation may be one of the reasons why the rig count is stable in spite of relatively high level of price on oil. I'm not saying gas in which is more understandable. But in my view here, there is the company are taking a time because also this consolidation are announced but are not really executed in some case because still they need authorization and so on.

Speaker 2

So let's take time and we will see. Logical thing will be for us the pipe logic to the pipe logic rig count over time to reflect deployment of this consolidation in a more active level of activity, especially, as I was saying before, interest rates go down to some extent.

Speaker 11

Okay. Thank you. Well understood.

Operator

Thank Our next question comes from the line of Luigi Develis from Equita SIM.

Speaker 5

Saem. Good morning. Thank you for taking my question. The first one is on the South America. So you mentioned in the political and economic volatility affecting the activity.

Speaker 5

So can you elaborate on the expected trend for the coming 2 quarters in Argentina and Mexico even in terms of rig count expectations? And the second question on the pricing. So what is your pricing evolution in your margins outlook for the coming quarters? And when do you expect the bottoming out of pipe logic prices? And you performed very, very well in terms of cost in Q1.

Speaker 5

How much room do you have to improve the cost structure in the coming quarters? Thank you.

Speaker 2

Thank you, Luigi. The first point on South America. Well, Argentina, after the change in the government, the stabilization plan underway is successful in terms of reducing inflation, reducing the country risk substantially, almost halving the country risk. Now the government is in the process of asking for approval of very relevant set of laws in the Congress. If they succeed in this set of law include specific treatment for large project and in hydrocarbon law that in my view will stimulate investment in the sector.

Speaker 2

So we are in a kind of standstill while everybody is waiting for understanding if the government is able to get approval for transformational law like the one they are proposing today in the Congress. Once this is done, and I think will be done, And I think that the company will move on. It will take time. I would expect that in a positive environment starting in the beginning of 2025, we will see actual action because today the rig count is slightly lower than last year. There are marginal rig not operating, but there are new equipment coming in, into Argentina, moved from the U.

Speaker 2

S. So in preparation of a raising level of activity, but we will see this, in my view, full during 2025. At the same time, there are activity for the evacuation of oil and transportation of gas. These are projects that in the case the law for large project is approved will also be put in motion. Now to put in motion the project, find the financing, private financing, organizing all of this, will take time.

Speaker 2

So again, I think this will we will see, let's say, real activity and acquisition of key inputs in the beginning of 2025. So not so much during the coming quarter. Brazil is growing. Brazil is moving on, has a program for developing resources. Resources are rich.

Speaker 2

So I think this is more predictable with gradually moving on in developing deepwater reserves and increasing the level of rigs. Venezuela is what it is. Only Chevron will be allowed to continue to operate. And we are serving, fact, Chevron and Venezuela, but it's a relatively limited set of operation. Colombia is going down because of the policy adopted by Petro.

Speaker 2

Still, the number of rig must be 10% below the level of rig last year and may be reduced even further. Mexico for Mexico, the level of operation of rigs operation in Mexico is basically going down slightly in waiting for the change in the government. The new government will have to define the policy for Pemex, probably refinancing the or restructuring the debt of Pemex and deciding after the construction of the refinery that has been almost completed in those workers, We decide which will be the next stage of development for PEMEX. Also this, I expect in 2025, we will see a stable or increasing activity in 2025. It would be very logical with this price of oil and the need of oil and gas development in Mexico.

Speaker 2

The new government will assume in December of 2024. This is the overview for Latin America. The second question is the bottoming up of the pipe logic. It basically will depend from import. Import, some of these in unfair trading condition has been getting in, in this quarter.

Speaker 2

I don't know if going on, we will see similar volumes of import, but I would expect the PipeLogic to level up to level, let's say, by the middle of the year. Because if there is, let's say, slight reduction in import, the level of inventory will could go down slowly and this will allow the level of the pipe logic to level off. In terms of cost, you are right that we have been we had a positive quarter. Cost, we are considering the reduction in pipe logic. We are launching specific action all around our system to contain variable direct and indirect costs.

Speaker 2

We expect that this will help us to contain the reduction in the pipe logic and to defend our margin, especially in the 2nd part of 2024.

Speaker 5

Thank you, Paolo.

Operator

Thank you. At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.

Speaker 1

Well, thank you, Gigi, and thank you all for joining us in our Aker conference call and see you soon. Thanks.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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