Tenaris Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 20, 2025

There are 12 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Q4 and Full Year twenty twenty four Tonati's Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Giovanni Sardania, Investor Relations Officer. Please go ahead.

Speaker 1

Thank you, Gigi, and welcome to Teneris twenty twenty four Fourth Quarter and Annual 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 this call. With me on the call today are Paolo Roca, our Chairman and CEO Alicia Mondolo, our Chief Financial Officer Gabriel Potkuhlka, our Chief Operating Officer and Luca Zanotti, 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. During the fourth quarter of twenty twenty four, sales reached $2,800,000,000 down 17% compared with those of the corresponding quarter of the previous year and 2% sequentially, mainly driven by lower volumes and lower average selling prices as price declines in North America were partially offset by a favorable product mix. Our EBITDA for the quarter was up 6% sequentially to $726,000,000 and our EBITDA margin increased to $25,500,000 mainly reflecting the partial reversal of a provision for ongoing litigation relating to the acquisition of a participation in Usiminas. Without taking into account this one off effect, our EBITDA declined 4% sequentially to $659,000,000 with a margin of 23%. Average selling prices in our Tubes operating segment decreased by 7% compared to the corresponding quarter of the previous year and 1% sequentially.

Speaker 1

During the quarter, cash flow from operation was $492,000,000 Our net cash position at the end of the quarter decreased to $3,600,000,000 following the payment of an interim dividend of $299,000,000 in November of last year, '4 '50 '4 million dollars spent on share buybacks and capital expenditures of $182,000,000 during the quarter. The Board of Directors had decided to propose for approval of the Annual General Shareholders Meeting to be held at the May, the payment of an annual dividend of $0.83 per share or $166 per ADR, which includes the interim dividend of $0.27 per share or $0.54 per ADR that we paid at the November. If approved, a dividend of $0.56 per share or $112 per ADR will be paid on May 21. Now I will ask Paolo to say a few words before we open the call to questions.

Speaker 2

Thank you, Giovanni, and good morning to all of you. 2024 was a good year for Cineris in many aspects. We consolidated our leading industry position with a number of major achievements. We delivered a solid financial results, accompanied by higher returns for shareholder and completed a number of investments, which are improving our industrial efficiency and reducing our environmental footprint. It was, however, married by an accident that took place at the end of the year, which claimed the lives of two of our employees.

Speaker 2

The accident occurred in the heavy equipment maintenance shop of our main plant in Argentina. This is a major setback for Zenerys, which has an absolute commitment to safety with its employees and its communities. We deeply regret the loss of life and are reinforcing all our action on preventive activities with a focus on critical risk. We ended 2024 with an EBITDA of $3,100,000,000 and net income of $2,100,000,000 on net sales of $12,500,000,000 Free cash flow amounted to $2,200,000,000 all of which was distributed to shareholders through dividends and share buybacks. We are proposing to increase the annual dividend per share by 38% over debt for the previous year.

Speaker 2

At the same time, we maintain our net cash position of $3,600,000,000 In North America, consolidation among major shale operators has continued and we have strengthened our service differentiation with these operators, comprised the operational efficiency, the comprised the operational efficiency, the reliability and the quality that we provide through our Rig Direct service. We have extended our range of Wedge Series 400 connection and now provide 20 fourseven digital well integrity solutions supported by technical specialists and remote monitoring capabilities in addition to our more established run ready service. Exo Mori have honored us with their twenty twenty four Supplier of the Year award for our extensive effort in supply chain integration worldwide. We have served their operation in various parts of the world over many years. And since 2024, we have been serving all their U.

Speaker 2

S. Shale operation as well as their offshore operation in Bojana under long term agreement. We were recently awarded the casing supply for the first wells in Shell Sparta twenty ks project in the USD quarter, following many months of extensive work on product development and testing and the development of three d mapping technology that enhance pipe collapse resistance using ultra high collapse steel grades. This complement an award to supply BP's Cascada twenty ks project and consolidate our leading position in the latest frontier in deepwater development. We also consolidated our leading position in the Gujana Suriname Deepwater Basin with an award to supply line pipe and insulation coating for total Grand Morgeo development.

Speaker 2

This achievement was possible thanks to our successful integration of Shokor and its pipe coating technologies and project management capabilities. For other deepwater development, we are delivering line pipe and coating for Equinor Raya project in Brazil and have recently completed deliveries for an offshore pipeline for TPAO, Sacar Raya project in the Black Sea. In The Middle East, our contribution to the development to local industrial capability are being recognized. Saudi Arabia, we recently won a tender for a major CCS pipeline after Aramco had distinguished our GPC facility with a special quality award. In Abu Dhabi, we extended our long term agreement with ADNOC, while our premium threading facility was certified as an Industry four point zero digital leader by the Ministry of Industry and Advanced Technology.

Speaker 2

In Mexico, our sales have been affected by a steep decline in drilling activity amidst the financial difficulties of Pemex. We have, however, taken the opportunity to reduce our credit exposure. In Argentina, drilling activity on oil and gas production in Vaca Muerta is ramping up as pipeline and LNG infrastructure investment moves forward. Over the next month, we will be supplying the oil pipeline that will connect Vaca Muerta to a new deepwater port in Puerto Rosales in Chubut and expect further pipeline investment during the year. During the year, we completed a series of investment in our industrial system aimed at improving the efficiency of our operation, as well as contributing to our decarbonization and environmental objectives.

Speaker 2

This include the installation of a new electric car furnace with modern continuous charging technology in Argentina, the modernization of our copper steelmaking facility in The United States, increasing its effective capacity and the installation on new heat treatment furnace and finishing line at our Dal Mine Mill in Italy. At the same time, we are advancing with our second wind farm in Argentina and other investment aimed at increasing the share of renewable energy used in our operation. We have also been investing to increase the level of automation and digital system in our industrial and supply chain system and extend pipe by pipe traceability. As we will show in our annual report that will be published on April 1, April '1, we continue to make progress towards our target to reduce the carbon emission of our operation. As the perimeter of our operation has expanded with recent acquisition, we have decided to reset the baseline for our target to cover this expanded perimeter as well as to include inter mill transportation and other changes aimed at improving reporting transparency.

Speaker 2

Looking ahead with the change in the administration in The United States, we are heading into uncharted territories when it comes to geopolitics and the global trading system. Changes in tariff and other event could significantly alter the established market environment. Teneris, with its unique positioning, both globally and in North America, the competitive differentiation and financial strength is well placed to navigate the uncertainties ahead. Before closing, I would like to thank Alicia Mondolo, Head of her well earned retirement for her contribution to Teneris and the Techint Group over more than forty years. I'm very pleased that we will still be able to benefit from hair wise advice in the time ahead.

Speaker 2

I would also like to thank all of our employees for their constant commitment and engagement without which the results and achievement of the past year would not have been possible. As well as also our customer, our supplier and all the community in which we operate for their ongoing support. I'm open now for any question you may have.

Operator

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

Speaker 3

Good morning, Paolo and team. My first question is on tariffs. Paolo, if the 25% tariffs on imported steel tubulars are implemented by The U. S. Commerce Department, would you still expect Section two thirty two quotas to remain in place?

Speaker 3

And I guess the follow-up is if Section two thirty two quotas are removed, but tariffs are implemented, how do you see the impact on OCTG pricing and import trends if that were to occur?

Speaker 2

Thank you, Arun. As we say in the opening remarks, I mean, we are entering to uncharted territories because we have different layers of tariff that has been announced by the American administration, one of which is the 25% tariff in the frame of the February. But I would expect that in general the introduction of the 25% in the February will have impact on different aspects. On one side, it's very likely that level of price in The United States will gradually increase, because in the end the market import are relevant, has a relevant share of The U. S.

Speaker 2

OCTG, particularly OCTG product. So the impact of the 25% tariff will reflect in our view into increasing price. As far as the quarter are concerned, we have no indication, which is the intention of the U. S. Administration.

Speaker 2

But overall, the two 30 two overall orientation has been in the past and today to support the domestic industry and to allow to raise the level of utilization within The United States. So we expect that the administration will monitor carefully the volume coming from the different sources with the overall aim of defending the interest of the domestic industry. In this sense, Teneris is well positioned. We are producing almost all of our need of pipes in The United States. And so we think we are well positioned to manage what is coming.

Speaker 2

It is true that we are producing large part, but not all of our steel need and we may be paying tariff or some of the steel that we may be importing, but still this will not, let's say, affect substantially our overall position in The States. This is what we can expect in our view from the introduction of the tariff on the February. As you say, as you know, we will understand better in March when this will announce the details of what will be the approach. And at the same time, in the coming weeks, we will also understand the extent of other tariff that may be introduced that could have an impact on our business in The U. S.

Speaker 2

Or worldwide.

Speaker 3

That's helpful. That's helpful to understand your view on that. So expect maybe pricing to get better and then perhaps the policies are supportive of domestic manufacturing and you manufacture the bulk of your North America support your North America sales through domestic manufacturing. That's clear. Maybe a follow-up, Paula.

Speaker 3

Teneris has a unique lens into what is going on in Argentina. So I was wondering if you could help us think about some of the potential growth prospects for Tenerus between just OCTG, long haul pipe and some of the services that you provide in Argentina between a coiled tubing and as well in frac? I think you have some pressure pumping capacity in country.

Speaker 2

Yes. Well, we are very positive on the development and the investment in the energy sector in Argentina. We commented also in the last quarter that we expect a substantial increase of the rigs operating in Vaca Muerta. Now this is happening in preparation of the expansion of the capacity of evacuation of oil from Vaca Muerta. The big pipeline that is called VM VAMOS is under construction.

Speaker 2

We have the order for the pipes and the order for the construction is also negotiated and signed. So this pipeline will go on and the oil company are preparing the wells and the upstream to supply the volume, the additional volume that will be exported from Argentina. At the same time, there are some additional pipelines that need to connect this very part of Vaca Muerta to the pipeline, the main pipeline. So we see this network of pipeline going on with contract and part of which is also for us. And we see the company mobilizing rigs for this.

Speaker 2

We were saying that the rigs in Vaca Muerta could increase for the 31, 30 two that were operating last year to a level of 42 or plus by the end of the year. Things are moving. Some company are taking decision now. Maybe we may have an important increase in the rig. We are preparing for the sale.

Speaker 2

So we are also expanding our capability in the fracking. We are adding a set for responding to something that we expect an increase in the demand for fracking. In January, in Argentina, we reached in the market the record for fracking during one month. And also we see that our sets are fully booked for the coming months. We are adding one that will come during in the course of 2025 and accompanying this the base in Newquen and Coiled Tuber for the satisfying this need.

Speaker 2

So we are positive in this and hopefully this trend will go on during 2026 just to increase the production of oil that will be able to evacuate from Vaca Muerta. The capacity of the Vemos is larger and will require investment to be filled up.

Speaker 3

Great. Thank you.

Operator

Thank you. One moment for our next question.

Speaker 4

Our next question comes from

Operator

the line of Alessandro Pozzi from Mediobanca.

Speaker 5

Thank you, Gigi. I have two questions. And they are related, I guess, reaction of the share price today. And I'm still trying to figure out if it's maybe the outlook that has been perceived to be a little bit less constructive compared to what you mentioned in the last call or maybe whether it's just expectations around the announcement of share buybacks? And that leads to the first question.

Speaker 5

I was wondering if you can maybe give us your thoughts about what could be sales and the margins evolution in Q1 and maybe in the first half of twenty twenty five? Because we've seen the recovery in PipeLogic, so maybe it's natural to expect a progression in top line and margins in the coming quarters. And the second question is on the share buyback. Of course, the program is ongoing still and you probably cannot say much about the new one. But I was wondering, shall we assume the new buyback to be in line with the SEK 1,200,000,000.0 that you announced initially?

Speaker 5

Or perhaps you maybe you want to allocate some of the capital to potential acquisitions in The U. S. That could expand your capacity given the new, let's say, geopolitical outlook? And yes, that's my two questions.

Speaker 2

Thank you, Alessandro. Well, on the first one, we say in the outlook in our press release, we expect the first quarter to have margin more or less in line with the margin of the 4Q. This is the results I would say of two driver. On one side, we will have in the first quarter of twenty twenty five less volume to Europe. In reality, the big pipelines and OCTG that we sold in Turkey that are considering our line as part of the line of Europe.

Speaker 2

In the fourth quarter, we did substantial shipment in that region that will not be repeated in the first quarter. On the other side, there is a positive impact of the increase in price and some increase in volume in some of the region, including The United States. So the results of this is our expectation of margin that we'll be more or less online or hopefully a little better if the pipe logic continue to drive up in February, March. Now as far as the first half and so the second semester, we expect improvement, but an increase in our margin, slight increase in our margin, but this will be influenced by the tariff decision on the March. Because if tariffs are announced and the administration is making clear the approach to the quota for different countries, then the market will anticipate a reaction and will move on and we may see a change in, let's say, the recovery in prices.

Speaker 2

We see a, let's say, positive trend frankly because in the end we expect the administration is acting exactly in the direction of strengthening the domestic industry and we are a domestic industry for the American market. So we are positive in the results of this. And we are prepared to absorb the marginal cost that will derive from the supply of steel and eventually the payment of some tariff on it. This is where we are and this is what we can see. We must admit that our visibility for the let's say the second quarter and even beyond this is pretty limited considering the number of moving parts that are affecting our market and our sectors today.

Speaker 5

Okay. So do you expect maybe marginal improvement in Q2 in margins? I was wondering, should we expect maybe margins to recover to 25% at some point during 2025?

Speaker 2

Well, we expect this to increase from what we are to now. In the range that you're mentioning, we should be this is what we can expect for the second quarter and going beyond.

Speaker 6

Okay. Thank you.

Speaker 7

And

Speaker 2

there is a second question is the buyback. On this let's say on the buyback, this decision will be taken first of all by the Board of Director of April 1 in evaluating the situation and in deciding if how to include or if to include this item in the agenda or the general assembly that will meet in May. So this will be up to the Board and then up to the assembly of the company to decide if we give to the Board of Director the authority to enter into a new program of buyback after May. For the time being, we are advancing in our buyback. The present product is almost completed.

Speaker 5

Okay. And I mean, it will be influenced by whether you can do acquisitions in The U. S. I mean, there was an attempt to acquire a Bantler some time ago. But Trump administration just the other day confirmed the new merger review guidelines of the previous administration.

Speaker 5

So maybe M and A in The U. S. May not be as likely as we thought maybe before.

Speaker 2

Well, but the board will consider all the element, the situation, the dynamic of the market, the opportunity that we have to allocate our capital. We have a large cash in our book. So the decision will be taken into consideration opportunity for investment perspective of the business and the long term view for the company.

Speaker 5

Thank you very much.

Operator

Thank you.

Speaker 4

Our next question comes from

Operator

the line of Mark Bianchi from TD Cowen.

Speaker 8

Hi, thank you. First to follow-up, if we could, on the buyback discussion, just quickly, there were some comments at your September event in London that sort of talked about plans around the buyback. Can is it fair to conclude that those comments from September are still sort of in place and you're thinking about it the same way? Or has there been a change in the Board's view of how the buyback should be positioned? I don't think there

Speaker 2

has been a change in the overall view for this, but for sure since the meeting that we had many things happen in the world and the position and the policy of the new American administration is for sure a factor that will need to be considered by the Board in deciding the strategy for the future. Many thing concerning the opportunity for investment, the dynamic of the energy sector. I personally think that the new amortization have a strong drive in supporting the energy industry. They are launching a program for let's say late. They organize the energy sector in the frame of energy emergency.

Speaker 2

They are speeding up all the process of permitting and so on and so forth. So something will be moving in our in my view in the annual sector. It may be that in this environment also the opportunity for acquisition in area or in part of the world that could be interesting for the NARIS maybe more open and we'll have to reconsider this and analyze this and the perspective of the company as a basis for the signing to do and suggested to the board what to do.

Speaker 8

Yes, wonderful. Makes clear sense. Thank you. The other question I had was on Mexico. So you talked about the sharp decline in activity.

Speaker 8

I think the market has been uncertain as to how Mexico unfolds from here, but it seems like maybe there's some incremental plan in place from them. We're just not sure exactly what it is. So kind of curious on one, what are you hearing in terms of the pace of activity recovery in Mexico and what is reflected in this first half outlook that you've shared with the market?

Speaker 2

Well, what happened to the activity in oil and gas in Mexico is something, let's say, unexpected to some extent and in my view unsustainable. Pemex reduced the investment and is reducing its production from one a little more than 1,800,000 barrel a day to the present 1,600,000 barrel a day. And in the recent months, we are losing production at a rate of around 50,000 barrel a day per month. They are reducing rig from something like 65 rig to around 23. Rigs are basically idle on the field for lack of inputs and lack of resources.

Speaker 2

This is an unsustainable situation in my view in the frame of the policy of the new administration. So I expect this could be, let's say, going on for a while, but could not be, let's say, the long term perspective of Pemex. I would expect that in the second half of this year, the Mexican Agora will have to decide policy and an approach to refinancing Pemex in a way that the country could, let's say, make develop the huge sources in the oil and gas sector. So today, what we see really is unprecedented reduction in productivity. What we expect in the second half of twenty twenty five in my view is a new policy and then it will take time to recover.

Speaker 2

That's for sure. I mean, there will be a reset in the policy in Mexico in my view and there will be a recovery that could be at a pace that we that will be inevitably not too fast considering the financial constraint. Now this is an overall observation in Mexico.

Speaker 7

The

Speaker 2

negotiation around the future of The U. S. MCA, the tariff that are supposed to be implemented by the New American administration, all of this may have an impact on the economy in Mexico, on the long term development of it, we will see. We don't have now the element to evaluate, let's say, which will be the impact of the overall in the overall relation between Mexico, United States and Canada and which will be the future of the USMCA. This will be important also for the development of the energy sector.

Speaker 8

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

Operator

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

Speaker 7

Hey, good morning. Just maybe if you could spend some time on the supply demand picture in North America. Maybe you could just walk us through, give us an idea of how much pipe is on the ground today, maybe the health of the distributors out there and kind of what they're importing, any sort of impact on Section two thirty two when it comes to quota reductions, primarily to South Korea, maybe other places where a new quota has been put on. Just some help around that as we can kind of frame up the supportive nature of ProCT pricing when we think about the remainder

Speaker 9

of 2025. So just more of

Speaker 7

the supply demand dynamics that you're seeing. And with the demand side, we've seen the rig count recover kind of off the fourth quarter seasonality. And what are you expecting as we move forward in 2025, just considering the outlook there? Just some help around the supply demand would be great.

Speaker 2

Yes. Well, thank you, Derek. I would ask Luca Zanotti to comment on the supply demand balance, the level of inventory, what we can expect in our view for The U. S. Market.

Speaker 10

Thank you, Paolo. Good morning, Derek. So many questions here, but one by one. Supply demand, what we see is that recently, the labor imports came down significantly. In the fourth quarter, it was slightly more than 30%, which helps to ease the inventory that is sitting on the ground today, including our inventory is in the range of as we calculate in the range of the lightest it has been six months.

Speaker 10

So from the inventory standpoint, we believe that the situation is somewhat normalized. We see less imports or we have seen less imports during the last quarters. There are structural measures that has been taken by The U. S. Domestic industry against some countries like Thailand, where the preliminary definition of the customer is that they were circumventing the OCTG anti dumping.

Speaker 10

So we expect this not to come in back again. This is well this is seamless. And so overall, if you look at the import side, we have seen something that is a decreasing trend. Now we may be that at the beginning of the 2025, we may see a rebound as they already said their budget. But the situation in terms of supplydemand is much more balanced than what we saw last quarter and two quarters ago.

Speaker 10

Now the second question was, if I'm not mistaken, sorry.

Speaker 7

Yes, sorry, you're about the yes.

Speaker 10

Yes. So the second concerning the quarter, the way the Section two thirty two, which is one of the tariffs that the administration is putting forward, there are many others that they are starting. So as Paolo was saying before, we are in unchartered territory here because we actually don't know. But the way the Section two thirty two quarters are structured is that the quarter is going to go away. So everybody is going to be paying 25%.

Speaker 10

Now how this will evolve in the future? We don't know. But as Paolo was mentioning before, we do know that the spirit of the Section two thirty two was to create a stronger domestic supply chain. And so we are sure that the administration would be carefully monitoring the impulse evolution because they need to stick to increasing the domestic capacity utilization. So we are confident that the overall effect is going to be positive for the domestic industry.

Speaker 7

No, that's helpful. And then maybe just on the demand side, just seeing The U. S. Rig count recovery here, I mean, just off the seasonality bottom, what's your expectation when you talk to your customers as kind of the outlook for the rest of the year just from where you see it today?

Speaker 10

If I may, yes, we need to split a little bit the situation because what we do see is a different behavior. If we take the major and the large independent, we still see that they are very, very disciplined and the ongoing consolidation process is typically leading to rationalization of operations, more efficiency. So we don't see this increasing a lot in these circumstances. Obviously, this may change going forward, but at this stage, we see pretty constant level in this segment. What we do see coming in are some smaller independent or private operator.

Speaker 10

And certainly, we have seen a much more interest in terms of gas. Gas linked to the new LNG that are being approved. So we see this happening. So we see, let's say, constant activity on the major large independent, some smaller player getting in with new rigs and we see interesting developments as far as NASDAQ is concerned. And I believe that this will consolidate even further going through 2025.

Speaker 7

Okay. That's helpful. And then just a follow-up, maybe moving over to Saudi Arabia, maybe just kind of walk through the puts and takes there, with conventional versus the unconventional fields, oil versus gas, entree versus entree? I mean, where is Tenerys positioned? Where are you seeing the pockets of strength?

Speaker 7

And also where are you seeing some of the activity softness that we kind of hear out there?

Speaker 2

Well, for this I will ask Gabriel to give an overview of how we see the evolution of the business in Saudi Arabia.

Speaker 11

Yes. Thank you, Paolo. Thank you, Derek, for the question. On Saudi Arabia, I'll probably take the opportunity to talk about the whole Middle East, where we see a drilling activity that is fairly stable at a very strong level. On the drilling that is associated with gas, we see areas that are very resilient, even growing.

Speaker 11

This is the case of unconventional gas in Saudi Arabia, targeting increase of gas for power generation in The Kingdom. But this is not only the case for Saudi. We see expansion of LNG in Qatar and UAE and targets of self sufficiency in other GCC countries. So we expect also ADNOC to increase its gas plants. We expect Kuwait in deep drilling areas to drill and increase rigs related to gas.

Speaker 11

So gas is a very resilient and growing area in The Middle East. Then when we go to the oil side of the business, the dynamics a bit more uneven. There is evident idle capacity of a crude production in The Middle East and different countries and companies are taking different decisions. We see on one side, UAE expanding capacity of crudes in an area where China is very well positioned. And we see, for example, Saudi Arabia softening some of the drilling associated to oil, especially in the offshore oil, stopping that quest for an increase in the interior capacity of crude production.

Speaker 11

So this is what we see in the Kingdom. It's also to mention something that we have noted on the open remarks that Saudi Arabia is also going forward with projects related to energy transition. We mentioned the CCS project. This is an initiative that Saudi Aramco is leading to capture, transport and store CO2, 9,000,000 tons per year. And this requires a pipeline of more than 300 kilometers.

Speaker 11

This is an important order of $250,000,000 approximately that we will start delivering during the third quarter of twenty twenty five and complete before the end of twenty twenty six. So we see overall The Middle East has been in 2024 a point of strength for Teneris and will continue to be the case for 2025. And even though we had a slight decrease of our revenues in the fourth quarter of twenty twenty four, we expect that rebound as early as first quarter of twenty twenty five.

Speaker 7

Great. Very helpful color. I appreciate it.

Speaker 2

Thank you. I'll turn

Speaker 11

it back. Thank you.

Operator

Thank you. One moment for our next question.

Speaker 4

Our next question comes from the

Operator

line of Kevin Rodger from Kepler Cheuvreux.

Speaker 6

Yes, good afternoon. I would like if I may please going back on The U. S. Tariff and the potential impact. The first one will be on your production cost.

Speaker 6

Can you give us some color currently on what percentage of the billet that you currently use locally are outsourced from Europe or someone else? Just to understand exactly what percentage of raw material cost could be impacted by any 25% tariff? And the second one, just to be sure that I well understood what you just said, if we have the 25% tariff and that in the meantime all the quota removed from the two thirty two. Don't you feel that the Korean guys that are currently under quota with 400,000 tons something like that will potentially be able to massively increase their imports because I guess that we've just a 25% tariff, so they will remain very, very competitive. That will be the two points on the tariff, please.

Speaker 6

And the last one, outside those topic, if you can give us some colors on currently Pemex, what are the level of receivables that you have currently with Pemex, please?

Speaker 2

Thank you, Kevin. Well, in the first point, let's say, we have a steel shop full operation that is the copper steel shop in which we are been investing and are preparing for eventually expansion of our operation that is feasible. It's a question of expanding the bag house and exhaust fumes system just to achieve increased production. So we have the possibility of increasing our, let's say, local production of steel. And then we are porting or complementing steel from different sources.

Speaker 2

We are also buying locally from different supplier in The States to complement the steel that we can supply from Mexico, from Argentina, from Italy or from Romania. So we have very many different sources for supplying the what is missing of this. All the steel shop and you can imagine the size will be devoted to The U. S. Operation plus local supply and plus many different sources, some of which we don't know if we will be affected by tariff or not, because in the end there will be a negotiation starting, but we do not know how these negotiation will end up with Europe or with Mexico or with Argentina especially.

Speaker 2

So this is where we are in terms of the supply. We feel comfortable that in the end whatever scenario we will come out with a fully integrated line pretty efficient compared to any other competitor. As far as Korea is concerned, I have no doubt that the American administration will be very careful in not allowing anybody to even pay in quota, flooding the market and reducing utilization of the domestic. So I mean, this is what they said, this is what they did and this is what they are going to do to contain this one way or the other by agreement or by other things. So I'm not really concerned that this would be a credible scenario for the future, considering where we are today.

Speaker 2

And this is not only valid for Korea, it's valid also for other players that may see more room for increase, but I frankly don't think that there is there will be open season for them. Now as far as PEMEX, we are reducing our exposure. I think that you will see this in the working capital cash flow. We are generating important cash flow there. We are doing agreement that allow us to reduce this in the range of, let's say, close to this quarter around $140,000,000 and this our program will allow us to continue but at a different pace.

Speaker 6

Okay, okay, understood. Thanks a lot for the color.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Daniel Thompson from BNP Paribas Exane.

Speaker 9

Hi, good afternoon. Just one question please. I'm just trying to think about the impact of the price rises in PipeLogix outside of The U. S. I was wondering if you could remind us sort of what proportion of your ex U.

Speaker 9

S. Contracts have an element of PipeLogix in them and what's the sort of time frame for feed through there? And if we did have U. S. Pricing increasing considering the various lags, when could we expect that to feed through to those contracts and then feed through to your P and L beyond that?

Speaker 9

Thank you.

Speaker 2

Thank you, Daniel. Well, the pay project is important in the formulas for a long term agreement in The States, obviously, then in Mexico, in Canada, in the rest of South America, including Argentina, Colombia and in some specific contract. But basically, I mean, you say in The Americas, but not so much used outside The Americas, where the formulas are more related to the cost structure of our pipes. This is where they are. The pipe logic increased 9% from August to today in January.

Speaker 2

And we expect this to continue to increase even before the application of tariff. And we'll get into our contract with a delay between one quarter and two quarter. Gradually, this will get into it and we will see it. So then in the moment in which tariff will be introduced, expectation will step in and we don't know what may happen in the month of March or April. But this is where we what we can estimate and consider today.

Speaker 9

Okay, very clear. Thank you.

Operator

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

Speaker 5

Good afternoon, everybody. Sorry to ask again about The U. S, but can I just disaggregate The U? S. Market into Seamless and Welded?

Speaker 5

If my math is correct, you're importing some Seamless tubes into The U. S. From outside The U. S. And obviously that's part of this uncertain territories.

Speaker 5

Can you just talk about your ability to ramp up some welded production should the need arise?

Speaker 2

Well, we have capacity on the ground for doing it. But also price will be moving and also the price of hot rolled coil will be moving. Really. But I will ask to Luca

Speaker 6

to

Speaker 2

expand on this relation welded seamless and situation for the import of the pipe that are complementing our sales to The States?

Speaker 10

Yes. To summarize, Nate, today our faith in The United States is for the great majority seamless. You know that our strategy and redirect is to provide the whole well. And so you can think of what is the portion of well that goes into the surface and intermediate and think that this is more or less our proportion in our sales between seamless and welded. Now as far as your second question, which is capacity in welded, obviously, we are super well positioned in terms of capacity because we could easily ramp up even further our capacity in our Ickman plants.

Speaker 10

And we have because we do believe that we're going to see some blind pipe also coming through. We have a nice plant in Wilder, Kentucky that can step in if needed. As Paolo was saying, this will depend on the relative provisioning of the market prices and the cost of HFC, which are the two main inputs for the welded production. But in terms of capacity, we're probably the best placed in The United States, but not probably, we are the best placed in The United States.

Speaker 5

Okay. Just

Speaker 2

Thank you, Luca. In the case of welded, we depend entirely from domestic industry for the supply of hot rolled coils. So we are really depending on the equilibrium between price, pipe logic and the local hot rolled coils. I am I think that in The U. S.

Speaker 2

Maybe not immediate, but over time the policy of the new government and the Trump administration will be to speed up all the permits processed and we may see additional line pipe and additional connection and evacuation. And also to some extent, this may, let's say, open the way for some development that maybe we do not see exactly now, but we may see in six months' time.

Speaker 10

Thank you.

Operator

Thank you. At this time, I'm showing no further questions. I would now like to turn the conference back to Giovanni Sardania for closing remarks.

Speaker 1

Thank you, Gigi, and thank you all for joining us and hope to see you soon. Thank you. Bye.

Operator

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

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Earnings Conference Call
Tenaris Q4 2024
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