Tenaris S.A.

Good day and thank you for standing by. Welcome to Q4 and full year 2024 Tenatis Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. 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, Investor Relations Officer. Please go ahead.

Thank you, Gigi, and welcome to Tenaris' 2024 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 Rocca, our Chairman and CEO, Alicia Mondolo, our Chief Financial Officer, Gabriele Podkucka, our Chief Operating Officer, and Luca Zanotti, President of our U.S. Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment on quarterly results. During the fourth quarter of 2024, sales reached $2.8 billion, 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 EBDA for the quarter was up 6% sequentially to $726 million, and our EBDA margin increased to 25.5, 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 EBDA declined 4% sequentially to $659 million, 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. During the quarter, cash flow from operation was $492 million. Our net cash position at the end of the quarter decreased to $3.6 billion following the payment of an interim dividend of $299 million in November of last year, 454 million spent on share buybacks and capital expenditures of 182 million during the quarter. The Board of Directors has decided to propose for approval of the Annual General Shareholders Meeting to be held at the beginning of May, the payment of an annual dividend of 83 cents per share or 166 cents per ADR, which includes the interim dividend of 27 cents per share or 54 cents per ADR that we paid at the end of November last year. If approved, a dividend of 56 cents per share or 112 cents per ADR will be paid on May 21st. Now, I will ask Paolo to say a few words before we open the call to questions.

Thank you, Giovanni, and good morning to all of you. 2024 was a good year for Tenaris in many aspects. we consolidated our leading industry position with a number of major achievements. We delivered a solid financial result, accompanied by higher returns for shareholders, 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. The accident occur in the heavy equipment maintenance shop of our main plant in Argentina. This is a major setback for Zeneris, 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 3.1 billion and net income of $2.1 billion, on net sales of $12.5 billion. Frequency flow amounted to $2.2 billion, 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 that for the previous year. At the same time, we maintain our net cash position of $3.6 billion. In North America, consolidation among major shale operators has continued, and we have strengthened our service differentiation with these operators, comprise 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 24-7 digital well integrity solutions supported by technical specialists and remote monitoring capabilities, in addition to our more established run-ready service. ExxonMobil has honored us with their 2024 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.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 shale Sparta 20K project in the U.S. deepwater following many months of extensive work on product development and testing and the development of 3D mapping technology that enhance pipe collapse resistance using ultra-high collapse steel grades. This complement an award to supply BP's Kaskida 20K 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 path and insulation coating for total Grand Morgue development. This achievement was possible thanks to our successful integration of Showcore and its pipe coating technologies and project management capabilities. For other deep water development, we are delivering a line pipe and coating for Equinor Raya project in Brazil and have recently completed deliveries for an offshore pipeline for TPAO Sacaria project in the Black Sea. In the Middle East, our contribution to the development of low-focal industrial capability are being recognized. In 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 4.0 digital leader by the Minister of Industry and Advanced Technology. 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 energy infrastructure investment moves forward. Over the next month, we will be supplying the oil pipeline that will connect Vaca Muerta to a new deep water port in Puerto Rosales in Chubut and expect further pipeline investment during the year. During the year, we completed a series of investments in our industrial system aimed at improving the efficiency of our operation as well as contributing to our decarbonization and environmental objectives. These include the installation of a new electric car furnace with modern continuous charging technology in Argentina, the modernization of our Coppel steelmaking facility in the United States, increasing its effective capacity and the installation of new heat treatment furnace and finishing line at our Dalmine 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-meal transportation and other changes aimed at improving reporting transparency. 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 Another event could significantly alter the established market environment. Tenaris, with its unique positioning, both globally and in North America, the competitive differentiation in 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 Tenaris. and the Techint group over more than 40 years. I'm very pleased that we will still be able to benefit from her wise advice in the time ahead. 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.

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Arun Jharam from JPMorgan Securities, LLC.

Good morning, Paulo and team. My first question is on tariffs. Paulo, if the 25% tariffs on imported steel tubulars are implemented by the U.S. Commerce Department, Would you still expect Section 232 quotas to remain in place? And I guess the follow-up is if Section 232 quotas are removed but tariffs are implemented, how do you see the impact on OCTG pricing and import trends if that were to occur?

Thank you, Arun. As we say in the opening remark, I mean, we are entering into 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 232. But I would expect that, in general, the introduction of the 25% in the 232 will have impact on different aspects. On one side, it's very likely that the level of price in the United States will gradually increase. The market imports are relevant, has a relevant share of the US OCTG, particularly OCTG product. So the impact of the 25% tariff will reflect, in our view, into an increase in prices. the quota are concerned, we have no indication which is the intention of the US administration, but overall the 232 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 interests of the domestic industry. In this sense, Tenaris is well positioned. We are producing almost all of our need of pipes in the United States. So we think we are well positioned to manage what is coming. It is true that we are producing large part but not all of our steel need and we may be paying tariffs on 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 232. As you know, we will understand better in March, when this will be announced, 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 US or worldwide.

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. Tenera says 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 Tenaris between just OCTG long-haul pipe and some of the services that you provide in Argentina between coil tubing and as well in frack. I think you have some pressure pumping capacity in country.

Yes, well, we are very positive on the development and 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 Moerta. Now, This is happening in preparation of the expansion of the capacity of evacuation of oil from Vaca Marta. The big pipeline that is called the Vemos is under construction. We have the order for the pipes and the order for the construction has also been negotiated and signed. This pipeline will go on and the oil companies are preparing the wells and the upstream to supply 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 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. We were saying that the rigs in Vaca Maderta could increase for the 31, 32 that were operating last year to a level of 42 or plus by the end of the year. Things are moving. some companies are taking decisions now, maybe we may have an important increase in the rig. We are preparing for this, so we are also expanding our capability in the fracking. We are adding a set for responding to something that we expect and increasing 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 in the course of 2025 and accompanying this, the base in Neoken and Coiltube for satisfying this need. 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 Vacavoerta. The capacity of the Vemos is large and will require investment to be filled up. Great. Thank you.

Thank you. One moment for our next question. Our next question comes in the line of Alessandro Pozzi from MedioBanca.

Thank you, Gigi. I have two questions. And they're related, I guess, to the reaction of the share price today. And I'm still trying to figure out if it's maybe the outlook has been perceived to be a little bit less constructive compared to what you mentioned in the last call, or maybe just expectations around announcement of share buybacks. And that leads to the first question. 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 2025, because we've seen the recovery in pipe logics. So maybe it's natural to expect a progression in top liner 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 1.2 billion that you announced initially or perhaps you maybe you want to allocate some of the capital to potential acquisitions in the US that could expand your capacity given the new political outlook and And yeah, that's my two questions.

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 fourth year. This is the results, I would say, of On one side, we will have in the first quarter of 2025 less volume to Europe. In reality, the big pipelines and OCTG that we sold in Turkey that are considered in our line as part of the line of Europe. 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 regions, including the United States. So the results of this is our expectation of imagine that we'll be more or less online or hopefully a little better if the pipe logic continues 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, a slight increase in our margin, but this will be influenced by the tariff decision on the beginning of 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. 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 our marketer our sector today okay so do you expect maybe imagine an improvement in q2 in in margins

I was wondering, should we expect maybe margins to recover to 25% at some point during 2025?

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

Okay.

And there is a second question, the buyback. Let's say on the buyback, this decision will be taken, first of all, by the Board of Directors on the 1st of April in evaluating the situation and in deciding how to include or if to include this item in the agenda or the General Assembly that will meet in May. uh so that 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 in our buyback the present product is almost completed okay

And I mean, it will be influenced by whether you can do acquisitions in the U.S. There was an attempt to acquire a Bentley some time ago, but the Trump administration just the other day confirmed the new merger review guidelines of the previous administration. So maybe in the U.S. may not be as likely as we thought maybe before.

Well, but the board will consider all the elements, 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.

Thank you very much.

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

Hi, thank you. At first, to follow up, if we could, on the buyback discussion just quickly, There were some comments at your September analyst event in London that sort of talked about plans around the buyback. 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 today?

I don't think there has been a change in the overall view for this, but for sure, since the meeting that we had, many things happened 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 things concerning the opportunity for investment, the dynamic of the energy sector. I personally think that the new administration has a strong drive in supporting the energy industry. They are launching a program for – they organize the energy sector in the frame of energy emergency. They are speeding up the process of permitting and so on and so forth. So something will be moving 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 Tenaris may be more open and we will have to reconsider this and analyze this and the perspective of the company. as a basis for deciding what to do and suggested to the board what to do.

Wonderful. Makes clear sense. Thank you. The other question I had was on Mexico. So you talked about the sharp decline in activity. I think the market has been uncertain as to how Mexico unfolds from here, but it seems like You know, 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, you know, 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?

Well, yeah. 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 a little more than 1.8% million barrels a day to the present 1.6 million barrels a day and in the recent months they are losing production at a rate of around 50,000 barrels 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. 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 of this year, the Mexican government will have to decide a policy and an approach to refinancing permits in a way that the country could, let's say, develop the huge resources in the oil and gas sector. What we see really is an unprecedented reduction in relativity. What we expect in the second half of 2025, in my view, is a new policy, and then it will take time to recover. 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 the case of Mexico, you know, the negotiation around the future of the USMCA, the tariff that are supposed to be implemented by the new American administration, All of this may have an impact on the economy of 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 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.

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

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

Hey, good morning. Maybe if we could spend some time on the supply and demand picture in North America, maybe you could just walk us through, you know, 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 232 when it comes to quota reductions, you know, 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, you know, the supportive nature of OCT pricing when we think about the remainder of 2025. So just more of the supply and demand dynamics that you're seeing. And with the demand side, we've seen the rate cap 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 and demand would be great. Yep.

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. Yeah.

Thank you, Paolo. 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 helped 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 slightly less than six months. 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 have been taken by the U.S. domestic industry against some countries like Thailand, where the preliminary definition of the custom is that they were circumventing the OCTG anti-dumping, so we expect this to not to come in back again. 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 see that at the beginning of 2025, we may see a rebound as they reset their budget. But the situation in terms of supply-demand is much more balanced than what we saw last quarter and two quarters ago. Now, the second question was, if I'm not mistaken, sorry. Yeah, sorry, you're about, yeah. Yeah, so concerning the quarter, the way the Section 232, which is one of the parties that the administration is putting forward, there are many others that they are studying. So as Paolo was saying before, We are in uncharted territory here because we actually don't know. But the way the Section 232 quotas are structured is that the quotas are going to go away. So everybody's going to be paying 25%. 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 232 was to create a stronger domestic supply chain. And so we are sure that the administration will be carefully monitoring the imports 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.

No, that's helpful. Thank you. Yeah, and then maybe just on the demand side, just seeing the U.S. 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?

If I may, here 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 a pretty constant level in this segment. What we do see coming in are some smaller independent or private operator. And certainly we have seen 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 gas is concerned. And I believe that this will consolidate even further going through 2025.

Okay, that's helpful. And then just to follow up, maybe moving over to Saudi Arabia, maybe just kind of walk through the puts and takes there, you know, with, conventional versus the unconventional fields, oil versus gas, entre versus entre. I mean, where is Tenere's position? Where are you seeing the pockets of strength? And also, where are you seeing some of the activity softness that we kind of hear out there?

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

Thank you, Pablo. 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. This is the case of unconventional gas in Saudi Arabia, targeting an increase of gas for power generation in the But this is not only the case for Saudi. We see expansion of LNG in Qatar, in 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. 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 are a bit more uneven. There is evident idle capacity of crude production in the Middle East, and different countries and companies are taking different decisions. We see on one side UAE expanding capacity of crude in an area where Tenaris 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 ulterior capacity of crude production. So this is what we see in the kingdom. It's also to mention something that Pablo noted on the opening 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 million tons per year. requires a pipeline of more than 300 kilometers. This is an important order of $250 million approximately that we will start delivering during the third quarter of 2025 and complete before the end of 2026. So we see overall the Middle East has been in 2024 a point of strength for Tenaris 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 2024, we expect a rebound as early as first quarter of 2025. Great.

Very helpful call. I appreciate it. Thank you. I'll turn it back. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Kevin Roger from Kepler Shovra.

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. Can you give us some colors currently on what percentage of the billets that you currently use locally are outsourced from Europe or someone else, just to understand exactly what percentage of the raw material costs 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 are removed from the 232, 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 with just a 25% tariff, they will remain very, very competitive. That will be the two points on the tariff, please. And the last one outside those topics, if you can give us some colors on currently Pemex, what are the level of receivables that you have currently with Pemex, please?

Thank you, Kevin. Well, in the first point, let's say, we have a steel shop, full operational, the copper steel shop, in which we have been investing and are preparing for eventually expansion of our operation that is feasible. It's a question of expanding the back 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 supporting or complementing steel. from different sources. We are also buying locally from different suppliers 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 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 this negotiation will end up with Europe or with Mexico or with Argentina especially. So this is where we are in terms of steel 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 producer. 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. 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 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 million dollars and this our program will allow us to continue but at a different pace okay okay understood thanks a lot for the color thank you one moment for our next question

Our next question comes from the line of Daniel Thompson from BMP Paribas Exam.

Hi. Good afternoon. Just one question, please. I'm just trying to think about the impact of the price rises in pipe logics outside of the US. I was wondering if you could remind us what proportion of your ex-US contracts have an element of pipe logics. in them, and what's the sort of timeframe 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&L beyond that? Thank you.

Thank you, Daniel. Well, the pay project is important in the formulas for the 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. You know that Pipelogic increased 9% from August to today, in January, and we expect this to continue to increase even before the application of tariff. And it will get into our contract with a delay between one quarter and two quarters. 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

Okay, very clear. Thank you.

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

Good afternoon, everybody. Sorry to ask again about the U.S., but can I just disaggregate the U.S. market into seamless and welded? 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 on certain territories. Can you just talk about your ability to ramp up some welding production should the need arise?

Well, we have capacity on the ground for doing it but also, you know, price will be moving and also the price of hot roll coil will be moving. But I will ask... to look to expand on this relation welded seamless and the situation for the import of the pipe that are complementing our sales to the States.

Yes. To summarize, Nick, today our sales in the United States for the grand 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 seamless. 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 Hickman plants. 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 positioning of the market prices and the cost of HRC, which are the two main inputs for the welded production. But in terms of capacity, we're probably the best place in the United States. We are the best place in the United States.

Thank you, Luca. You know, in the case of weather, we depend entirely from domestic industry for the supply of hot-roll coils. So we are really depending on the equilibrium between price, pipe logic, and the local hot-roll coils. I think that in the U.S., maybe not immediately, but over time, the policy of the new government and the Trump administration will be to speed up all the permits process 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.

Thank you.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. At this time, I am showing no further questions. I would now like to turn the conference back to Giovanni Sardagna for closing remarks.

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

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