Tenaris S.A.

Good day and thank you for standing by. Welcome to the second quarter 2025 Denadie's Essay 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 1-1 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 Denadie's 2025 Second Quarter Conference Call. Before we start I would like to remind you that we will be discussing forward-looking information during 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, Carlos Gomez-Saltzga, our newly appointed Chief Financial Officer, Gabriel Potskufka, our Chief Operating Officer, and Gizermo Moreno, President of our US Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. Our second quarter sales reached 3.1 billion, down 7% year on year, but up 6% sequentially, mainly reflecting an increase in North American OCTG prices and stable volumes. Average selling prices in our Tubes operating segment decreased 2% compared to the corresponding quarter of last year, but increased 6% sequentially. Our ABDA for the quarter was up 5% sequentially to 733 million, with our ABDA margin for the quarter close to 24%. Our margins remain in line with those of the previous quarter, our cost of sales also rose 5%, mainly reflecting product mix differences and higher target payments. With operating cash flow of 673 million and capital expenditure of 135 million, our free cash flow for the quarter was 538 million. After a dividend payment of 600 million in May and share by Bax of 237 million, our net cash position amounted to 3.7 billion at the end of the quarter. 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. Our results in the second quarter point to the solid industrial and commercial position that Tenaris has built, serving its wide range of customers around the world and the competitive differentiation we have established in key markets. Even as drilling activity in several areas of the world has slowed, our sales rose sequentially, together with our ABDA and net income. Our free cash flow amounted to a solid 538 million, while our shareholder distributions between dividend payments and share buybacks amounted to 837 million dollars during the quarter. There is an increase in the US Section 232 tariff on the import of all steel products from 25% to 50%, and the ongoing tariff negotiations have increased market uncertainty. As countries negotiate the so-called reciprocal tariff, no country apart from the UK has so far been able to negotiate how the Section 232 tariff will be applied. We expect that the current broad-based approach will eventually be modified towards a more specific product-based approach, which takes into account market factors and considers differential tariff and quotas for some countries. The Section 232 tariff and the ongoing negotiations will change the competitive environment, favoring more utilization of available domestic capacity and fewer imports. Over time, they will impact on prices once excess inventories are drawn down and imports are reduced from the high levels we have seen in the first half of the year. Tenaris, with its strong US domestic production base, including the world's most efficient seamless pie mill at Bay City, and its copper-steel production facility, supported by its global inductor system, remains well-placed to continue serving its US customer with its highly differentiated rig direct service. Our sales this quarter include the successful delivery of pipes and coatings to a wide number of complex lime pie projects around the world. These include Echinor Raya project in Brazil, ConocoPhillips Willow project in Alaska, Shell's Bonga project in Nigeria, Azul Ndongo project in Angola, and Chevron Leviathan project in the Mediterranean. Looking forward, we will have lower delivery to offshore lime pipe projects until a new wave of projects progresses to the development phase in 2026. One such project will be the Grand Morgue project in Suriname, in addition to our lime pipe and coating award, we have received the award for the supply of casing and tubing for the project. Key to this achievement was our offer of service, which we will carry out from a base we are now setting up in Suriname. In the fast-growing frontier development of the Guayana-Suriname Basin, we have set up local service bases to support the operation of Exomobil, of Total Energies, and other customers in the region. Another major developing region where we have been able to make a difference is the Vaca Moeta Shell Play in Argentina. Here, as well as casing and tubing, we also supply fracking and coil tubing services, and are instrumental in developing the pipeline infrastructure that will enable the oil and gas to reach global markets. During this third quarter, we will complete most of the deliveries for the Vaca Moeta sewer pipeline that will build crude export capacity to a new deep-water port in Puerto Rosales. Early next year, we should also deliver the pipes for the Duplicar Norte pipeline that will connect the node development in Vaca Moeta to the main crude export pipelines. In Mexico, Pemex has successfully issued a 12 billion financing facility this week. This is an important step that should allow Pemex to increase its current low level of operations and pay down some of its suppliers' debt. We look forward to supplying a higher level of operations under our current contract, With oil prices around $65 a barrel and drilling activity in the United States and Canada is growing, our sales in these countries remain relatively resilient due to our solid customer portfolio. Their focus is on improving operational efficiency, which extends the lateral length for which they appreciate our seamless product and rig direct service. We are ready now to take any questions you may have.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Arun Jayaraman from JP Morgan Securities, LLC.

Yeah, Paulo, good morning. I was wondering if you could comment on your thoughts and outlook for the second half of 2025, just given some of the things you cited, you know, tariff impacts, you know, some activity perhaps going down a little bit in the US, but give us a sense of how you think about volume trends and margin trends for the second half.

Well, thank you, Roman. I think there are many moving parts that are affecting, let's say, the second half. We have visibility on the third quarter, but obviously less visibility on the fourth. What we can say for the third quarter, we expect lower sales on our part to do different factors. Basically, we will have lower invoicing in our fracking operation. We have a kind of black space for three months due to the programming of the company for their operation of fracking in Bacchamuerta. This is something that will to some extent reduce slightly our invoicing. We also, after an important wave of delivering of our lime pipe, we will have somewhat lower shipment of lime pipe during the quarter. Operation in North America will be reflecting some increase in price, which we expect, but also some containment of the activity and the rigs because, let's say, price of oil is today what it is. Even if I compare with our vision three months ago, three months ago we were more concerned about the impact of potential recession and the lower price of oil. Today, looking at the forecast for the economy worldwide and the perception of the market, we would expect the price of oil to stay around $65. In this environment, there shouldn't be a strong reduction in the recount. So we do not expect that. In North America, more flexion in Canada because of seasonal reasons. In the US, we know we will be compensated by some more activity in Mexico. So overall, we expect lower sales, especially in the third quarter in the range of the high single digits for our invoicing. In the fourth quarter, it is more difficult to predict, to understand which will be the dynamic of prices. You know there are tariffs that have been raised on the 4th of June for the 232 up to 50 percent, almost for every country, excluding UK. And the negotiations that are underway today are mostly focusing on the reciprocal tariff, but are not touching on the 232. If this situation is not addressed with a more specific product by product or quota for specific sectors in the coming months, inevitably prices in terms of domestic prices in the United States will reflect this. And this will impact on our sales. But today it is difficult to forecast which will be the impact on the fourth quarter. Also in the third quarter, our slight reduction in sales will take into consideration some repair and maintenance that we usually perform during August. This is our outcome as far as let's say overall top line is concerned.

Okay, that's helpful. It kind of sounds like your commentary is pretty similar, maybe different moving pieces, with what you outlined last quarter in terms of the outlook. Paul, I was wondering if you could highlight about your project pipeline as you think about 2026 relative to 2025. You highlighted Suriname as a new opportunity for Tenerife, but how does the major or large project pipeline look in 2026, thinking about places like the Vaca Marta?

On this, I would like to have Gabriel to give you a view of how we see, let's say, our load into 2026 and what we can do compared to 2025. Gabriel.

Yeah,

thank you, Paulo. Good morning, Arun. To give you an overall perspective of the offshore market, which is an important driver for the pipeline business and also for the OCDG business in this segment, I would say that the market dynamic is overall positive. We don't see an immediate effect of the deteriorated market environment in linear activity. As a matter of fact, the deep water drilling rigs are quite resilient at very good historical levels. And we are working with our customers on many new projects. Some of them are being delayed in the FIDs, but we are confident that in the next few months they will be sanctioned. So overall, the context, I would say, is positive. Within this context, we have been building and continue to build an important backlog in this strategic segment, Paulo, and you commented on Suriname, where we just got awarded the drilling campaign for OCDG to cover the needs of casing and drilling for these 36 wells that Total will develop in this initial phase of deep water development. The customer has standardized on Doppler technologies and we are getting ready building our service base in-country. This is in addition to the award of pipeline and coating that we commented in our prior call. So we are building an important backlog. Also this quarter, we booked the water pipeline in Brazil for Petrobras, Bucio's 11 project. And we also have been awarded OCDG needs of Chevron for their deep water campaign in Agbami in Nigeria. So overall, I would say that we are building an important backlog into 2026. As Paulo mentioned, we had a high concentration of pipelines in the first half of 2025. So our pipeline offshore delivery in the second half will be slightly lower. But we believe with great confidence that 2026 will be a, we will have an important contribution overall on the offshore segment.

Thank you, Gabriele. Just to add that our position in this segment after the acquisition of Showcore, considering the different plants that can operate in welded and seamless in different parts of the world, plus the global deployment of Showcore and coating, is a formidable structure for addressing and assuring short lead time competitive offer quality to our client. I mean, this is the acquisition of Showcore really gave us, has put us on a different perspective for serving our client. And I think we are capturing the benefits of this.

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

Good afternoon. Thank you for taking the questions. The first one is again on the outlook for the second half of 2025. You indicated where sales are going to go. Maybe if you can add some additional color on margins in Q3 and Q4. Because I think that Q3 maybe you can still benefit a little bit from the lag effect with the pipe logics. But then you will feel the full impact of tariffs as well. And I believe it should be around 140 million per quarter. I'm not sure if you have some remedies in place to reduce the amount of impact from tariffs. And or whether the higher prices will be able to offset these. Because if we look at the pipe logics that was out yesterday, it was just a small increase and months and months. And I don't know, maybe we will see stronger prices going forward. But your thoughts on margins will be very appreciated. And the second question is on South America. I believe sales were down in Q2. Can you give us maybe the outlook for sales in Argentina and explain why maybe the whole point overall in Argentina is still rather flat despite all the investments in Back and Work? Thank you.

Thank you, Alejandro. Now on the first point, first of all, you are right that the 50% tariff of the Section 232 is affecting us on a dimension that is close to what we are saying. Remember last time we were saying with 25%, around 70 million per quarter. Today with increase of the tariff to 50%, this number could become higher in the range of 140, 150 for a quarter. Now let me add two considerations. First of all, we don't know where the negotiation with Mexico, Canada, Argentina will end up. And if there will be some consideration, like in the case of UK, for changing or adapting or modifying by product of a country, some of the consideration regarding the tariff of the 232. We do not know, but we think that would be a possibility. Because in the end, the relation within the USMCA and the relation with Argentina may justify specific negotiations that include some aspects related to the 232 automotive, steel and not only on the reciprocal. This is the first consideration that may change this. Second consideration, well, we can react in terms of location, organization of our production flows. And this tariff is getting in our cost of sale gradually because of the inventory. Some of these tariff are affecting our steel bar coming into the US. There is a take time to flow through our inventory to get into our cost of sale. So you should also consider that the figure we are mentioning are not getting straight into the next quarter, but only gradually to this. And also that we have, let's say, alternative or we can to some extent limit part of the impact of this. And then we go to the impacting prices. You're right. Yesterday the PI project comes out with a very modest increase. But these are the results also of the very high level of import that were unleashed by the elimination of quota when the first round of 232 were introduced with 25 percent but no quota. There has been import in the United States from different sources. Well above the level of quota, there has been a resulting increase in inventory. These inventories are waiting on prices today and will do so for a while, but not forever. I think that after the increase in 232 on the 4th of June to 50 percent, some of this import gradually will be reduced. Today there are many products on the sea, on the vessels coming into the U.S. But then the decision has to be taken that will affect September, October and the coming months will be taken with a different scenario and different consideration, taking into consideration the higher level of tariff. So prices, in my view, will go up. Will they do so gradually, but to some extent inevitably over time. Difficult to predict if this will happen and exactly when, but prices will need to go up more than what has been done up to now. And this will also contribute to our margin. Have you seen this? What we can see is the margin for the next quarter and we expect margin slightly below the margin of this quarter, but always in the range between 20 and 25. Remember, this is, let's say, where we were guiding last quarter. We will remain within this space between 20 and 25, but lower than this quarter, slightly lower than this. In the fourth quarter, for the reason that I mentioned, I think it's more difficult to have an estimate, a reasonable estimate of what will happen. Most will depend from the decision that the importer may take and the reflection on price. In my view, having duty for steel and pipe and bars going up 50 percent will have an impact on the price of PipeLogic, even in an environment which the recount is not very aggressively increasing. Even if it stays or it goes down slowly as we anticipated, there should be an impact on prices. This would be logical to happen.

Thank you. And on South America?

Second question, if it is okay for you, the first one. On South America, you're right that there's been a containment of oil. One is the situation in which the recount has been, went down slightly, has been in Argentina, as you say. The point in Argentina is that in the southern part of the country, there has been a reduction, a divestiture from YPF and other companies of their operation in the southern part of the country. This turned out into a reduction of the number of rigs operating on one side. On the other side, there is a company still having a cautious approach in organizing their investment in Vaca Muerta. The access to finance has limitations. Some operations have been important. For instance, it has been possible to finance the pipeline in Vaca Muerta South for bringing oil to the coast. And this is an important program involving financing for around $2 billion. Also, there's been other financing operations for local companies. But still, the country risk is above 700 points. It's not exactly easy for local players. To finance all the operations in line with the more optimistic expectation that we may have maybe six months ago. Today, nothing changed in the positive view of the development of Vaca Muerta for gas and for oil. But the pace of operation development and growth is slower than we expect. Also, the price of oil, there was a moment in which companies were more afraid of the price of oil between $60, $55, $60. And this would have clearly had a negative impact, especially in companies like the local company Argentina that are depending very much on their care flow to be eligible for financing. I think that this situation is improving. Still, the country risk is important. On the other side, the evaluation of the local currency in the last month has devaluated by around 10%. It's reducing costs. So it's also acting in a positive way in the project, in the profitability of the project and from the cost side of the operation. So I'm confident that Vaca Muerta will continue to expand, increasing demand, drilling over time. But in this semester and in these months, what we are seeing is a reduction of rigs because of the south and a very slow movement in increasing rigs and fracking. This is part of the problem of the issue of the wide space in our fracking operation until September.

Thank you very much. I appreciate the call. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Sebastian Erskine from Rothschild & Co. Redburn.

Hi. Good morning, Paolo and Tim. I'd like to start on the commentary around imports. Obviously, it has remained an elevated level in the first half of the year, a few steps down in the second half. But how much share gain can we expect by Tenaris and equivalent domestic producers for imports as a percentage of the mix? And I'm thinking about that in terms of kind of offsetting weaker volumes in the back half of the year, particularly in US land where the rig count remains under pressure.

Well, you know, in overall, import represents a large share of demand in the US in the range of 40 percent. So let's say if you imagine 50 percent on 40 percent of the supply in a very large market, even in an environment in which the rig count should stay or go slightly down, we basically expect this. And it will also depend on the price of oil, obviously, it's affecting the cash flow. But even in an environment of a relatively slow down on rig, the impact on import of the tariff, there will be impact on the prices, there will be some substitution. Now, in terms of capacity, I think the domestic industry has the ability to increase the production. But the level of utilization is still pretty high today in the different players in the seamless air arena. And probably there is room for increasing utilization in the welded supply of OCDJ. But when the supply is limited to a segment of the market and not to the entire market. These are the reasons why I think over time the price level in the US should go up.

Really appreciate the color, Paolo. And then my second question on distribution. Obviously announcing the 1.2 billion authorization, it looks like you're kind of front loading the first trance of 600 million. Looks like you completed nearly two thirds of this. Would you be open to bringing forward the second trance of repurchases, just given the cadence you've already achieved?

Well, as you know, the board approved two tranches of Sherpa Rebec. And the second tranche will be considered in the board meeting on the 29th of October. But this has been approved. But anyway, this is what we expect. This will be reconsidered again and very likely launched after the board on the 29th of October. Thank you

very much, Paolo. I'll hand it back now. Thank you.

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

Hi, thank you. The first one is real quick. I just wanted to clarify, Paolo, on the third quarter outlook, the high single digit decline was a comment on sales or a comment on volume?

It was a comment on sales.

Okay. Thank you very much. The other question relates to supply chain. You talked about, you know, if there's potentially exceptions for USMCA and you could divert some of your supply, steel supply from Mexico. Should we think about that as potentially removing the entire $140 million tariff headwind or what's the opportunity there?

No, no. I mean, we can, first of all, expand as much as we can local production of steel. So the copper operation, by the way, we had one accident in copper one month and a half ago. We solve it. But we did to some extent reduce to some extent our availability of steel for a while. Now we will pick up again. So we will take advantage of this capacity as much as we can. This is one component that contributes to the reduction of the tariff we pay on the bars and semis that we need to bring into the states to feed into our rolling mill in Bay City, in Ambridge. This is an action that will depend basically on our ability to operate at maximum capacity, the copper facility. And we are also planning for the investment needed to strengthen this capability. But the investment will take a little more time to get there. Second action is to see if we can cover with well-deployed product some of the demand. And this also may contribute to compensate even if this may have a higher cost for us, but could be a way of reducing the level of tariff that we may be paying on this. Still, this action will not change substantially in reality that we are today, that is to pay a high tariff from Canada, Mexico, Argentina and Europe. I think that over time the negotiations with Mexico, Canada, Argentina and Europe may also, like the case of UK, address some specific product or some specific semi, like the case of the bar, that are not really produced in the states. So if something is not really produced in the states, I think it could be possible that the negotiation may modify or reduce this impact. These are the points that could help or be having an impact on the level of tariff that we are paying every quarter.

Got it. Thank you very much for that. The other question I had related to MIX, you mentioned some of the pipeline work coming off and some open space in the frac business. I would think that those are lower margin parts of your business compared to OCTG. Can you just talk about how much of an impact that is having on third quarter or second half and how we should think about those coming back into the revenue profile eventually? Yeah,

well I will ask Gabriel because there are very different products here with very high margin and very much more competitive margin.

Yeah, in general you mentioned the frac business is a profitable margin, so that has an impact in the third quarter until we pick up that business in the fourth quarter. Then regarding the pipelines, the offshore pipelines that we were mentioning, either welded or seamless with an important coating component, they also have an important margin, typically higher than the average of the NARIS. That are lower than the average of the NARIS. So we have moving parts, the ones that are lower shipment in the second half out of those of higher margins that we pick up in 2026 again.

Thank you.

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

Good morning, Paulo. I have a question on the Middle East. It's probably directed toward Gabriel. I just want to, I was curious how you see Middle East overall trending into 2026. Saudi has been slowing activity all year before it may not pick up again until the end of the month, Chair. If I'm not mistaken, I think on the prior call you said Saudi has been reducing its inventory pipe most of the year. I'm curious about how you see specifically how the Saudi market, when you start seeing the Saudi market start to improve from a pipe standpoint, from a pipe ordering standpoint next year, and how do you see overall Middle East volumes trending 26 versus 25? Thank you.

Thank you, David. I will pass to Gabriel. Thank you,

Paulo. Thank you. Good morning, David. Indeed, as you know, in Saudi, we have been seeing austerity measures for the number of months already in light with a lower price environment, as we know. So recounting in the kingdom has been going down, concentrating mainly in the oil, not only, but also we are seeing some gas rates being dropped. The level of activity today is about 15 percent lower than it was a year from ago. So this is what we are seeing. I would say the inventory level situation is pretty much in line with consumption. We are not having an overhang situation in Saudi anymore. The local supplier network, Plas Aramco, inventories, I think, are pretty lean and in line with demand. So going forward, we would expect our shipment and sales in line with the variation of consumption. To compensate this lower activity in oil in the kingdom, we have an important pipeline business. I think we mentioned the CCS Pipeline Award last quarter. So this will contribute an offset part of the UCBG. This is regarding Saudi. The rest of the MENA region and the key markets, drilling activity is quite resilient. We see the Emirates pushing forward with the expansion of oil and gas, with a marginal decrease of some rigs in their unconventional plan, but very marginal. They are still operating today at 120 rigs, which is a historical high level for AdNOK. Kuwait and Iraq are also pressing forward in their activity levels. And we see pretty much Qatar on track with their expansion of the LNG project. So overall, I would say for the second half of this year and into 2026, I would say that our shipments in the Middle East will remain fairly stable and solid.

Thank you. Thank you very much. My second question is around Mexico. So, Paolo, you were talking about some of the challenges that Pemex is facing now with some potentially helping to fix their debt situation. There does seem to be some positive on the horizon. But Pemex's capex budget is down 50% this year. Activities plummeting. I presume you probably supply most of the pipe there from your facility in Barrier Cruz. So I'm curious how much of a drag it's been this year, which hasn't really shown up in the numbers. But I mean, secondarily, what kind of opportunity is next year? So how do you sort of see those? I know it's really hard to tell considering Pemex doesn't have a ton of visibility, but how do you see this trending going into next year? Overall, I know you were talking about Linepipe. I'm talking more OCTJ and the like.

Yeah, well, I think that the fact that Pemex has been supported in getting this financing, this financial operation and issuing debt for 12 billion, with a guarantee from the state, from the government, is a, this has been oversubscribed. They had the possibility to collect even more than this at a very competitive rate. Because in the end, Mexico has a relatively low debt to GDP ratio. So it's a very important sign that the Mexican government is willing to address the situation of Pemex, not only in reducing the financial load on the supplier, but also in giving the financial means to pick up back operation. Now we see this in the number of rigs that are starting to operate. Today, they are in the range of 24 rigs. And we were having 19, but even less than 19 in one month, rigs in the recent past. So this, in my view, is a sign that the Mexican government are back in supporting Pemex for the relevance of Pemex in the overall economy for gas production, for oil production, and for the level of activity. So this is most than anything is a very important sign. Will this be followed by continuing support within the plan of restructuring of Pemex? Well, they also changed the management of Pemex, and it is also a sign that they are addressing this. We know that in the second half of 2025, the Pemex increase in volume is the fact that we'll maintain overall sales into North America, for us, more or less stable, compensating for some reduction for the season in Canada and some constraint in some reduction in the US. So for sure, we anticipate in this a positive trend. Now, when we look at one year from now, I think it is more difficult to have a forecast because in the end, Mexico today has to deal with the negotiation of the new negotiation of the USMCA, the tariff. And we have to redefine some of the strategy even in the energy sector. But I'm very confident that in the end, it will make sense. There are resources available for it. And if the price of oil is where it is in the range of 65, it makes a lot of sense to develop very resource that are very profitable, have very low cost of extraction, and will make a lot of sense to maintain this trend of support.

Appreciate your comments. Thank you, Paolo.

Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Our next question comes from the line of Derek Pothiser from Piper Sandler.

Hey, good morning. Just a question in US land. So we've seen strength in the gas markets, primarily private driven across the Northeast, Hainesville, the Eagle Ford gas window. Just curious your level of exposure to this tailwind in the US. I mean, I've always viewed you as primarily attached to the larger customers utilizing rate direct. But maybe help us think through about your exposure to the privates and in these particular gas basins.

Yeah, thank you, Derek. I will ask Gagermo to give us an overview of our exposure to this.

Thanks, Paolo, and good morning, Derek. Our exposure to gas, I mean, in the US has been mainly in Hainesville and more than in Appalachia. So we are seeing an upside. We are seeing a growth of activity in Appalachia, as you said, mainly from private operators. And there are a couple of them that are driven the growth that has been traditional clients. So we are seeing an increase of our sales for gas in Hainesville and also our market share. And we stay optimistic about further growth in the future. And with this of our sales and again our position in the region, we are very competitive because we have basically very close to that plane.

I also think that in all the social negotiations that the American administration is establishing, there are components about the purchasing of LNG and developing, helping develop, growing the LNG in the United States. One way or the other, even if a fraction of this will be realized in the coming year, this means demand for gas. So gas is important. Gas is demanding seamless pipe with, in some cases, more complex product. The price of gas today, the only have supported by the associated gas and specific development of gas is relatively solid in this moment. And all these negotiations should to some extent promote or stimulate investment in energy. So we have to be very focused on this because it would be logical to have an increase in the activity in gas in the US, in the lower 48.

That's helpful. I appreciate the comments. Second question, just maybe some color around how much pipes on the ground now in the US, just thinking about the distributors as well. Just trying to work through the timing as far as working that down from an activity standpoint, which will also further support pricing just outside of the increased tariff costs. So maybe just hear some color around the pipe on the ground and working through that from an activity lens.

Yeah, yeah, yeah. I would say that here the problem is that not only the pipe on the ground, but also the pipe on the sea, the ones that are coming into the US before realizing that the 50% tariffs were going to hit them at the cost of. Guigermo, you have more, can comment on this. Yeah,

for sure. And as you said, Paul, before I mean, imports in the first half of 2025 increase a lot. If we see this in numbers, the imports of OCTG in the US first half of 2025 was more than 70% higher than the second half of 2024. So it was a very relevant increase that coupled with some reduction in activity determined that in these six months, the pipes on the ground increase in equivalent of one month of overall consumption in the US. So this is putting pressure on prices and not allowing so far a pipeline to increase as expected due to the tariff. And we think that within this quarter, we'll start to see a reduction and more impact on the fourth quarter because it's going we will see. And as Paul said, the shipments defined based on the 50% tariffs and not in the 25 that as we saw were not enough to reduce the level of imports.

The level of inventory in terms of months. So

it went from six to seven months more or less from fourth quarter of 2024 to second quarter of 2025, one month of equivalent consumption.

Thank you.

Thank you.

Very helpful. I'll turn it back.

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

Yes, good afternoon. Thanks for taking the time. I have maybe two follow up if I may. The first one is on Mexico. Can you provide us a bit of sensitivity on what kind of revenue you generated in Mexico, for example, back in 2023 and what you are currently generating right now just to understand the potential magnitude of earnings that you can get in the country after the 12 billion new financing for Pemex. And the second one on the tariff, if everything is remained like it is right now, what is your available capacity in the US and notably on the seamless side? What's part of the volumes that you currently import from, I don't know, Mexico and Canada that you can relocate easily in the US with available capacity, please?

Thank you, Kevin. Well, on the first one, in the past, the number of rigs operated by Pemex were in the range of 50, 45 rigs. So let's say you can imagine today we are at 24. So this is just giving you a broad indication on which would be the size of the market. Now, on top of this, there are private operators. Woodside is operating. And one of the increase that we will have in shipment to Mexico will be in the coming quarter will be the Woodside project, which is a very relevant offshore project, very interesting one that we are supplying for Mexico. So this is just giving you the size of the market and the market for mainly OCTG with some aspects in the line paper when the export line are requiring a longer line for this. So this is, let's say, what would be possible now. We don't expect this to happen soon. We expect this to be a gradual process of increase in reorganization, but still, in my view, the direction in which it is moving is the direction of recovering level of activity. The other point is on capacity. Remember, our many imports in the States are bars, steel bars to feed, to complement our production in copper. The production of steel that we have in the States is very relevant, but we need to complement this with semis, round bars coming from outside. This is the most important component of our import in the States on which we pay and we will pay this 50%. Then we also complement some special products for the Gulf of Mexico that is not produced in the States, mainly coming from Europe. But these are products in which the clients are prepared to pay straight on the tariff because there is basically no alternative and they need to proceed with products that are not produced in the States in this case. Something on material coming from Canada into the States is going into the North, but it is a very marginal part of the matrix.

Okay, thanks for that. Have a good day. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Christopher Kupplint from Bank of America.

Hi there. Thank you for taking my questions. I've got two. Paolo, the evergreen question I suppose is could you give us an assessment of what you think the M&A environment looks like at this point in time? I mean it's hard to come up with a forecast for Q, but you sound pretty bullish in terms of price evolution into 2026, at least in the US. So do you think that sort of lack of clarity is throwing up M&A opportunities that perhaps in the past with a different US administration weren't thinkable? That would be my first question to you, Paolo.

Well, thank you Christopher. This is, as you know, we are the largest player in the United States. We have relevant participation in the market. And it's not easy to identify a suitable target for this. I'm convinced that looking ahead, consolidation is important and also growth along our supply chain is also important. But anything that we can imagine here has a reasonable size that is not very relevant. We imagine also when we move on on the shock or operation is a very important operation for our point of view. But in terms of size of the M&A, not let's say something that is transforming the company from the point of view, the size of the operation. So we consider, we look, we study, we monitor also the attitude of the new administration to see if there are changes in the approach to vertical or horizontal integration. And we will be very active on this if we perceive that there is room for us.

Thank you. That sounds like you're happy with the current run rate on the buyback program to continue. My second question is more short term. Maybe you can tell us a little bit about your expectations regarding the evolution of networking capital. I suppose you've referenced the increase in inventories. How do you see your management of inventories considering you've got turnarounds coming up as well, probably well timed?

Yes. Thank you, Chris. Thank you very much, Christopher, on this. I will ask Carlos to comment on the capital, what we expect from our working capital. For sure, this quarter and our cash flow has been pretty strong.

But Carlos. Hi, Christopher. So during the first half of the year, we've been generating cash from a working capital of around 250 million. Much of that was coming from inventories and some from receivables. So we expect during the next quarter to build up inventories. Part of that trend down in inventories was because we finished some big projects. So we ship all the materials that we have in stock and then we expect to build some inventory during Q3 and then release some of it during Q4.

Very helpful. Thank you very much.

Thank you. At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks. Thank you, Gigi, and thank you, Holt, for joining us today. This concludes today's conference call. Thank you for participating. You may now disconnect.