Tenaris SA Q4 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to Q4 and Full Year 2024 Tenaris 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. 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; Gabriel Podskubka, our Chief Operating Officer; and Luca Zanotti, President of our US Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment on our 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 EBITDA for the quarter was up 6% sequentially to $726 million, and our EBITDA 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 EBITDA 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 operations 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 was spent on share buybacks and capital expenditures of $182 million during the quarter. The Board of Directors has decided to propose for approval at the Annual General Shareholders' Meeting to be held at the beginning of May, the payment of an annual dividend of $0.83 per share or $1.66 per ADR, which includes the interim dividend of $0.27 per share or $0.54 per ADR that we paid at the end of November last year. If approved, a dividend of $0.56 per share or $1.12 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.

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, marred by an accident that took place at the end of the year which claimed the lives of two of our employees. The accident occurred in the heavy equipment maintenance shop of our main plant in Argentina. This is a major setback for Tenaris which has an absolute commitment to safety with its employees and 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. Free cash 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 comprised of operational efficiency, 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 RunReady service. ExxonMobil have honored us with their 2024 Supplier of the Year Award for our extensive efforts in supply chain integration worldwide. We have served their operations in various parts of the world over many years. And since 2024, we have been serving all their U.S. shale operations as well as their offshore operations in Guyana under a long-term agreement. We were recently awarded the casing supply for the first wells in Shell's 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 enhances pipe collapse resistance using ultra-high collapse steel grades. This complements an award to supply BP's Kaskida 20K project and consolidate our leading position in the latest frontier in deep-water development. We also consolidated our leading position in the Guyana-Suriname deepwater basin with an award to supply line pipe and insulation coating for the total GranMorgu development. This achievement was possible, thanks to our successful integration of Shawcor and its pipe coating technologies and project management capabilities. For other deepwater developments, we are delivering line pipe and coating for Equinor's Raia project in Brazil and have recently completed deliveries for an offshore pipeline for the TPAO Sakarya project in the Black Sea. In the Middle East, our contribution to the development of local industrial capability is being recognized. In Saudi Arabia, we recently won a tender for a major CCS pipeline after Aramco distinguished our GPC facility with a Special Quality award. In Abu Dhabi, we extended our long-term agreement with ADNOC, while our premium trading facility was certified as an Industry 4.0 digital leader by the Ministry 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 LNG infrastructure investment moves forward. Over the next months, 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 investments in our industrial system aimed at improving the efficiency of our operations as well as contributing to our decarbonization and environmental objectives. This includes the installation of a new electrical 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 of a 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 investments aimed at increasing the share of renewable energy used in our operations. We have also been investing to increase the level of automation and digital systems in our industrial and supply chain systems and extend pipe-by-pipe traceability. As we will show in our annual report that will be published on April 1, we continue to make progress towards our target to reduce carbon emissions from our operations. As the perimeter of our operations has expanded with recent acquisitions, we have decided to reset the baseline for our targets to cover this expanded perimeter as well as to include inter-mill 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 tariffs and other events could significantly alter the established market environment. Tenaris, 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 ahead 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 achievements of the past year would not have been possible, as well as our customers, suppliers, and all the communities in which we operate for their ongoing support. I'm open now for any questions you may have.

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

Good morning, Paolo and team. My first question is on tariffs. Paolo, if the 25% tariffs on imported steel tubulars are implemented by the US 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 remarks, we are entering into uncharted territories because we have different layers of tariff that have been announced by the American administration, one of which is the 25% tariff in the frame of the 232. I would expect that, in general, the introduction of the 25%, in the context of the 232, will have an impact on different aspects. On one side, it's very likely that the level of price in the United States will gradually increase because, in the end, imports have a relevant share of the US OCTG, particularly the OCTG product. So the impact of the 25% tariff will reflect, in our view, into an increase in prices. As far as the quotas are concerned, we have no indication regarding 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 us to raise the level of utilization within the United States. So we expect that the administration will monitor carefully the volume coming from different sources with the overall aim of defending the interest of the domestic industry. In this sense, Tenaris is well positioned; we are producing almost all of our pipe needs in the United States. Therefore, we feel well positioned to manage what is coming. It is true that we are producing a large part, but not all of our steel needs. 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 under 232. 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 tariffs 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 sales through domestic manufacturing. That's clear. Maybe a follow-up, Paolo. Tenaris 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 Tenaris between just OCTG long-haul pipe and some of the services that you provide in Argentina between coiled tubing and as well in frac. I think you have some pressure pumping capacity in the country.

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 in the rigs operating in Vaca Muerta. Now this is happening in preparation for the expansion of the capacity of evacuation of oil from Vaca Muerta. The big pipeline that is called the Vamos is under construction. We have the order for the pipes and the order for the construction has also been negotiated and signed. So this pipeline will go on and the oil companies 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 these different parts of Vaca Muerta to the main pipeline. So we see this network of pipelines continuing with contracts, part of which is also for us. We see the company mobilizing rigs for this. We were saying that the rigs in Vaca Muerta could increase from the 31 or 32 that were operating last year to a level of 42 or more by the end of the year. Things are moving. Some companies are making decisions now. We may have an important increase in the rig. We are preparing for this. So we are also expanding our capability in fracking. We are adding a set for responding to the demand we expect will increase for fracking. In January, in Argentina, we reached a record in the market for fracking during one month. Our assets are fully booked for the coming months. We are adding one that will come during the course of 2025 and accompanying this, the base in Neuquen and coil tubing for satisfying this need. So we are positive in this. Hopefully, this trend will continue during 2026 just to increase the production of oil that will be able to evacuate from Vaca Muerta. The capacity of the Vamos 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 from the line of Alessandro Pozzi from Mediobanca.

Thank you. I have two questions, and they are 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 that has been perceived to be a little bit less constructive compared to what you mentioned in the last call or maybe whether just expectations around the 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 the sales and margins evolution in Q1 and maybe in the first half of 2025 because we've seen the recovery in Pipe Logix. So maybe it's natural to expect a progression in top line and margins in the coming quarters. 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 want to allocate some of the capital to potential acquisitions in the US that could expand your capacity given the new geopolitical outlook. And yes, that's my two questions.

Thank you, Alessandro. Well, on the first one, we say in the outlook in our press release that we expect the first quarter to have a margin more or less in line with the margin of Q4. This is the result I would say of two drivers. 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 are considered in our line as part of Europe. In the fourth quarter, we did substantial shipments 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 result of this is our expectation of margin that will be more or less on line or hopefully a little better if the Pipe Logix continues to drive up in February and March. Now, as far as the first half and so the second semester, we expect improvement but a slight increase in our margin. This will be influenced by the tariff decision at the beginning of March. Because if tariffs are announced and the administration is clear about the approach to the quota for different countries then the market will anticipate a reaction, and we may see a change in, let's say, the recovery in prices. We see a positive trend frankly because, at the end, we expect the administration to act in the direction of strengthening the domestic industry, and we are a domestic industry for the American market. So, we are positive about the results. We are prepared to absorb marginal costs that will derive from the supply of steel and eventually the payment of some tariffs on it. This is where we are and this is what we can see. We must admit that our visibility for the second quarter and even beyond is pretty limited considering the number of moving parts that are affecting our market and our sector today.

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

Well, we will expect it to increase from where we are to now. In the range that you're mentioning, we should expect this for the second quarter and going beyond. The second question is the buyback. On this, the decision will be taken first of all by the Board of Directors on the 1st of April in evaluating the situation and deciding if and how to include or if to include this item in the agenda of the general assembly that will meet in May. So then this will be up to the Board and then up to the assembly of the company to decide if we give the Board of Directors 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.

Okay. And I mean it will be influenced by whether you can do acquisitions in the US. I mean there was an attempt to acquire Benteler some time ago. But the Trump administration, just the other day confirmed the new merger review guidelines of the previous administration. So maybe M&A in the US may not be as likely as we thought maybe before.

Well, but the Board will consider all elements, the situation, the dynamics of the market, the opportunity we have to allocate capital. We have a large amount of cash on our books. So, the decision will be taken considering opportunities for investment, the perspective of the business, and the long-term view for the company.

Hi. Thank you. 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?

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 investment opportunities, the dynamics 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 to organize the energy sector in the frame of energy emergency. They are speeding up all the processes of permitting and so on and so forth. So, something will be moving in our view, in the energy sector, and maybe in this environment, also the opportunity for acquisition in areas in parts of the world that could be interesting for Tenaris may be more open. We will have to reconsider and analyze this as a basis for deciding what to do and suggest to the Board what to do.

Yes, thank you for your question. Regarding Mexico, we have observed a significant decline in activity. The market remains uncertain about the future developments in Mexico, but it appears there might be some incremental plans in place that we are not fully aware of. I'm interested to know what you are hearing about the pace of activity recovery in Mexico and what is reflected in the first half outlook that you have provided to the market.

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 a little more than 1.8 million barrels a day to the present 1.6 million barrels a day. In recent months, they are losing production at a rate of around 50,000 barrels a day per month. They are reducing rigs from something like 65 to around 23. Rigs are basically idle in 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 it 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 government will have to decide a policy and an approach to refinancing Pemex in a way that the country could, let's say, develop its huge resources in the oil and gas sector. Today, what we see really is an unprecedented reduction in productivity. 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 may not be too fast considering the financial constraints. Now, this is an overall observation in the case of Mexico. The negotiation around the future of the USMCA, the tariffs that are supposed to be implemented by the new American administration, all of this may impact the economy in Mexico and the long-term development of it. We will see. We don't have now the elements to evaluate, let's say, which will be the impact of the overall relations between Mexico and the United States and Canada and what 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 Podhaizer from Piper Sandler.

Hi. 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 232 when it comes to quota reductions, primarily out of 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 OCT pricing when we think about the remainder of 2025. So just more of 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. 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.

Yes. Thank you, Derek. I would ask Luca Zanotti to comment on the supply/demand balance, the level of inventory, and what we can expect in our view for the US market.

Thank you, Paolo. Good morning, Derek. We have several questions to address, so let's take them one at a time. Regarding supply and demand, we have noticed a significant drop in the level of imports recently. In the fourth quarter, imports were slightly over 30%, which has helped reduce the inventory currently on hand, including our own, which is now around six months. From an inventory perspective, we believe the situation has somewhat normalized. We have observed a decline in imports over the last few quarters, supported by structural measures implemented by the US domestic industry against certain countries, such as Thailand. Preliminary findings indicated issues with OCTG antidumping, and we do not anticipate a recurrence of this. Overall, the trend in imports is declining. We may see a rebound at the beginning of 2025 as budgets are reset. However, the current supply-demand situation is much more balanced than in the last and previous quarters. Now, if I recall correctly, the second question was...

Yes. No, you alluded about.

As for Section 232, which is one of the tariffs that the administration is putting forward, there are many others that are starting. So as Paolo was saying before, we are in uncertain territory here because we actually don't know. But the way the Section 232 quotas are structured is that the quota is going to go away. So everybody is 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 is to create a strong domestic supply chain. We are sure that the administration will be carefully monitoring the import evolution because they need to stick to increasing domestic capacity utilization. We are confident that the overall effect is going to be positive for the domestic industry.

Yes. And then maybe just on the demand side, just seeing the US rig count recover here. I mean, just off the seasonality bottom is what's your expectation based on what you are seeing from your customers as kind of the outlook for the rest of the year?

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 majors and the large independents, we still see that they are very, very disciplined, and the ongoing consolidation process is typically leading to rationalization of operations and 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 operators. 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. Thus, we see a constant activity from the major large independents, with some smaller players getting in with new rigs, and we see interesting developments regarding gas. I believe that this will consolidate even further through 2025.

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 unconventional fields, oil versus gas, onshore versus offshore. I mean, where is Tenaris positioned? 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.

Yes. In Saudi Arabia, I probably take the opportunity to talk about the whole Middle East where we see drilling activity that is fairly stable at a very strong level. On the drilling 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 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. We expect also ADNOC to increase its gas plants. We expect Kuwait to increase its rigs related to gas deep drilling areas. Therefore, gas is a very resilient and growing area in the Middle East. When we go to the oil side of the business, the dynamic is a bit more uneven. There is evident idle capacity for crude production in the Middle East, and different countries and companies are taking different decisions. We see, on one side, the UAE expanding its capacity in crude in an area where Tenaris is very well positioned. Additionally, we see Saudi Arabia softening some of the drilling associated with oil, especially in the offshore, stopping that quest for an increase in further crude production capacity. This is what we see in the Kingdom. It's also worth mentioning something that Paolo noted in his opening remarks; that Saudi Arabia is also moving 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 at 9 million tonnes per year. This requires a pipeline of more than 300 kilometers. This is an important order of approximately $250 million that we will start delivering during the third quarter of 2025, and complete before the end of 2026. So, we see overall that the Middle East has been a point of strength for Tenaris in 2024 and will continue to be the case in 2025. Even though we had a slight decrease in our revenues in the fourth quarter of 2024, we expect a rebound as early as the first quarter of 2025.

Great. Very helpful color. I appreciate it. Thank you. I’ll turn it back.

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

Yes. Good afternoon. I would like if I may please to go back on the U.S. tariff and the potential impact. The first one would be on your production cost. Can you give us some color currently on what percentage of the pellets that you currently use locally are outsourced from Europe or somewhere else, just to understand exactly what percentage of raw material costs could be impacted by any 25% tariff? 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 quotas are removed from the 232, don't you feel that the Korean guys that are currently under quota with 400,000 tonnes 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. The last one, outside those topics, if you can give us some color on currently Pemex. What are the levels of receivables that you have currently with Pemex, please?

Thank you, Kevin. Firstly, we have a fully operational steel shop, specifically the copper steel shop, where we are investing and preparing for a potential expansion that is feasible. This involves enhancing the back house and the exhaust fumes system to boost production. This gives us the opportunity to increase our local steel production while also importing or supplementing steel from various sources. We are purchasing from different suppliers in the U.S. to augment what we can obtain from Mexico, Argentina, Italy, or Romania, ensuring we have ample sources to meet our needs. The steel shop will primarily focus on the U.S. operation along with local and other diverse sources of steel. Some of these sources may be impacted by tariffs, but we are uncertain about the outcomes of future negotiations with Europe, Mexico, or Argentina. We are confident that we will ultimately establish a fully integrated and efficient production line in comparison to our competitors. Regarding Korea, I believe the U.S. administration will be cautious and will take measures to prevent excessive imports that could undermine domestic producers, as they have indicated and acted on previously. Therefore, I am not worried about this scenario affecting us moving forward. This assessment applies not only to Korea but also to other entities that may see opportunities for increased imports, although I doubt there will be an unrestricted opportunity for them. As for Pemex, we are actively reducing our exposure, which you will notice in our working capital cash flow. We are generating significant cash flows and making agreements that will allow us to decrease this exposure by about $140 million this quarter. Our program will continue, but it will proceed at a different pace.

Okay. Understood. Thanks so much for the color.

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

Hi, good afternoon. Just one question, please. I'm just trying to think about the impact of the price rises in Pipe Logix outside of the US. I was wondering if you could remind us sort of what proportion of your ex-U.S. contracts have an element of Pipe Logix in them? And what's the sort of time frame for feed-through there? And if we did have US 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, Pipe Logix is important in the formulas for the long-term agreements in the States obviously, then in Mexico, in Canada, in the rest of South America including Argentina, and Colombia, and in some specific contracts. 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 Logix increased 9% from August to today in January, and we expect this to continue to increase even before the application of tariffs. It will get into our contracts with a delay between one quarter and two quarters. Gradually this will come to the surface, and we'll see it. So then, in the moment in which tariffs will be introduced, expectations will step in. We don't know what may happen in March or April. But this is where we can estimate and consider today.

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

Good afternoon. Sorry to ask again about the US, but can I just disaggregate the US market into seamless and welded? If my math is correct, you're importing some seamless tubes into the US from outside the US, and obviously, that's part of these uncertain territories. Can you just talk about your ability to ramp up some welded production should the need arise?

Well, we have capacity on the ground for doing it, but also the price will be moving and also the price of hot-rolled coil will be moving. But I will ask Luca to expand on this relation between welded and seamless and the situation for the import of the pipes that are complementing our sales into the States.

Yes. To summarize, our sales in the United States are mainly seamless. Our strategy involves offering both seamless and welded products. The sales ratio between seamless and welded corresponds to the portion of weld included in the surface and intermediate. Regarding capacity for welded production, we are well-positioned and can easily increase our output at our Hickman plants. Additionally, we have a facility in Kentucky that can assist if necessary. This will depend on market prices and the cost of hot-rolled coil, which are the primary inputs for welded production. In terms of capacity, we are the best positioned in the United States.

Thank you, Luca. In the case of welded, we depend entirely on the domestic industry for the supply of hot-rolled coils. So, we are really dependent on the equilibrium between price pipe logic and the local hot-rolled coils. I think that in the U, 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. To some extent, this may, let's say, open the way for some developments that we do not see exactly now, but we may see in six months' time.

Thank you.

At this time, I'm 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. I hope to see you soon. Thank you. Bye.

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