Tenaris S.A. (NYSE:TS) Q2 2025 Earnings Call Transcript

Tenaris S.A. (NYSE:TS) Q2 2025 Earnings Call Transcript July 31, 2025

Operator: Good day, and thank you for standing by. Welcome to the Second Quarter 2025 Tenaris S.A. Earnings Conference Call. [Operator Instructions] 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.

Giovanni Sardagna: Thank you, Gigi, and welcome to Tenaris 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 Alzaga, our newly appointed Chief Financial Officer; Gabriel Podskubka, our Chief Operating Officer; and Guillermo Moreno, President of our U.S. 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 EBITDA for the quarter was up 5% sequentially to $733 million, with our EBITDA 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 tariff 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 buybacks 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.

Paolo Rocca: Thank you, Giovanni, and good morning to all of you. Our results in the second quarter pointed 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 EBITDA 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 during the quarter. There is an increase in the U.S. Section 232 tariff on the import of all steel product from 50% — from 25% to 50% and the ongoing tariff negotiations has increased market uncertainty.

As countries negotiate the so-called reciprocal tariff, no country apart from the U.K. 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 factor and consider 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, there 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 U.S. domestic production base, including the world’s most efficient seamless pipe mill at Bay City, and its copper steel production facility, supported by its global industrial system remains well placed to continue serving its U.S. customer with its highly differentiated rig direct service.

Our sales this quarter included the successful delivery of pipes and coatings to a wide number of complex line pipe projects around the world. These include Equinor Raia project in Brazil, ConocoPhillips Willow project in Alaska, Shell’s Bonga project in Nigeria, Azule Nengo project in Angola and Chevron Leviathan project in the Mediterranean. Looking forward, we will have a lower delivery to offshore line pipe projects until a new wave of projects progress to the development phase in 2026. One such project will be the GranMorgu project in Suriname. In addition to our line 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 Guyana-Suriname Basin, we have set up local service basis to support the operation of ExxonMobil of TotalEnergies and other customers in the region. Another major developing region where we have been able to make a difference is the Vaca Muerta shale 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 market. During this third quarter, we will complete most of the deliveries for the Vaca Muerta Sur pipeline that will build a crude export capacity to a new deepwater port in Puerto Rosales. Early next year, we should also deliver the pipes for the Duplicar North pipeline that will connect the Northern development in Vaca Muerta 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 operation and pay down some of its supplier debt. We look forward to supplying a higher level of operation under our current contract. With oil prices around $65 a barrel and drilling activity in the United States and Canada is lowering, our sales in these countries remain relatively resilient due to our solid customer portfolio. They’re focused on improving operational efficiency, which extended 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.

Operator: [Operator Instructions] Our first question comes from the line of Arun Jayaram from JPMorgan Securities LLC.

Q&A Session

Arun Jayaram: Yes, Paolo, 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, tariff impacts, some activity perhaps going down a little bit in the U.S. but give us a sense of how you think about volume trends and margin trends for the second half?

Paolo Rocca: Well, thank you. I think is — I mean, there are many moving parts in — 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 due to different factors. Basically, we will have lower invoicing in our fracking operation. We have a kind of black space for 3 months due to the programming of the company for their operation of fracking in Vaca Muerta. This is something that will, to some extent, reduce slightly our invoicing. We also, after an important wave of delivering of our line pipe, we will have somewhat lower shipment of line 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 in the rigs because, let’s say, price of oil is today what it is.

Even if I compare with our vision 3 months ago, 3 months ago, we were more concerned about the impact of a potential recession and 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 rig count. So we do not expect this. In North America, more fracking in Canada because of seasonal reason. And in the U.S., in our view, 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 digit for our invoicing. In the fourth quarter, it is more difficult to predict to understand which will be the dynamic of prices.

There are tariff that has been raised on the 4th of June for 2 3 2 up to 50%, almost for every country, excluding U.K. And the negotiations that are underway today are mostly focusing on the reciprocal tariff, but I’m not touching on the 232. If this situation is not addressed with a more specific product by product or quota for specific sector in the coming months, inevitably, prices in turn, domestic price in the United States will reflect this. And this will impact in our sales. But today, it’s 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.

Arun Jayaram: 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. Paolo, 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 Tenaris. But how does the major or large project pipeline look in 2026, thinking about places like the Vaca Muerta?

Paolo Rocca: On this, I would like to have Gabriel to give you a view of how we see, let’s say, our road into ’26 and what we can do compared to ’25. Gabriel?

Gabriel Podskubka: Yes. Thanks, Paolo. To give you an overall perspective of the offshore market, which is an important driver for the pipeline business and also for the OCTG 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 drilling activity. As a matter of fact, the deepwater 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, Paolo, and you commented on Suriname, where we just got awarded drilling campaign for OCTG to cover the needs of casing and tubing for these 36 wells that Total will develop in this initial phase of deepwater development.

Customer has standardized on Dopeless technologies, and we are getting ready building our service base in country. This is in addition to the award of pipeline and coated that we commented in our prior call. So we are building an important backlog. Also this quarter, we booked deepwater pipeline in Brazil for Petrobras Buzios 11 project. And we also have been awarded OCDG needs of Chevron for their deepwater campaign in Agbami in Nigeria. So overall, I would say that we are building an important backlog into 2026. As Paolo mentioned, we had a high concentration of pipelines in the first half of 2025. So our pipeline offshore deliveries in the second half will be slightly lower, but we believe with great confidence that 2023 will be — we will have an important contribution overall on the offshore segment.

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

Operator: Our next question comes from the line of Alessandro Pozzi from Mediobanca.

Alessandro Pozzi: 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 in Q4? Because I think in Q3, maybe you can still benefit a little bit from the lagged effect with the Pipe Logix, 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 this? Because if we look at the Pipe Logix that was out yesterday, it was just a small increase month-on-month. And I mean maybe we will see stronger prices going forward.

But your thoughts on margins would 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 rig count overall in Argentina is still rather flat despite all the investments in Vaca Muerta?

Paolo Rocca: Thank you, Alessandro. 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 the $140 million, $150 million for a quarter. Now let me add 2 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 U.K. for changing or adapting or modifying by product or by country, some of the consideration regarding the tariff of the 232. We do not know, but we think there would maybe a possibility because in the end, the relation within the USMCA and the relation in Argentina may justify specific negotiation that include some aspect 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 allocation, organization of our production flows. And this tariff are getting in our cost of sale gradually because of the inventory some of these tariffs are affecting our steel bar coming into the U.S. There is — it takes time to flow through our inventory to get into our cost of sales. So you should also consider that the figure we are mentioning are not getting straight into the next quarter, but only gradually into 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 impact in prices. You are right. Yesterday, the Pipe Logix comes out with a very modest increase.

But this is a result 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%, 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. The inventory 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%, some of this import gradually will be reduced. Today, there are many products on the sea, on the vessel 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 or will do so gradually, but to some extent, inevitably over time. Difficult to predict if this will happen and exactly when, but prices will go — will need to go up more than what has been done up to now. And this will also contribute to our margin. Having said 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 reasons 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% will have an impact on the price of Pipe Logix, even in an environment in which the rig count is not very aggressively increasing, even if it stay or it goes down slowly as we anticipated, there should be impact on prices. This is — would be the — would be logical to happen.

Alessandro Pozzi: And on South America?

Paolo Rocca: Second question, if it is okay for you with the first one. On South America, South America, you’re right that there has been a containment, I would say, of the oil. One the situation in which the rig count has been — went down slightly has been Argentina, as you say. The point in Argentina is that 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. And this turned out into a reduction of the number of rigs operating on one side. On the other side, there is the company still having a cautious approach in organizing their investment in Vaca Muerta. The access to finance has limitation. Some operation has 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 with involving financing for around $2 billion. Also, there has been other financing operation for local company. But still, the country risk is above 700 points. It’s not exactly easy for local player to finance all the operation in line with the more optimistic expectation that we may have maybe 6 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, price of oil, there was a moment in which company were more afraid of a price of oil between $60 — $55, $60. And this would have clearly had a negative impact, especially in company like the local company in Argentina that are depending very much on their cash flow to be eligible for financing.

I think that this is — the situation is improving. Still, the country risk is important. On the other side, the devaluation of the local currency in the last month has devaluated by around 10% is reducing cost. So it’s also acting in a positive way to — 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 this month, 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 white space in our fracking operation until September.

Operator: Our next question comes from the line of Sebastian Erskine from Rothschild & Co Redburn.

Sebastian Erskine: I’d like to start on the commentary around imports. Obviously, has remained an elevated level in the first half of the year, should step down in the second half. But kind of 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 U.S. land where the rig count remains under pressure.

Paolo Rocca: Well, overall, import represent a large share of demand in the U.S. in the range of 40%. So let’s say, if you imagine 50% on 40% 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. It will also depend from the price of oil. Obviously, it’s affecting the cash flow. But even in an environment of relatively slowdown 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 still is pretty high today in the different player on this in the seamless arena.

And probably there is room for increasing utilization in the welded supply of OCDG. But with 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 U.S. should go up.

Sebastian Erskine: Really appreciate the color, Paolo. And then my second question on distributions. Obviously, announcing the $1.2 billion authorization. It looks like you’re kind of front-loading the first tranche of $600 million. It looks like you completed nearly 2/3 of this. Would you be open to bringing forward the second tranche of repurchases, just given the cadence you’ve already achieved?

Paolo Rocca: Well, as you know, the Board approved 2 tranches of share buyback. 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 considered again and very likely launch after the Board on the 29th October.

Operator: Our next question comes from the line of Marc Bianchi from TD Cowen.

Marc Gregory Bianchi: 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?

Paolo Rocca: It was a comment on sales.

Marc Gregory Bianchi: Okay. The other question relates to supply chain. You talked about 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?

Paolo Rocca: No, no. The — 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 1.5 months ago. We sold it, but we — this, to some extent, reduced 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 contribute to the reduction of the tariff we pay on the bars and semis that are — that we need to bring into the states to feed into our rolling mill in Bay City, in Enbridge. This is an action that will depend basically on our ability to operate at maximum capacity at 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 in.

Second action is to see if we can cover with welded product some of the demand. And this also may contribute to compensate even if this is — 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 a reality that we are today, the reason to pay tariff — high tariff from Canada, Mexico, Argentina and Europe. I think that over time, the negotiation with Mexico, Canada, Argentina and Europe may also, like in the case of U.K., address some specific product or some specific semi like the [indiscernible] 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.

Marc Gregory Bianchi: Got it. Got it. 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. And I would think that those are lower margin parts of your business compared to OCTG. Can you just sort of talk about maybe how much of an impact that’s having on third quarter, second half and how we should think about those coming back into the revenue profile eventually?

Paolo Rocca: Yes. Well, I will ask Gabriel because there are very different products here with very high margin and very much more competitive margin.

Gabriel Podskubka: Yes. In general, you mentioned the fracking 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 are also having important margins. They are typically higher than the average of Tenaris, while the onshore pipelines, the one that Paolo commented on Vaca Muerta, those that are kicking in, in the third, fourth quarter and the beginning of 2026. Those have welded onshore pipelines have margins that are lower than the average of Tenaris. So we have moving parts. The ones that are with lower shipments in the second half are of those of higher margins that will pick up in 2026 again.

Operator: Our next question comes from the line of David Anderson from Barclays.

J. David Anderson: I have a question on the Middle East. So 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 may not pick up again until the end of next year. If I’m not mistaken, I think on the prior call, you said Saudi has been reducing its inventory pipe most of the year. So I’m curious about how you see kind of specifically how the Saudi market, when do 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?

Paolo Rocca: Thank you, David. And then I will pass to Gabriel…

Gabriel Podskubka: David, indeed, as you know, in Saudi, we have been seeing austerity measures for the number of months already in line with a lower price environment as we know. So rig count in the Kingdom has been going down, concentrated mainly in the oil, not only, but also we are seeing some gas rates being dropped. The level of activity today is about 15% 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 plus 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 and offset part of the OCTG. 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 ADNOC. Kuwait and Iraq are also pressing forward in their activity levels. And we see pretty much Qatar on track with the 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.

J. David Anderson: My second question is around Mexico. Paolo, you were talking about some of the challenges that Pemex is facing and 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. Activity is plummeting. I presume you probably supply most of the pipe there from your facility in Veracruz. So I’m curious how much of a drag has been this year, which hasn’t really shown up in the numbers. But — and secondarily, what kind of the 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’re talking about line pipe. I’m talking more OCTG and the like.

Paolo Rocca: Yes. 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 state from the government, 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, rig today are in the range of 24 rigs. And we were having 19, but even less than 19 in 1 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 more than anything, is a very important sign. Will this be followed by a continuing support within the plan of restructuring of Pemex? Well, they also changed the management of Pemex, and this 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 will maintain overall sales into North America for us, more or less stable, compensating from some reduction for the season in Canada and some constraint in — some reduction in the U.S. So for sure, we anticipate in this a positive trend.

Now when we look at 1 year from now, I think it’s 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 reserves that are very profitable, have very low cost of extraction and will make a lot of sense to maintain this trend of support.

Operator: Our next question comes from the line of Derek Podhaizer from Piper Sandler.

Derek John Podhaizer: Just a question in U.S. land. So we’ve seen strength in the gas markets, primarily private driven across the Northeast, Haynesville, the Eagle Ford gas window. Just curious your level of exposure to this tailwind in the U.S. I mean, I’ve always viewed as primarily attached to the larger customers utilizing Rig Direct. But maybe help us think through about your exposure to the privates in these particular gas basins?

Paolo Rocca: Thank you, Derek. I will ask Guillermo to give us an overview of our exposure to this. Guillermo…

Guillermo Moreno: Yes. Thanks, Paolo. Our exposure to gas, I mean, in Direct has been mainly in Haynesville 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 have driven the growth that has been traditional clients. So we are seeing an increase of our sales for gas in Haynesville and then 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 where we are very competitive because we have basically very close to that play.

Paolo Rocca: I also think that the — in all the discussion and negotiation that the American administration is establishing, there are a component about 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 case, more complex product. The price of gas today [indiscernible] supported by the associated gas and specific development for gas is relatively solid in this moment. And all the negotiation should, to some extent, promote or stimulate investment in energy. So we have to be very focused on this because it will be logical to have increase in the activity in gas in the U.S. [indiscernible].

Derek John Podhaizer: Got it. That’s helpful. I appreciate the comments. Second question, just maybe some color around how much pipe is on the ground now in the U.S., 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 some color around the pipe on the ground and working through that from an activity lens.

Paolo Rocca: Yes, yes. 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 U.S. before realizing that the 50% tariffs were going to hit them at the [indiscernible]. Guillermo, you have more — you can comment on this.

Guillermo Moreno: Yes, for sure. And as you said, Paolo before, I mean, imports in the first half of 2025 increased a lot. If we see this in numbers, the imports of OCTG in the U.S. 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 6 months, the pipes on the ground increased in equivalent of 1 month of overall consumption in the U.S. So this is putting pressure on prices, not allowing so far Pipe Logix 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 when we will see, as Pablo said, the shipments defined based on the 50% tariff and not in the ’25 that as we saw were not enough to reduce the level of imports.

Paolo Rocca: Level of inventory in terms of months.

Guillermo Moreno: So it went from 6 to 7 months, more or less from fourth quarter of 2024 to second quarter of 2025, 1 month of equivalent consumption.

Operator: Our next question comes from the line of Kevin Roger from Kepler Cheuvreux.

Kevin Roger: I have maybe 2 follow-ups, 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 remains like it is right now, what is your available capacity in the U.S. and notably on the seamless side? What part of the volumes that you currently import from, I don’t know, Mexico and Canada that you can relocate easily in the U.S. with available capacity, please?

Paolo Rocca: 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 will 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 this is the market for mainly OCTG with some aspects in line pipe when the export line are requiring long 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 increased reorganization. But still, in my view, the direction in which this is moving is a direction of recovering level of activity. The other point is on capacity. Remember, our main import 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 bar 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 product for the Gulf of Mexico that is not produced in the States, mainly coming from Europe.

But these are product 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 to 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.

Operator: Our next question comes from the line of Christopher Kuplent from Bank of America.

Christopher Kuplent: I’ve got 2. 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 4Q, but you sound pretty bullish in terms of price evolution into 2026, at least in the U.S. So do you think that sort of lack of clarity is throwing up M&A opportunities that perhaps in the past with a different U.S. administration weren’t thinkable? So that would be my first question to you, Paolo.

Paolo Rocca: Well, thank you, Christopher. This is — as you know, we have — we are the largest player in the United States. We have a relevant participation in the market. 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 reasonably size that is not, let’s say very relevant. Imagine also when we move on, on the Shawcor operation, it is a very important operation from our point of view. But in terms of size of the M&A, is not, let’s say, something that is transforming the company from the point of view of 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 a change 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.

Christopher Kuplent: 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 net working 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?

Paolo Rocca: Yes. Thank you, Christopher, on this. I will ask Carlos to comment on working capital, what we expect from our working capital. For sure, this quarter, and our cash flow has been pretty strong, but Carlos…

Carlos Gomez Alzaga: Christopher, so during the first half of the year, we’ve been generating cash from our working capital, generated 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. Now part of that, let’s say, trend down in inventory was because of — we finished some big projects. So we ship all the material that we have in stock, and we expect to build some inventory during Q3 and then release some of it during Q4.

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

Giovanni Sardagna: Thank you, Gigi, and thank you all for joining us today.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.