Detailed narrative
US Tariff Impact and Market Dynamics
The US Section 232 tariff on steel products increased from 25% to 50% on June 4, potentially impacting Tenaris by $140M-$150M per quarter. Management notes the impact will be gradual due to inventory flow-through and hopes for product-specific or country-specific exemptions, similar to the UK.
High import levels in H1 2025, which were 70% higher than H2 2024, led to a 1-month increase in US OCTG inventory (from 6 to 7 months), currently suppressing prices. However, the higher tariffs are expected to reduce future imports and eventually drive domestic prices up, although the timing is uncertain.
Project Pipeline and Backlog Strength
Tenaris continues to build a strong backlog in strategic offshore segments, securing new deepwater project awards. These include an OCTG drilling campaign for TotalEnergies' 36 wells in Suriname, deepwater pipeline for Petrobras Buzios 11 in Brazil, and OCTG for Chevron's Agbami campaign in Nigeria.
The company's acquisition of Shawcor has significantly strengthened its position in complex line pipe projects, providing a formidable structure for addressing client needs. While offshore line pipe deliveries will be slightly lower in H2 2025 due to high concentration in H1, the backlog provides confidence for important contributions in 2026.
Vaca Muerta and South American Activity
Despite the long-term potential of Vaca Muerta, activity in Argentina is currently slower than expected. This is attributed to YPF divestitures in the southern part of the country and limitations in financing for local players, resulting in a flat rig count.
Tenaris is completing deliveries for the Vaca Muerta Sur crude export pipeline and expects to deliver pipes for the Duplicar North pipeline early next year. A temporary 'black space' in fracking operations for three months will impact Q3 sales, but the devaluation of the local currency is helping to reduce costs and improve project profitability.
Mexico's Pemex Recovery and Opportunity
Pemex successfully secured a $12 billion financing facility, guaranteed by the Mexican government, which was oversubscribed. This signals strong government support for Pemex, aiming to increase its low operational levels and address supplier debt. The rig count has already increased from below 19 to 24, and Tenaris anticipates a positive trend in Mexico, contributing to stable North American sales in H2 2025.
This recovery is expected to drive demand for OCTG and potentially line pipe, with Woodside's offshore project also contributing to shipments to Mexico.
US Gas Market Exposure and Outlook
Tenaris has significant exposure to the growing US gas markets, particularly in Haynesville and Appalachia, through its Rig Direct service. The company is seeing increased activity and sales in Appalachia, driven by private operators, and maintains an optimistic outlook for future growth.
Management believes that ongoing discussions and negotiations regarding LNG purchases and development in the United States will promote and stimulate further investment in gas production, which typically demands seamless pipe with more complex product specifications.
Shareholder Returns and Working Capital Management
Tenaris generated a robust $538 million in free cash flow during Q2 FY25. The company distributed $600 million in dividends in May and executed $237 million in share buybacks during the quarter. The Board approved a $1.2 billion share buyback authorization, with the second tranche expected to be considered and likely launched after the October 29 Board meeting.
In terms of working capital, the company generated $250 million cash in H1 FY25, primarily from inventories and receivables. Inventories are expected to build in Q3 and then be partially released in Q4.