Good day, ladies and gentlemen and welcome to the Third Quarter 2018 Tenaris Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Giovanni Sardagna, Investor Relations Officer of Tenaris. You may begin.

Thank you, Carmen, and welcome to Tenaris 2018 third quarter results conference call. Before we start, I would like to remind you that we will be discussing forward-looking information 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; Edgardo Carlos, our Chief Financial Officer; Guillermo Vogel, Vice Chairman and member of our Board of Directors; German Cura, Vice Chairman and member of our Board of Directors; Gabriel Podskubka, President of our Eastern Hemisphere Operations; and Luca Zanotti, President of our U.S. Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. Our third quarter sales at $1.9 million were up 46% compared to last year and 6% sequentially. Mainly reflecting an increasing average selling prices and IR sales offline pipe for complex projects including shipments for the second year offshore welled pipeline immediately. Our quarterly EBITDA at $394 million was 8% sequentially and our EBITDA margin was close to 21%. Average selling prices were up 11% compared to the corresponding quarter of last year and 4% sequentially the increase was mainly North America were prices have reasoned to compensate higher cost including time. During the quarter our cash flow from operations was $50 million and was affected by an increasing working capital. Inventory rose as we prepare to the final door shipment and the Canadian winters rainy season as well as higher raw material costs and the impact of Section 232 duties. While the receivables were affected by our sales and payment delays by some customers. Our net cash position decline slightly to $408 million after capital expenditure of $78 million during the quarter. The Board of Directors approved the payment of an entering dividend the same as month last year of $0.13 per share, or $0.26 cents per ADR to be paid November 21st. Now I will ask Paolo to say a few words before we open the call for questions.

Thank you, Giovanni and good morning to all of you. This was a good set of results in a quarter, which seasonally is not one of our strongest, because of summer shut down in Europe. It all goes well for the next one. I will highlight that we were able to address pricing in a very competitive market. Sufficiently to offset costs increase. Including those of the section 232 tariff in the United States and maintaining margin levels. In addition, we were able to anticipate some shipment for the Zohr project. This and other effort we were able to show a promising sequential improvement in net sales in EBITDA, in operating and net income. We are progressing in our deployment of various runs. Our production basically continues to ramp up reaching level of 26,000 tons in booster and support of our U.S. redirect programs. Currently, we are supplying 65% of our OCTG in the U.S. and around 90% in Canada with a redirect service. In Eastern Hemisphere, we continue to position for important regional and offshore gas development. Winning an award to supply 13 wells problem for the [indiscernible] project in Australia and entering into Indian and Chinese gas project. Mexico where activity has begun to be kept. We are now supplying offshore project, which are being developed by major in Independence pursuant to the energy reform program. As far as the inspiration activities are concerned essential to sustain offshore recovery. We recently received a multi-year award from a major oil company to supply the casing for the global program on a rig direct basis, including BlueDock connector and Wedge and Dopeless Premium connection technologies. We've been active participant in the development of the Eastern Mediterranean gas provinces supplying offshore line pipe manufacturer to the very many specifications. For a…

Thank you. [Operator Instructions] Our first question comes from Igor Levi with BTIG.

Good morning, guys. Great results especially in a seasonally challenged quarter.

Thank you, Igor.

My first question is about your flat first quarter guidance which was better than we expected given the Zohr roll off. Could you talk about the moving parts that will offset the drop off in Zohr? And then if you could just touch on how you're thinking about the rest of 2019 playing out.

Well, as you see, we will phase out in the fourth - the last lot of the pipelines. Then in the 4Q, I will say on one side we expect the Canada shipment to increase because the season will be at full. So, this is first aspect of increase. We think that there could be also some upside in the U.S. that could also contribute to let's say reduce imbalance. And then the rest of the world that the gradual increase may also support the same set in other countries. All-in-all, I think we should be able to basically stabilize at the level of sales in the first quarter compared to the fourth quarter.

And how are you seeing the rest of the year play out. I mean do you expect margins to improve and are you still expecting a pricing inflection. And if so when?

Well, as we said in the introductory remarks, there are uncertainties, clearly in the visibility for 2019 to some extent is limited. On one side the negotiation of the new NAFTA, let's say is concluded. But we still wait for ratification and we need to understand how this will play out in modifying the impact of the 232 tariffs. This is one important aspect. But also, that has been change in government in Brazil, in Mexico, some financial tightness in Argentina. So, what we in general we may receive is that the growth of CDC [ph] demand continues in the rest of the world. While in the United States as you know the issue of limitation in the take away from Permian and in Canada are to some extent stabilizing the number of rigs. In this environment, we expect at this point, prices to remain substantially stable in the United States after the increase that happens in the last quarter. As we say before, we have been able to recover margin during this period. But looking ahead in 2019, we expect pricing to remain stable. But as I said at the beginning, there are uncertainties here in the level of activity and in how the tariff related to 232 will evolve and will affect the American market especially in the starting for the second quarter of 2019.

Great. Thank you. And just as a quick follow-up on Mexico. Your request for the exemption on shipments of billets from Mexico, I think that got delayed, you were expecting to hear something in October. Do you think this request will ultimately be granted and when do you think we would have an answer?

Well, on this German you may comment on the evolution of this and however exclusion addition with that [ph].

Thank you, Paolo. Good morning, Igor. Very briefly, October was in a way the process due date that we would expect. And remember that DOC established process called initially for 90 days. Now the number of exclusions requests and some changes within the same process is pushing ultimately the conclusion of a well over the initial 90 days. We remain confident that we will get the exclusion, and, in our view, a final decision should be taken some time before the end of the year.

Perfect. Thank you. I'll turn it back.

Thank you. Our next question comes from Michael LaMotte with Guggenheim.

Thank you. Good morning and Paolo let me offer my congratulations on being recognized by the Harvard Business Review as the Top CEO. I think it's one thing to make that list, but to do it consistently during what has been really the worse macro backdrop in a generation is truly unique accomplishments. So, congratulations.

Thank you, Michael. As usual, this is a result of the team of the quality and capability of the team, I can say it now. I will not say it more. But...

I'm sure they appreciate that as well. So, two questions from me if I can. I'm trying to understand and maybe we can use the third quarter as the starting point. The mix shift to well diverse and seamless. I assume that was Zohr project. But the selling price up almost $90 per ton quarter-on-quarter. In your prepared remarks you mentioned more the pricing moves in the U.S. as appose to mix. So, really the question is as Zohr drops out next year. How do you see that impacting margin in Q1, Q2?

I would say as I mentioned before, in this environment which we may expect the right level and the ways to remain stable. The price outside the U.S. will continue to increase. But as you were saying, we'll also be driven by the change in the mix. So, some project we have more demanding project, reduction in the line pipe and some more volume of [indiscernible] is driving a change in the mix that will result in an increase in prices in international arena.

Okay, that's helpful. Thank you. And then, if I could follow up on the exclusion. Is it retroactive? I'm just trying to think about the impact of exclusion versus the timing of the U.S. MCA and ultimate elimination of the 232 tariffs.

Good morning, Michael, this is German. The answer is yes. It's retroactive to the date that the exclusion request was made public. In our case, it was first week of July.

Okay. And so, would that be in effect of onetime credit trying to think about the ongoing impact of U.S. MCA versus the exclusion.

Yes, we will. And remember now when the exclusion is granted, typically it will grant an exclusion for 12-months. Typically, it would grant an exclusion for 12 months from that point on and should credit it back retroactively from that point down to the date that the exclusion request was made public.

Excellent. Thank you so much. I'll turn it back.

Thank you.

Thank you, Mike.

Thank you. Our next question comes from Dave Anderson with Barclays.

Good morning. You mentioned in the release, you haven't seen an uptick from the offshore market share. But considering OCTG is such a long lead time item. I think maybe you might have a little bit better insight of how the IOCs are thinking about offshore. We keep hearing about this lack of urgency on their part. I guess could you just help us understand how do you characterize those conversations today, has there been sort of any change in there, I guess their planning and when do you think orders start coming through. Is mid-19 the right kind of ballpark or does come a little bit later in the year, do you think?

Well, thank you David for the question. Let me tell you my sense in general on the action of the national and international company. I see some reluctance in this environment to launch very big long-term project. They are considerate. They are starting but especially the international company may not find the condition for approval of long large project. They are approving Type X more project and we see some more of this local project. The national oil company are probably more - could be more aggressive in this. But I would ask Gabriel that lives in very close in international marketplace it gives his view on this.

Yes, thank you Paolo. Good morning, Dave. As Paolo was saying, we haven't seen a major change in the majors regarding the sanction of large project, less capital projects. We are still - my focus on capital discipline and cost control. We are sanctioning small Type X as Paolo was saying, these having logically in effect on the backlog of the broader offshore pipeline that we are seeing in small demand of the larger ones. So, the growth in International market is mainly driven by the nationals. Middle East as we always talked about the resilient market. We also see some drive for gas in China and India, and some of the areas, we have some independent dynamics in the North Sea, but the large CapEx especially for example in the areas of Sub-Saharan Africa, these are areas that today is still operating at very low levels than the broader rigs compared to the 40 rigs that we have. In 2014 and there is discussions of - on new projects but these are getting delayed and is something that hopefully will have been during 2019 with impact in 2020 but it's not happening materially very, very soon.

Yeah, we were seeing large project like Exon in Guyana. Any project engagement with - giant project of tens of billion, but in my perception, they will consider possibility of this during 2019, but we will see something in 2020. And gradually there is a sense that there is not enough exploration activity in this area and there will be the need of some large project, but this will - I don't think something very relevant we look next year.

So, second question is probably Gabriel is probably your area as well, I was just hoping maybe you can expand a little bit on your plans for that Saudi mill you just recently acquired. I believe is the first time you actually had manufacturing in country. I was wondering if you can talk about the current utilization of that facility kind of where you see those volumes trending, does it need to be upgraded, are you thinking about expansion just comment some of your kind of thoughts on what this acquisition means to Tenaris kind of longer term and being a local supplier now I guess is it fair to say that you should have a competitive advantage over which I'm pretty sure the Queen and Chinese imports have traditionally supplied that base demand in the kingdom so if you can kind of talk about that acquisition and what it means to you it'd be helpful thank you.

Sure David. Yeah, thank you Gabriel, you can speak on this, remember we just signed the agreement and there is some condition precedent that will need to be fulfilled.

Yes. Thank you, Paolo. Yes, David, this is an interesting acquisition or an agreement to acquire, let me put in that way. First, let me clarify that we started manufacturing the Kingdom about 10 years ago. We have invested in two training facilities. Today, we have about 200 employees in the Kingdom with a very high level of service station actually the highest level of service station in our space. So, this will be the first acquisition if materialized. The agreement that we signed late September was to acquire a 48% controlling interest in Saudi steel pipe. This is a local listed producer of welded steel pipes with a very solid reputation and position in the market. As Paolo said, this transaction is still subject to a number of condition precedent that if fulfilled, we expect this to close by early 2019. And this would be a nice addition and complementation to our [indiscernible] in the Kingdom, as they produce typically larger OCD and also line up the complement, our co-rental offering. So, this is something important, if materialized the current level utilization of this plant is around 50, maximum 60%, so there is a potential for growth in the Kingdom region.

Thank you, Gabriel.

Thank you very much.

Thank you. Our next question comes from Nick Green with Bernstein.

Hello, there. Thanks for taking my questions. So firstly, you mentioned Bay City is running about 26000 tons in August. So, it's a run rate of about 312,000 or just over 50% utilized. Can you give us a timeframe for continued ramp up of the Bay City mill, that's the first one? Second one, could you talk a little bit about networking capital particularly what you consider to be the normal level of networking capital days going forward in a direct world and specifically here, we've come off from the highs of three four quarters ago around 190 days or so, working capital is down about 170. Should we be expecting it to normalize at the current level, do you think there's more efficiency to come there? And then the third question just related some of your earlier comments around the U.S.MCA Section 232. I think it would be helpful for investors just to get a sense of the scenario outcomes of if you remain under a tariff arrangement or if you get fully exempt from a tariff arrangement may you just talk us through please how you see your business performing stroke coping under those two scenarios? Thank you.

Thank you. On the first, I think the ramp up is proceeding. Luca maybe you can comment on how you see these in the coming months. If there are specific challenges or something that would interfere with a normal ramp up of the mill.

Yes. Thank you, Paolo. Good morning, Mic. You said that always was in line with our expected level in December, so we may say they're depending on mix we are progressing towards the production levels, we were expecting through the full year. Now to your second part of the question, it is public that we reopened our cargo facility in Houston. This will work as the finishing line for the Bay City running pipes which will add additional capacity to the capacity finishing capacity we have installed right now in Bay City. So, we don't see any reason or any impediment to the way we were forecasting in our budget. Now as far as your question is concerned, the plant is ramping up according to plan and frankly we don't see any substantial obstacles to keep on ramping up according to plans. Thank you.

Now, the risk on the working capital, my view it's clear that we need to use more efficiently working capital. We are gradually adjusting after a strong increase in our redirect. We now could optimize very much on many aspects. But to quantify what you think we can do Edgardo, comment on this.

Sure. Good morning Nic and thank you for the question. Yes, I mean we've been growing with the best men in the working capital through the year. I mean following a very significant increase in volumes, tonnage wise and also in sales. And as also we mentioned in the opening remarks, I mean one component in there has been affecting significantly was the big project saw that we're going to be probably face out in the first half of next year. So, I would say that from now on we need to reduce the days of working capital not only because of the elimination of this component of source but also because the more that we are getting into the production into the U.S. with the shorter lead time in Bay City that will contribute to reduce our inventory for the redirect. So, overall, we will see an improvement and I will say in the range of 15 to 20 days for the next three quarters.

On third question - which could be a possible outcome of the negotiation on the 232 Guillermo you are working very closely to the team that is discussing this. Maybe you can give us some indication of where you see this going.

Yes. Hello. Good morning to everybody. Well as you know there it right now as we speak, negotiations are going on between Mexico and the United States. I would tell you that the position of the Mexican industry has been that there should be no quotas at all. The market has to be open, and especially under the perception on the division that the U.S. runs, the steel industry in the U.S. runs have a very big surplus versus Mexico in terms of experts. On the other side, the position of the U.S. government has been that any solution has to include any type of chorus. And because the negotiations are going on right now, I wouldn't like for obvious reasons to go much deeper into this discussion. We also have a little bit the risk of what's going to happen with the U.S. MCA ratification as Paolo said in every - in his conversation. But there is where we are today, and I think that we should know the outcome, in the near future.

Yes. But the general comment I would say that Tenaris is a very strong in any scenario because in the end, we have production in different countries. We are the more global system compared to everybody else. So, what is happening in these months, the Section 232, the safeguard adopted by different counties in containing the deviation of commerce? We are really position as a company to face any decision in the different region because we can react properly and continue to satisfy the demand of our client because in the end for us the most important things are to maintain the relation with the client independently one of these and to be able to continue to fulfill our obligation is satisfy the need. Everywhere from different sources according to the decision they do really maintain.

Thank you. But maybe just a very quick follow-up, would you agree that the risk seem asymmetrical on this? So, in the sense that the exemptions come to nothing that U.S. MCA comes to nothing. Is it right to say that you would continue paying the terrorists that you're currently paying, The caution that you've talked about in the last couple of conference calls, which is now quite well understood by the market, that is what would come from a sort of a failed negotiation on U.S. MCA. But on the other hand, if the exemption comes through it would be a material benefit to Tenaris. So, it would seem from my perspective that the risk reward is a very [indiscernible] negotiation at the moment. Is that how you can think as well that you prepared for the downside and will benefit from the upside or is its simplistic way of thinking about it?

Thanks. As you were saying, even in the worst scenario is the new USMCA that approved, and situation remain exactly as it is. As you can see now our results in this quarter, we are faring pretty, and we have been able to recover from the market, the increasing cost that we had. So, I think Tenaris is well defended in both cases. But if you ask me, from my point of view, I really much would like to have the agreement to be approved the Section 232 tariff related to Mexico and to Canada to be eliminated that be able to operate into an open space for the future.

I'm done. Thank you very much. I'll turn it over.

Thank you. Our next question comes from Vlad [ph] with Bank of America.

Hi. Good morning and thanks for taking my two questions. Firstly, could you please provide some color on how your shipments to devote into fourth quarter of the year? Am I right and thinking that Zohr project alone with 70,000, 80,000 tons through short quarter shipments? Then Canada will do better as every other moving part up or down from between Q3 and Q4? And my second question is a broader one on your strategy in the Middle East. Do you think direct model could be applied with the National Oil companies in this region or they will continue doing big open tender like the one recently announced by SM [ph]? Thank you.

Well, on the first question, we respond at the beginning. I mean in the shifts between, the fourth quarter has been clearly supported by the increasing in the line pipe in the Eastern Mediterranean. In the first quarter, we will lose some volume there. But as I was saying, we are recovering in North America in large parts, thanks to Canada because of the season. This is a compensating factor. There is important in this area. But also, there is a pickup, gradual pickup, in Latin America, in Colombia and Mexico. These are not such big increase but contribute to support our operation international operation. So, we think that as a whole, in the end we should be able in the first to maintain something lower volume in the first group. But let's say not very far from what we got in the 4Q. As far as second question, the Rig Direct. It's clearly, we are expanding our Rig Direct operation in the Eastern Mediterranean. Gabriel you may comment on the breakthrough that we did in the past and where you think this way of working could be expanded.

Yes, thank you Paolo. Good morning Vlad [ph]. I think you touched on a very interesting point on the deployment of a Rig Direct in the Middle East. I mean in general international markets which were in the past not necessarily operating under the Rig Direct. But it is changing in many parts of the world. For example, last August we started Rig Direct in China with Shale with something that has been probably I heard of. But we are starting a new tight gas project with Shale and the Rig Direct commissioned for the next two years. So, this is something that we are discussing with the nationals in the Middle East. It will take some time. But as you mentioned, Adnox [ph], this is a company that is one of the - the one, that is most advanced, looking at how to create the efficiency under a different supply chain management. So, I think it will take some time, but eventually the benefits and the strength of their Rig Direct is something that is also applicable to the national.

Thank you, all gentlemen. That's very helpful. And can I quickly follow up if I may? That's good to hear that your Q1 volumes are not significantly declining versus Q4. Would it fair to assume a very substantial increase to your Q4 volumes versus Q3? Are we talking about something more than 100,000 tons increase for Q4 versus Q3? Would it be fair to assume that?

No. it will really. No, it is significantly lower than this. But there will be an increase. It will not be so high but there will be an increase.

Okay. Thanks very much.

Thank you. Our next question comes from Ian MacPherson with Simmons.

Thank you. So, the Argentine peso devaluation was a positive effect for you in the third quarter. But I wonder has it had any impact on the investment climate? And can you just talk about the outlook for growth in activity in 2019 as you see it today for Vaca Muerta. Thank you.

Thank you, Ian. Well, definitely for sure, what's happened in Argentina as devaluation increasing the interest rate? We'll have an impact in general on account. We hope that this will be a short reduction in the economic activity, and then there will be a recovery starting in 2019. Now as far as Vaca Muerta is concerned, Vaca Muerta is perceived something that Argentina should really defend and promote for the future. Because it is a key component of improving current account payment for the country's reducing LNG import is producing more gas domestically at the very competitive different price is essential for not only for the current account but also for the fiscal reducing the deficit? Because in the end it is reducing the subsidy that government is pour into the energy sector to reduce the cost of energy for the sectors, the poorest sector of the provision. So, we think that the government is very keen in serving condition for the oil company operating at Vaca Muerta adjusting to some extent but within limit the remainder will not affect the development of Vaca Muerta. It will not be let's say in 2019, we cannot expect substantial aggressive growth because also the interest rate making more difficult for the count the company to finance this growth but there will be a growth in Vaca Muerta. There will be increase in drilling during 2019 obviously if you think of it very substantial aggressive development we will name it wait for 2020 with a better visibility on the future and also the future on after the election of October 2019.

Understood. Thank you, Paolo. For my follow-up, just to connect the dots a little bit more on the outlook though asked question I think you addressed on the fourth quarter outlook for volumes being up a bit, not up a 100,000, but up a bit and would we also assume that average selling price would be relatively stable as would be margins in the fourth quarter compared to the third quarter?

Yes, you're right. This is basically our ...

Perfect. Thank you.

Thank you. Our next question comes from Amy Wong with UBS.

Hi, good afternoon. I have two questions please. The first one is on your comments and the general commentary in the industry where there is movement on tieback, but not greenfield projects. Could you talk about your opportunities that other than the fact that probably the buybacks are smaller projects and there is less volume, but is there any difference to kind of content that you can supply into a project and the timing of when those projects got sanctioned and how that converts into revenues for Tenaris? And then my second question relates to your pipelines business as those rolling off, we understand that. But can you talk about the opportunities set out there in terms of tendering other gas explore pipelines that you guys have an opportunity of winning and the timing for that please? Thank you.

Yes, on the activity of the oil company and offshore, let me ask Gabriel again which is your view of the time to market and what we can see I mean in according and depending from the development outlook?

Yes, good morning Amy. In terms of what you mentioned the tiebacks versus the greenfield projects, I think this is what we are seeing this year substantial number of increase in number of RFIDs during this year versus last year, but these are smaller in CapEx, shorter in cycle, smaller in CapEx requiring some of OCTG associated with the drilling, but in general tied up with smaller pipelines to existing infrastructure. So, these are shorter cycle which in this environment the majors are prioritizing over large scale projects that are paid over five, 10 years with several billion dollars of capital expenditure. It's well-positioned as well for those delivery, compliance with technical requirements service are still some of the key elements to be successful in those and the global scale of Tenaris in our track record also apply to tieback and also for larger pipelines, but this will affect sensitively the backlog of pipelines offshore going forward as we conclude this sort of type of life of projects.

Yes, basically tieback require, and it lies through very short pipeline, very short [indiscernible] that are connected to the existing facility. So, we don't have the opportunity like so or several hundred thousand tons connecting field that maybe 300 kilometer outside the coast to deliver, so these are very relevant project we do not see this in 2019. Now, we do not see this in Brazil, Brazil is a region that in 2019 will remain in term of drilling [indiscernible]. So, we do not see them in outside the world in the best of the deep offshore or in the even in the more shallow offshore large pipeline. We will have shorter project with that's a shorter private and limited demand.

All right. Great, that's helpful. Thank you.

Thank you. Our next question comes from Marc Bianchi with Cowen.

Thank you. If I heard correctly the view for the balance of 2019 beyond first quarter assumes that volumes remain fairly stable. But the line pipe from Zohr is offset by growing OCTG. Under that scenario, what is the margin benefit that you would get just from replacing those lower margin line pipe volumes with higher margin OCTG?

As we see that beginning. I think that is difficult today to have a clear visibility of the condition of operation in the United States and to some extent or so in some other region today many things needs to be defined. There is the energy policy in Mexico, there is the recovery of Argentina, there is the energy policy also in Brazil and tariff issue in the U.S. Today, let's say if you - we do not have a clear visibility of the dynamics after the first quarter of 2018. The reduction in the in the large pipeline will be substituted by OCTG but the stable price in the U.S. will probably also maintain our EBITDA margin EBITDA on a general invoicing in the range of where we are today.

Okay. Thank you for that. Maybe going back to the whole Mexico tariffs and what could come from the ratification. I think last, we previously discussed $40 million of quarterly burden in the fourth quarter from all the tariff situation that's out there right now. Would you still say that's a fair number? That if we get favorable resolutions that would be the uplift that you would eventually realize?

I'll ask Edgardo to comment on the number for that we are paying in tariff today.

Yeah, I mean this quarter I mean the third quarter we just finish. It was not fully reflected the tariff because there was some material that we ship that were coming before, the tariffs took place in the U.S. But I will say that as commented in the last conference call, is in the range of $50 million per quarter the full effect. So that's going to be having impact on the fourth quarter. And you're right. If we get the exception from this that will be something that will improve our margins.

Very good. Thank you.

The exclusion is only affecting around $10 million per quarter, the rest is affecting $40 million or number in this. So, if we get the exclusion but we don't get elimination of the tariff, we would only save around $10 million per quarter.

Got it. Thank you.

Thank you. Our next question comes from Stephen Gengaro with Stifel.

Thanks. Hello gentlemen. Two things, if you don't mind. The first, can you just give us a brief update on Bay City. How is it running? How is the efficiency? How is it been operating relative to expectations?

Yes. Luca can you give feedback.

Thank you, Stephen. As I stated at the beginning, we are working at according to plan, we mentioned number. And no worth of collection 26,000 tons which is in line with the running rate we were expecting by December. This will depend also on that of course and so to cut the long story short, I believe that we are wrapping up according to plans and we don't see any structural issue that could prevent on to move on this path.

Yes, if I should add, let me tell you that when we ramp up operations, we need to hire people to train. So, we have all the issue that comes to Mainland and make sure you have the people with relatively low experience coming into it. And we are very carefully from the point of your safety. So, I mean, this is a process, it's not something that could go up very strongly, but the positioning in Colorado is opening up, a finishing line that exceed the capacity of the existing finishing line. So, is creating a condition for the facility to continue to grow during 2018.

Great, thank you. And then as a second question, when you think about the balance sheet and sort of can you give us a sense for CapEx needs in '19 and any plans to alter how much cash is being returned shareholders obviously the balance sheets in great shape with the Bay City CapEx behind you. I'm just trying to sort of think about how to calibrate your views on where the balance sheet should be from a debt to cap and cash standpoint how much maybe you continue to return to shareholders?

Well, thank you for your question. I think in 2019 our investments will be in the range of $350 million to $400 million. But I will ask to Edgardo to make additional comment on our balance sheet. Now if we can, which are the key point on which we are acting today on this?

Sure, I mean, from the point of view as we committed early on, we are going to be expecting to recover working capital in the first half of next year. So, provided that we maintain the level of operating generation that we have in our balance sheet. We're going to be able to maintain and paying our dividend other levels that we pay in the last year. And we basically will be getting an additional cash, I mean, bring him back to the cash not that they have probably two years ago, but we're going to be probably improving the cash by $300 million by the end of June.

Yes. I would say that, obviously we, you're seeing the decision to pay the advance a dividend and it will be up to the board and the shareholder to decide what to do for completing the dividend for this year, they will also depend according to our policy on how we see the perspective of the company during 2019.

Okay. Thank you for your answers.

Thank you. Our next question comes from Rob Pulleyn with Morgan Stanley

Hi. Thank you, gentlemen. A few questions, if I may. I mean that the first one is when you talked about stable prices in the U.S. into 2019? Could I just, can we just talk a little bit about what you expect and see on the scrap steel prices your input and how that of course, may impact margins? And the second one, if I can ask regarding international pricing as to whether you're actually seeing any pricing power with your customers outside of North America, or whether that's a bit early? And the third one, we heard a lot I think earlier in the year about the impact of section 232 leading to more a U.S. welded capacity coming back online. Have you any incremental plans to add more welded tons in the U.S. as we look into 2019? Thank you.

Yeah, thank you. And the first point as I say in a month before. In the level of rigs into operation remain stable around 1,050 or 1,060. I would expect to price also in the market to stay more rest where they are today. As far as the scrap issue. Also, I do not expect big changes in the price of scrap. That is different factor combining in the market for scrap demand from Turkey. The level of [indiscernible] operation in the United States. But it basically compounding this, I would expect the level of cost of metallics worldwide to remain more or less where it is also following is a limited increasing in the consumption and production of steel worldwide. On the third point, which is the welded capacity utilization for pipes. I would ask Luca if we have some indication or some opinion on this?

Yes. As far as the welding capacity we are seeing some additional volumes coming in from the domestic industry. And as far as the question on our welded capacity, I believe we are - we'll keep confronting the demand that we have in front of us. Thank you.

Just one additional comment. According to 232, also the demand for flat product in the United States has been pretty solid as you are seen and also the price of hot rolled coils in the United States is been pretty high. So, in this moment, the increased welded - if there are stable prices not really something likely these conditions for the time being. Maybe the hot rolled coils will - the price of hot rolled coils will go down gradually during the coming months. But this is one of the uncertainties that is affecting North American market today.

Paolo, that's super helpful as always. And if I could just go back to the second question on international pricing, whether you are seeing any pricing power there? Love to hear your thoughts. Thank you?

Yes. Gabriel?

Yeah, thank you Rob. With regard to the pricing in the international market remains challenging. The competitive environment continues to be challenging and pricing remains under pressure. Having said that, during the last year as you know in the contract we have renegotiated according to the market and cost indexes prices where we'd increases. And also, we have high-graded our backlog. So, this is something that we positively see the effect during 2019 in international market. And as said as we have lower level of well relying pad this will have a positive effect on average pricing of those typically pipeline have lower average price on high-end OCTG.

Yeah. Some recovery will come from a mixed effect in international. Is pipeline there it will be reduced but also some additional premium for more complex projects will shift the mix into a slightly higher price.

Thank you again. I'll turn it over.

Thank you. Our next question comes from Alessandro Pozzi with Mediobanca.

Thank you. I have two questions. I think in Q3, we've seen the cost of raw materials going up a little bit. Just wondering whether that reflects the impact of tariffs or is the true cost of actually raw material flowing through the P&L. And the second question on the quarter, Section 232. I think in general 2019 we're going to have every side of those quarters. And I was wondering whether potentially imports from Korea and Brazil could be overrun for prices in the U.S. thank you.

Yeah. On the first point, let me ask also to Edgardo to give a view how the price of raw material is also getting into our balance sheet into our profit and loss.

Yes, especially I mean in the third quarter you're right. Basically, we saw the last part of the increasing raw material primarily the scrap, ferro alloys that accounts to some extent probably 50% of increase. The rest of the increase was primarily the duties that it came into picture in this quarter.

Yeah. As far as what we can expect, starting in general when quarter effective countries may get back to U.S. Luca, do you expect this to change something relevant for the market?

Well, of course this will add additional supply. So, this is one of the elements of uncertainty that you mentioned Paolo in your previews and your previous comments. And now that's what we remember that's for example Korea according to the preliminary determination would be also affected by a significant increase on anti-dumping duties if confirmed in the final determination. So, I will go back to your previous statement concerning uncertainties. I mean there are different elements in today and for us to give a firm stable outlook on what is going to happen, we need to see a little bit how these develops going forward.

Let me just one comment in the last two quarter, we had a reduction in the stock on the ground in the range of 130,000 - per quarter around 130,000. Now there is some increase in the import and may also go sector by the reduction - will stop the reduction in the [indiscernible]. So, this I think is the factor that you need to consider. In the last two quarter the market has been supplied by reduction in inventory. This could not go on forever. A quarter you know very well that the quarter will not be - I mean there is no will be distributor quarter-by-quarter so even if Korea came back, but it get back only 30% of the annual quarter in the first quarter, not 100% of the yearly quarter so will be gradual and there will be some and you have to consider also the absorption that has been provided by the inventory.

Understood. Thank you.

Thank you. And our next question comes from James Evans with Exane BMP Paribas.

Hi, thanks for squeezing me. I've just got one, I wondered if you could talk a little bit about the outlook for Mexico over the next 12 to 15 months, obviously there was some hope of a significant cash injection into Pemex. So, I'm just wondering what you're hearing on the ground, when any such injunction could be sought to be represented in your results and also what you're hearing and seeing from some of the new entrants in the country at the moment? Thank you.

Thank you, James. German can you…

Sure, James, well as you see we are optimistic about developments in Mexico and I would say there are two drivers, there are two drivers that are moving right now. one is Pemex and there has been declarations by the elected President that he wants to increase the budget of Pemex and in terms of drilling system about $4 billion to $5 billion of an increase. We are already seeing Pemex reactivating in sales in the fourth quarter we're seeing rig count around 33 rigs versus the 20 that we're having last year. And then in terms of the new commerce at the beginning I would say that there were some doubtful in terms of how the new government was going to face the energy reform and the first good news we had is that all the contract we're going to be maintained. Then this was moving, and we had also on our positive information that all the biddings that were in process which was what as you know around 3.2 and 2.2 and 3.3. And also, the Pemex which were going to be assigned by September, October they were stopped but now they have said that this is going to be assigned by February so it's the reform is moving on and what we're expecting is that gradual but consistent increase in the volumes quarter by quarter we are already seeing in terms of our backlog the new commerce are coming in and today we have 11 rigs already in Mexico operating under the new commerce we expect this to increase to over 20 rigs by the end of next year so and we see this continuing to increase in 2020. So, I would say that we are optimistic in terms of developments in Mexico.

Thank you. That's very helpful detail.

Thank you. And ladies and gentlemen this concludes our Q&A session for today. I will turn the call back to Giovanni Sardagna for his final remarks.

Well thank you Carmen and thank you all for joining us in our conference call and hope to see you soon. Bye.

Thank you very much. good day.

And thank you, ladies and gentlemen for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.