Tenaris SA (TS) Q1 2023 Earnings Call Transcript (2023)

Tenaris SA (NYSE:TS) Q1 2023 Earnings Conference Call April 27, 2023 9:00 AM ET

Company Participants

Giovanni Sardagna - IR Director

Paolo Rocca - Chairman & CEO

Gabriel Podskubka - COO

Luca Zanotti - President of United States

Conference Call Participants

Alessandro Pozzi - Mediobanca

Marc Bianchi - TD Cowen

Stephen Gengaro - Stifel, Nicolaus & Company

Daniel Thomson - BNP Paribas Exane

Arun Jayaram - JPMorgan Chase & Co.

James Winchester - Bank of America Merrill Lynch

David Anderson - Barclays Bank

Guglielmo Opipari - Bestinver

Luigi De Bellis - Equita SIM

Kevin Roger - Kepler Cheuvreux

Operator

Good day, and thank you for standing by. Welcome to the Q1 2023 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. Please go ahead.

Giovanni Sardagna

Thank you, Gigi, and welcome to Tenaris 2023 First Quarter Conference Call. Before we start, I would like to remind you that we will be discussing forward-looking information during this call, and that our actual results may vary from those expressed or implied during the call.

With me on the call today are Paolo Rocca, our Chairman and CEO; Alicia Mondolo, our Chief Financial Officer; Gabriel Podskubka in his new position as Chief Operating Officer; 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 fourth quarter sales reached $4.1 billion, up 75% year-on-year and 14% sequentially, mainly driven by higher sales of OCTG and line pipe for offshore projects around the world in addition to a peak of shipments to a large pipeline project in Argentina. Average selling prices in our Tube operating segment increased 32% compared to the corresponding quarter of 2022 but declined 1.5% sequentially.

Our EBITDA for the quarter was up 16% sequentially, close to $1.5 billion. Our EBITDA margin reached 35.7% as lower cost of raw materials and energy costs combined with a better absorption of fixed costs higher volumes more than offset a small decline in selling prices.

With operating cash flow of $921 million and capital expenditure of $117 million, our free cash flow for the quarter was $804 million. At the end of the quarter, our net cash position increased to $1.7 billion, up from $921 million at the end of 2022.

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.

In this first quarter, Tenaris achieved many records. Net sales, EBITDA and net income all exceeded the previous record results of the fourth quarter last year. Our industrial and supply chain system combined to deliver the highest level of shipment since 2008, with a more differentiated production mix. Production records were exceeded in many of our plants, including at the Bay City.

Our Rig Direct service performed at record levels. In March, we served 540 rigs and executed over 1,200 field services activities at customer rig around the world. Our newly introduced RunReady service, which delivered pipes to the rig ready to be run is quickly gaining traction and now cover 45% of our U.S. Rig Direct shipment.

Our sale of Wedge Series 400 connections, designed for shale application and our sale of Dopeless connection and BlueDock and EasyDock connectors for offshore application also reached a record level. During the year, we expect our sales of this specialized product as well as our Wedge Series 600 and new Blue connections to exceed the previous annual records.

In April, Tenaris completed the deliveries of 176,000 tons for the first phase of the Nestor Kirchner Gas Pipeline, thereby fulfilling its commitment to do so before the coming Argentine winter season. This task was only achieved thanks to the record production levels at our welder plant in Argentina, complemented by additional production from our Brazilian plant and the dedicated coordination between various companies within the Techint group. This project represented a logistical challenge involving the dispatch of more than 600 kilometers of pipes. Now our Brazilian mill is focused on producing and delivering pipes for the Qatargas North Field expansion project before the end of the year.

While North America was the main driver for our sales growth in 2022, this year sales for offshore projects and to the Middle East will rise strongly. In the first quarter, sales to offshore projects around the world rose 40% quarter-on-quarter and will increase further in the second quarter to represent close to 20% of our sales of tubes.

In the Middle East, investments in oil and gas development has been increasing while OCTG stocks, particularly in Saudi Arabia are low. Our sales in the region are increasing and further tenders are expected. The United States sales OCTG consumption has leveled off, but import by distributors have surged to reach record levels in the first quarter of 2023, following the run-up in prices of last year. OCTG inventories on the ground have increased rapidly and now exceed customary levels, putting pressure on prices, particularly in non-heat-treated items.

In Canada, meanwhile, a parallel surge in Chinese import in the second half of 2022 and early 2023, has resulted in excess inventories on the ground. The Canadian authorities revised normal value levels for Chinese OCTG imports in March with potential retroactive effect. North American market conditions should stabilize later this year as OCTG inventories return to normal levels.

Also our shipment, we remain at good levels throughout the year, exceeding 2022 volumes. The price environment in the Americas will affect our overall level of sales and margin in the coming quarters. In the first quarter, our cash flow from operation reached a good level as we stabilized inventory levels and should increase further and strengthen our already solid balance sheet.

In the meantime, we proceed with our investment program to modernize our industrial system and reduce the bottlenecks that limit our production capabilities in high range and specialty products. We will increase the capacity of our Italian steel shop to produce special high alloy steels. And in Argentina, we are replacing a steel furnace with technology that will reduce carbon emission and improve operational efficiency and capacity. In the United States, we will modernize our steel shop to reduce its environmental impact on the surrounding communities.

We will also install a heat treatment furnace in Italy with lower carbon emission that will expand our capacity for serving offshore pipelines. Other investments include our new premium threading line in the Emirates, expanding capacity in our threading line for the use of our Dopeless technology in offshore application and our wind farm in Argentina in October. We will also complete the rollout of our new integrated production system across our main production centers, allowing us to optimize mill production schedules and reduce our lead times.

In April, Gabriel Podskubka was appointed as our Chief Operating Officer. He will be responsible for coordinating the company's sales and marketing, supply chain and production operation as well as its product and service development. Gabriel had an extensive experience in every area of Tenaris. He's very well prepared for handling the very complex agenda on Tenaris on the times that are coming, and he will be undoubtedly, up to this task.

So I will now leave the floor open for any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Alessandro Pozzi from Mediobanca.

Alessandro Pozzi

I have a couple of questions. The first one is on the outlook for the rest of the year. You mentioned a gradual decline in sales and EBITDA margins, of course, from record levels. But I was wondering if you can give us a bit more color of where you see potentially sales going and margins in Q2, which I think probably you should have a sufficient visibility and maybe attempt a -- maybe forecast for the end of the year where we could see basically sales coming down to which level?

And also remaining on the guidance, you mentioned an increase in cash flow gradually throughout the year. I was wondering, you still have a fairly high working capital in absolute terms. Shall we see some of the reversal in working capital throughout the year? And what sort of free cash flow we could see because your free cash flow may be towards the $3 billion rather than the $2 billion for 2023?

Paolo Rocca

Thank you, Alessandro, for your question. Well, on the first one, as you were guiding, as we mentioned, the prices, as you can see in the trend -- in the downward trend of the Pipe Logix is, to some extent, affecting from now on also our overall pricing. In the United States, this is basically driven by the incoming flows of import and leveling off or containment of the level of rigs and the operation.

But in other parts of the world, in Middle East and in the offshore, we see price still getting up and there is pricing power for specialty products in that area. But in this environment, combining all, we see some reduction in the overall price.

Having said this, we expect our margin in the second quarter to remain or being slightly lower than our margin in the first quarter. Then some -- the trend beyond the second quarter will be influenced by many factors. Today, there is some uncertainty in the market, and we will see how the different factor, price for oil, operation and the financial tension in the United States may influence what is coming. But that's the reason why we guide for a gradual decline in our results. Now...

Alessandro Pozzi

In Q2, should we expect a single-digit decline as well?

Paolo Rocca

We're expecting sales single-digit decline. But as I was saying, we expect to a slightly lower or similar level of margin in the second Q. As far as the cash flow is concerned, when our sales are leveling up, our need of working capital is also contained. So finally, we're beginning to reduce our inventory to contain our receivable. So we expect a slightly higher cash flow in the next quarter and sustained cash flow also in the rest of the year.

Your point on the free cash flow. Also free cash flow will be very strong. Our investment will increase from around $380 million in 2022 to something in the range of $650 million in 2023. So this will not really change so much or affect our free cash flow and our free cash flow will be solid in our view in all of 2023 in every quarter.

Alessandro Pozzi

So basically, it's a step up from Q1, so probably higher than the $800 million that you delivered in Q1 over the next few quarters, so potentially above $3 billion for the full year.

Paolo Rocca

What I'm saying is that it will be higher in the first quarter, then we will see the the working capital.

Operator

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

Marc Bianchi

I understand there are several factors affecting second half as you mentioned, Paolo, but if you were to just flow through current pricing, what we're seeing in the spot market and what your current metallic and other costs are because there's some lag. So I guess the question is when all of that flows through, does that imply further downside to margins? Or I don't know, our international pricing and other things enough to offset that?

Paolo Rocca

Thank you, Marc. When we look at our cost, it's true that we had some spike in hot rolled coils in -- very recently. But then pricing of iron ore, of and so are going down. This will not get into our profit and loss in the coming quarter. Maybe by the fourth quarter, we may start to see something of this. It will depend also from how this -- the level of volume will move on.

But as I say, guiding in the second half, we had to take into consideration many factors, level of activity, pressure of imports in the United States, some of the costs that could have an impact in relative short term. But as a whole, I think that our margin will get normalized in the level around 30% that we were mentioning in the past.

Marc Bianchi

That's very helpful. On the U.S. activity or North America activity, one of the large drilling contractors provided an outlook for the June quarter where their rig count could fall by something like 19 to 24 rigs, which is a surprisingly large drop relative to what everybody else is seeing. You guys have some pretty good visibility with Rig Direct. I'm curious if you could put that in rig count terms, what you see and what your customers are saying?

Paolo Rocca

Yes. Thank you, Marc. Well, as you say, on one side, we see the number of rigs internationally and globally to go up. But in the United States, we have seen some reduction. We'll Luca to give a view of the level of activity that we may expect from our client in the States.

Luca Zanotti

Yes. Thank you, Paolo. Marc, look, yes, we have seen these statements. Now there are others that are forecasting much lower. But I believe that in the end , it very much depends on the combination of your customer portfolio. Now if you see what has happened so far and according to , you've seen that the reactivity went down mainly on the small private that lost almost 100 rigs. So depending on where your exposure is, you may have different effects on your sales.

When it gets to Tenaris, as you know, we are a large exposure to big operators that didn't show this dramatic drop on the contrary. Actually, they've been adding rigs through Q1 and so we expect this to be not the same as other operators in our space that may have exposure to a different customer portfolio.

So I go back to what Paolo was saying, we see a level off, but we don't see, at this stage, a dramatic decrease in activity as far as our portfolio is concerned. Obviously, there are uncertainty going through the second quarter, and so we're going to revise this if any.

Paolo Rocca

I think it's important to follow the dynamic of price of oil. As we were seeing in the last quarter, we still expect that the different factor affecting the market of supply and demand in oil should act to maintain the level of price in the range between $70 and $80. And in that condition, our client should maintain a relatively solid level of operation.

Operator

Our next question comes from the line of Stephen Gengaro from Stifel.

Stephen Gengaro

I guess 2 things for me. If we can just start with the balance sheet, the cash, the expected free cash flow, you obviously are in a very good spot from that perspective. Have you -- how do you think about giving more cash back to shareholders given the balance sheet and the free cash flow expectations? It seems like you could be more aggressively returning capital, I'm just thinking about how you approach that.

Paolo Rocca

Thank you, Stephen. Well, yesterday, we presented our results, our cash flow to the Board. The Board and the assembly will decide about dividend , okay. They were happy with the results. They will take this into consideration. But I think that then they will decide during the coming quarter, considering the different options that we may have.

Stephen Gengaro

Is there any framework or the way we should be thinking about how much net cash or cash you need on the balance sheet just from an operating perspective?

Paolo Rocca

Well, we are considering Tenaris, the leading player in the world in this business and always has to consider the option of positioning in different scenario, how to get-in, expand this value chain. These are points that are always considered. At the same time, we have a track record of dividend. There is also kept in good consideration by the Board in taking decision on this.

What we can see is that working capital should stabilize at this point, and we do not expect [indiscernible] of cash by the working capital, on the contrary, to some extent, we should be able to get cash flow from inventory receivable in the coming quarters.

Stephen Gengaro

And I have another question on the margin front. And maybe thinking about it. The last couple of quarters, you've had extremely high EBITDA margins, and we can go back in history, and it's hard to find times that you're at these levels, if ever. But when we think about your business and sort of what you guys have done structurally to improve the efficiency of operations, your global footprint, the Bay City facility, et cetera.

But where would a margin -- I'm trying to sort of think about maybe you can help us understand how much of the margin uplift and sustainability of margin is related to simply input cost versus selling prices versus all the internal improvements Tenaris has made? Is there a way to think about sort of like we were talking about going from 20% EBITDA margins to mid-30s. How much of that is simply price versus input and how much of that is how well Tenaris has done improving efficiency of operations?

Paolo Rocca

Thank you, Stephen. Well, I would say that the -- over the years, the expansion in results in Tenaris in absolute term and in terms of margin is mainly due to the organic growth investment in our facility, the progression in establishing our business in the United States. The Tenaris of today is very different from Tenaris of 10 years ago. The participation in the U.S. -- in North American market in general is above 50% of our revenues in this.

So the company has changed and also the level of service to our clients, the Rig Direct, RunReady, there are component of the value and are contributing to the margin of the company has also increased very much, not only in the States but also in Latin America, Middle East and in other areas. This year contributed to, in my view, a sustainable increase in our level of margin in the different situation for the market that we faced. That's the reason why we can today guide the medium-term margin in the range of the 30% because of the work done in our value chain in our -- the reorganization and improvement in our operation and extension and expansion of our market and our service proposal.

I think this is there, is something that is being achieved. In this moment, in particular, the inflow of imports in the United States is having an impact on the shorter price, and you see this in the Pipe Logix. And to some extent, this is reverberating in our level of sales, not only into the States, but I don't think that this is really sustainable over the medium or long term.

Operator

[Operator Instructions]. Our next question comes from the line of Kevin Roger from Kepler Cheuvreux.

Kevin Roger

Yes. Can you hear me?

Paolo Rocca

Yes. Very good.

Kevin Roger

Sorry for that, but it will be a 2 kind of follow-up. You just clarified that you expect the EBITDA margin to stabilize around the 30%. Another way to look at it, would it be fair to assume, therefore, that your EBITDA run rate would be at least around $1 billion on a quarterly basis. That would be the first question.

And the second question, Paolo, I really understand that any decision around the dividends will be decided at the Board level, et cetera. But if I can be curious and ask what would be your personal view on that side? What will be your position at the Board? What will you propose in terms of mindset, returning extra cash with special dividends or whatever. Just to maybe get a bit of sense on your personal view rather than the [indiscernible] maybe [indiscernible].

Paolo Rocca

Thank you very much, Kevin. On the first point, we are in the range that you are saying basically. This is what we can see now. I mean, obviously, these are an issue that could be influenced by factor like a recession in the States or so. These are always things that move and could be affected by this.

On the question of dividend, I have no personal opinion. I just presented to the Board alternative and option and they decide. So I cannot help you on this.

Operator

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

David Anderson

I want to ask you some questions about the longer cycle markets that impact your business over the next few years. Maybe talk about offshore markets a little bit. We're seeing a wave of rig contracts in [indiscernible] in the last 12 months. So subsea orders are piling up, FTI has had some nice numbers this morning. And now hearing service companies are talking about the opportunity as well. Can you just talk about how you see the offshore impacting your volumes and kind of when that should start hitting? Is that a second half of '23 event for you? Is that more of a '24 event? And any markets in particular stand out for Tenaris offshore wise?

Paolo Rocca

Thank you, David. I think this is a long-term evolution. But I will ask Gabriel to give a view of -- this is a long-term trend and where we can see action in this.

Gabriel Podskubka

Thank you, Paolo. David, indeed, the offshore drilling continues to increase steadily. The global offshore rig count already reached the pre-pandemic levels, and everything indicates that this will continue to grow. FID projections, CapEx projections, the discussions that we have with our various [indiscernible] indicate that it's going to be a multiyear growth cycle. We are quite confident about that.

And what we perceive, this is also happening in many basins at the same time. Tenaris, as you know, is an undisputed leader in this segment with a differentiated product and service portfolio. So we are very well positioned to take advantage of this trend.

I would mention, for example, that we are ramping up shipments in Latin America, long-term agreements that we have with -- in Brazil and Guyana. These are 2 key deepwater basins that will experience growth over the next few years where we supply differentiated technologies such as BlueDock connectors and casing with Dopeless technology. This is one area that we continue to grow into 2023 and beyond.

Another hotspot has been the offshore seamless pipelines. We see a lot of activity in building infrastructure to support this increased drilling. In the last few months, we have booked several deepwater pipelines in North Sea, Sub-Saharan Africa Black Sea. So we see this area also as a bright spot into the future.

So overall, we believe that volumes are going to increase. This is already happening in quarter 1, and this will continue to happen in the rest of the year. But we believe that this is going to be a multiyear cycle. And also this -- somewhat in this segment, we have some long-term contracts that have formulas that will escalate pricing over time, and there are also new projects, new spot contracts coming on, which probably will be delivered in 2024. And certainly, new contracts are being booked at higher prices. So we need to think of the offshore impacting positively gradually in '23 and '24 in volume and in pricing.

David Anderson

Gabriel, I was going to follow up with that. I mean, I know the pipelines are a little bit of a different story. But generally speaking, your OCTG offshore should be margins that are accretive to that normalized 30% margin number. Does -- is that a fair statement to say in general?

Gabriel Podskubka

Correct. And the same would apply with a seamless offshore pipeline. On the welded pipeline, for example, the one that we mentioned in Qatar and some in other legacy contracts, average pricing and margin are lower than average. But we're talking about the new cycle of deepwater offshore seamless pipelines, margins there are also quite differentiated.

David Anderson

Even there, while that's surprising because you usually think the pipelines are the lower-margin business. Gabriel, while I have you here, maybe we can talk a little bit about the Middle East as well. So I'm just kind of curious, kind of repricing opportunity you're seeing over there. I heard one of your competitors recently raised pricing rather significantly on a recent contract. Should we expect Tenaris to likewise be kind of start to recapturing pricing here as contracts are renewed. Do you see -- are there contract renewable opportunities coming up in the Middle East?

Gabriel Podskubka

There are, David, indeed, the environment there in the Middle East is also very positive. Investments are being deployed in line with the capacity expansions announced by the NOC. Despite the announcement of OPEC+ on reducing production, we don't see anything impacting negatively, activity on the ground is increasing. The NOCs are moving on, increasing the level of purchasing and [indiscernible]. Saudi Arabia, UAE, Qatar or [indiscernible], we are seeing a higher demand for our products. So there as well, where we have long-term agreements with [indiscernible] and renegotiation. And new contracts, new orders are coming at a distinctive, different pricing. So we see that over time to be impacting positively into 2023, and we already have good visibility in the Middle East into 2024. This is another multiyear growth cycle.

David Anderson

Sounds like some very good positive consistent trends. Good to hear.

Paolo Rocca

Thank you, David. This is -- really the new contract coming at prices that are different from the old one. But some of the old contracts like a big line pipe contract for Qatar, we'll continue to stay in our number until the end of the year with very low margin. It's one big contract because some of this is long term.

Operator

Our next question comes from the line of Daniel Thomson from BNP Paribas Exane.

Daniel Thomson

Just two questions on pricing, please. Apologies if I missed it earlier, but I was wondering what level of Pipe Logix's pricing in the U.S. underpins the 30% normalized margin assumption you gave out earlier. Is it all the way back to longer-term average prices that we've seen over the last decade? Or is the level of pricing closer to where we are today?

And then my second question is on international pricing. Given we don't always have the same level of visibility across the different regions. Can you just provide some color on where we sit today in terms of normalized pricing levels across the key regions like the Middle East, Latin America and China.

Paolo Rocca

Thank you, Daniel. On pricing, because you mentioned the Pipe Logix, I think I will ask Luca to comment on the pricing dynamic.

Luca Zanotti

Yes, Paolo. Daniel, look, I believe that it is important that we split a little bit what we see in Pipe Logix between different categories. And this is a trend that is already happening. So we have the seamless on the one side. And if you look what happened so far from the peak seamless is down 14%. When we look at [indiscernible], it's down 20%. So it is very difficult to talk about Pipe Logix as a whole because we're going to see this gap amplifying. And in relative terms, this is going to be an advantage to our operations that are heavily relying on seamless.

On establishing what will be the plateau, it is very difficult to see because this is related to the influx of the [indiscernible] that Paolo was mentioning before, and we need to see how this evolves.

Obviously, as already said, we don't see this as a sustainable trend going forward. And we're going to see later on how this will evolve. But here, it's very important that you pick the difference between the different categories. And even within seamless, there are some product range and some technology that are faring better than the rest.

Paolo Rocca

Then as far as the international market, Gabriel?

Gabriel Podskubka

Yes, Paolo. Daniel, regarding prices in the international market, we see a strong momentum following the increase in demand in the Middle East and offshore that was mentioned before. The market is already tight, and we are in the early part of this cycle. So we believe that the market will become tighter. This is particularly noticeable for high-end products, special grades, premium connections, complex pipelines where we are particularly strong and focused.

So in this environment, customers are prioritizing supply rather than price. So we expect that there's going to be pricing tailwind supporting our business in the international market driven by Middle East and offshore with some legacy and timing from contract renegotiation or contract booking into our books because, as you know, in this part of the world, there is a typical legacy of 6 to 9 months or even more these days to see that into our shipments and invoicing.

Operator

Our next question comes from the line of Luigi De Bellis from Equita SIM.

Luigi De Bellis

Just 2 questions for me. The first one is on the Argentina. You flagged the further pipeline projects will be subject to higher uncertainty. Can you elaborate more on the outlook for the remaining part of 2023 going forward for Argentina?

The second question on the U.S. market. So you mentioned pressure of imports in U.S. due to the higher prices of last year. But how do you expect the evolution of imports in the coming months? When do you expect this pressure reasonably to ease, to reduce?

Paolo Rocca

Thank you, Luigi. Well, now we are completing the delivery of pipe of the first stage of a very long pipeline [indiscernible]. And it's absolutely true that Argentina has plans and the need also continue to invest in the infrastructure of transporting oil and gas. This is very important for Argentina. In any scenario, Argentina will need to expand its export capability for oil and to reduce import during winter season of LNG. So the need is there.

Still, if I should say, the macroeconomic situation of Argentina is very difficult to . There are different exchange rates. It's not easy to import the needed import for realizing this expansion today. Argentina is heading in some moment in the coming quarters for a devaluation. And for a change -- for a new election before the end of the year. So I think there will be delays in launching some of the projects that are let's say, needed and . Have in mind oil and gas.

Still, we are actively working on this on the possibility of financing and the government is doing the same. And if there is room for improving the macroeconomic condition, some of these projects may go on and maybe something may happen before in our sales before the end of the year. But this is very uncertain in this moment.

Second point is on the import in the United States and what we may see for the future. Luca, your vision on this?

Luca Zanotti

Yes, Paolo. Luigi, let's start looking at what happened so far. So far, we have a of imports that in our understanding and also according to the publications available are linked to purchases that has been done many months ago. And due to the long lead time are all getting together in the first quarter.

Now it has to be highlighted that, however, this surge of imports is more related to the low-end side of the product lineup, as I was referring before. So here, there is a time delay that is taking and as we progress into the year, this component should be down as the purchase order by the importers are going to align to the consumption in the United States.

And the second element, which is very important for me to consider is also that the current condition in terms of cost of capital are much worse than the ones that were present when some purchasing decisions were made in the past. So the 2 things together should indicate that we should see the imports to normalize as we move through 2023.

Paolo Rocca

Thank you, Luca. So you can see that, I mean, the price pressure in the United States is, to some extent, offset, but an pressure in the international market, but it's true the U.S. today is very important for our overall sales. And that's the reason why we are mentioning a gradual decline due to this pressure on price particularly.

Operator

Our next question comes from the line of James Winchester from Bank of America.

James Winchester

Hopefully, 2 quick ones for me. And sorry if I missed them earlier. Firstly, I wanted to check, does your free cash flow guidance for the second quarter imply a working capital inflow? And just any color on that kind of heading into year-end? And then secondly, do you think the Board -- is the Board considering a special dividend at all, just given the amount of cash you're going to be generating?

Paolo Rocca

Well, on the first one, yes, there is some contribution to our free cash flow by the reduction in the working capital. The second question is what I say before, it's really up to the Board to consider the different option and to propose to the assembly, the dividend distribution.

Operator

Our next question comes from the line of Arun Jayaram from JPMorgan.

Arun Jayaram

I wanted to get some thoughts on your expectations for volumes this year. Last -- in 2022, you guys shipped 3.5 million tons of volumes. In 1Q, you did 1.1 million. So you're on a trajectory to do more than 4 million tons this year. Is that still a good run rate?

And then I just wanted to ask a question as we think about 2024, how much of your 2023 volumes, would you call discrete in nature related to some of the large pipeline projects that may not repeat as we think about 2024?

Paolo Rocca

Thank you, James. As I was saying, first of all, you are right, our volume overall in 2023 will be higher than the volume in the previous year. Then -- that is Arun, sorry, I took the wrong name. Thank you, Arun. The -- so the volume will be higher in 2023.

Now in 2024, I think that the pipeline in Argentina, the one that could be delayed during this year will arrive and will need to be built. And this is a program that any government should because it has a very high return for the country, and we are well positioned for this because the combination of our Brazilian and Argentinian operation, together with our -- it is the company, Ternium, is a very strong position in reacting fast and having short-term delivery for this.

So I think that in '24, we should have pipelines sales of important size for Argentina and maybe also for Brazil in 1 year from now. So it's true that in the coming quarter, we finished the delivery of [indiscernible]. And probably, we have less, for sure, less pipeline delivery. But in 2024, this will pick up again.

Arun Jayaram

Understood. And is there any way to think about volumes in '24 -- I don't know if your visibility, I mean we've been thinking that it's probably down a little bit year-over-year, but still probably in the upper, call it, 3 million -- to close to 4 million tons next year.

Paolo Rocca

No, in '24, very difficult to have visibility, but I mean, it will depend on the evolution of the sector. Tenaris will be extremely well positioned for capturing demand in the case that investment by the oil company, national, international and independent will go on, we will depend on the industry.

Arun Jayaram

And my final question, Paolo, is how does changes in the Pipe Logix indices in the U.S., how does that impact your international pricing power? Is it -- does it influence it in any shape or form? Are any of your international contracts linked to Pipe Logix in the U.S.? I wonder if you could elaborate a little bit on that.

Paolo Rocca

We have a long-term, short-term agreement with different clients. But Pipe Logix to some extent, entering some of the .

But I will ask Gabriel to give an overview of the relation between the 2 worlds, the world of Pipe Logix import production in the U.S. and the world of international business.

Gabriel Podskubka

Sure. Thank you, Paolo. Arun, to think about that, I would say to simplify because here, there are many moving targets and contracts on the geographies. But I would say that in the Middle East and in the offshore markets, I would say the impact of Pipe Logix is or close to 0.

Then when you have some markets in the region, Mexico, Canada and Argentina as well, there, there is a trend or some correlation between the evolution of the Pipe Logix and prices in those markets, not in a direct way in all of them because there are formulas and different other factors. But the Pipe Logix on certain markets of America has an impact as well; while on the other side of Atlantic, on [indiscernible] here, I would say not at all.

Operator

Our next question comes from the line of Guglielmo Opipari from Bestinver Securities.

Guglielmo Opipari

I have a question on M&A. Do you have any M&A negotiation at the moment because I have some rumor about possible interest on assets of Vallourec in Brazil. Can you confirm or not?

Paolo Rocca

No, we never make comment on anything. And in this case, we have no comment at all.

Operator

At this time, I'm showing no further questions. 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 in our conference call. Thanks.

Paolo Rocca

Thank you, everybody. Bye, bye.

Operator

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

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