Additionally, the coiled tubing operations, which were previously included in the Tubes segment and which accounted for 1% of total sales in 2011, have been reclassified to Others.
Market Background and Outlook
In spite of the weak economic recovery, demand for energy has remained stable and oil prices are at levels which should continue to support investment in exploration and production activity worldwide during 2013.
North American natural gas prices have risen above their early year lows as demand shows strong year on year growth. In 2013, we expect drilling activity for gas to recover gradually.
In the fourth quarter of 2012, however, our sales in North America will be affected by the current market uncertainty that is driving a reduction in OCTG inventories.
In the rest of the world, drilling activity should increase gradually led by the growth in the exploration and development of deepwater and unconventional reserves. In the coming quarters, sales to oil and gas customers in the Middle East are expected to recover from the low level of the third quarter.
Sales to industrial markets, particularly in Europe, are expected to remain at low levels.
EBITDA margins are expected to remain at the level of this third quarter, as the impact of lower prices in less differentiated segments is likely to offset product mix and industrial efficiency improvements.
Analysis of 2012 Third Quarter ResultsTubes Sales volume (metric tons) Q3 2012 Q2 2012 Q3 2011Seamless 642,000 701,000 (8%) 650,000 (1%)Welded 305,000 287,000 6% 266,000 15%Total 947,000 988,000 (4%) 916,000 3% Tubes Q3 2012 Q2 2012 Q3 2011(Net sales - $ million)North America 1,260.0 1,270.1 (1%) 1,014.4 24%South America 610.3 537.4 14% 490.3 24%Europe 252.9 285.1 (11%) 273.2 (7%)Middle East & Africa 235.9 352.5 (33%) 355.2 (34%)Far East & Oceania 109.4 130.4 (16%) 142.2 (23%)Total net sales ($ million) 2,468.5 2,575.4 (4%) 2,275.2 8%Operating income ($ million) 559.8 589.3 (5%) 440.8 27%Operating margin (% of sales) 23% 23% 19%
Net sales of tubular products and services increased 8% year on year but decreased 4% sequentially as sales were mainly affected by lower shipments to the Middle East and lower demand for industrial products in Europe. In North America, sequentially lower sales of deepwater line pipe in the Gulf of Mexico were largely offset by higher sales in Mexico. Sales increased in South America, mainly in Argentina and Colombia. In Europe, lower demand from the industrial sector and seasonally lower sales to distributors were the main causes of the sequential decrease. In the Middle East and Africa sales decreased sequentially due to lower shipments relating to the timing of orders. In the Far East and Oceania sales decreased sequentially due to lower sales of OCTG and structural products.
Operating income from tubular products and services, which, in the third quarter of 2012, included a non-recurring gain of US$49.2 million, increased 27% year on year but decreased 5% sequentially. The sequential decline in operating income reflects a lower proportion of seamless pipes in the sales mix and efficiency losses related to operational issues at the Tamsa steel shop and plant maintenance shutdowns.