Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Market unpredictability due to COVID-19 and an associated decline in oil and E&P capex prices could significantly lower Vallourec’s earnings in 2020.


The European tubular solutions company expects worsening results in North America, and to a lesser extent, from associated industry markets, in the subsequent quarters. However, the decline should be offset by boosted offshore Brazilian activity and maintained by strong iron ore prices, it noted while reporting its Q1 2020 earnings.


The company also expects free cash flow consumption to be significantly reduced in 2020 due to the volatility in the first quarter.


Vallourec shipped 450,000mt of its products in Q1 2020, a 21.2pc decline compared to 571,000mt shipped in Q1 2019, mainly attributed to the decline in oil and gas.


The tubular solutions company total revenue fell by 16.8pc to €853mn ($923mn) in Q1 2020, from €1.03bn in Q1 2019, due to lower deliveries and resulting volume impacts. Vallourec’s net debt increased by 6.7pc to €2.27bn in Q1 2020 from €2.13bn in the same period last year.


The company recorded free cash flow consumption of negative €181mn, a decline of €22mn compared to negative €159mn in free cash flow consumption during Q1 2019, due to normal seasonality of working capital conditions.


Vallourec reported a net income loss of €74mn, an improvement of €16mn compared to a net income loss of €90mn in Q1 2019. Operating income dropped by €10mn from a Q1 2019 loss of €19mn to €29mn in Q1 2020. 


EBITDA remained steady at €68mn, up €1mn compared to €67mn in Q1 2019, resulting from profitable business segments that offset lower margins in the North American oil and gas industry. 


In a separate announcement on Wednesday Vallourec said its contract with Equinor Brazil has been extended to March 2024, with expanded scope that includes new seamless steel tubes and OCTG products. Deliveries are scheduled to commence during the first quarter of 2021.


($1 = €0.92)

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