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Vallourec's primary goal for the future is maximising production capacity to support its focus on value-added products. Claire Hewett analyses the international tube and pipe company's strategy for continued growth.
Vallourec's chief financial officer Marc Karako sums up the company's goal in just two sentences: "The priority of Vallourec today is to increase production capability. We have been working at full capacity for the last two years and clearly we need to expand our production levels." After a year in which the world's second largest producer of seamless pipe has increased Ebitda by 133.3% to euro1.06bn (US$1.27bn), Vallourec aims to continue increasing its high-value-added pipe production in particular.
To achieve this objective, Vallourec is increasing its budget for capital expenditure. In 2004, the company spent euro107.6m, last year expenditure was euro188.6m and in 2006 it plans to boost this by approximately 30%.
Vallourec currently produces around 12% of the 24m tpy global output of seamless tube production - last year the company produced around 2.8m tonnes. The firm estimates that if it were to operate round the clock its maximum tubemaking capacity would be 3m tpy. Vallourec produced around 3.2m tonnes of steel last year, of which it sells a small percentage as billet to North America (see panel).
Strategic moves made by Vallourec last year included boosting its stake in Vallourec & Mannesmann Tubes to 100% by the euro545m acquisition of Mannesmannröhren-Werke's 45% share in October. V&M Tubes now represents more than 80% of Vallourec's current revenues and over 90% of its profits.
Vallourec also increased its raw steel capacity in Brazil last year at the Barreiro, Minas Gerais state, works to 680,000 tpy from 620,000 tpy, to accommodate expansion of the works' tube rolling capacity to 600,000 tpy from 500,000 tpy.
In Changzhou, China, the company began to build a new tube finishing plant for the power plant market. The Chinese plant is expected to begin cold-finishing 500 mm-1,500 mm diameter seamless alloy steel pipe, produced by its operations in Germany, later this year.
Vallourec forecasts that the plant's revenue should be approximately euro50m and it will continue its existing relationship with Chinese boiler manufacturing companies like Shanghai Boiler Works, Harbin Boiler Works and Dongfang Products, as well as the five...