Development trends

We confirm our positive outlook on the pipe market in 2012 and expect a slight increase in sales volumes and further improvement in the product mix compared to 2011. E&P budgets of Russian oil companies are continuing to grow in 2012 driven by continued high oil prices, which should support demand for seamless OCTG and seamless and welded line pipe. Although a number of pipelines in both Russia and the CIS countries are scheduled to be started in 2012, overall demand for large-diameter pipe is looking weaker this year compared to a year ago.

The U.S. market outlook remains positive for 2012. Strong oil rig count growth should offset the gas rig count decline as the price of natural gas is expected to remain depressed throughout 2012. Oil and liquid plays, such as the Eagle Ford and Permian Basin, will continue to drive growth in the U.S. Line pipe for new shale gas pipelines will continue its growth trend. TMK is well-positioned to support these diverse and often demanding environments with a flexible and customised portfolio of steel tubulars and premium connections.

Given the current trends in raw materials prices and continuing improvement in the product mix, we expect a growth in EBITDA and EBITDA margin in the first quarter of 2012 as compared to the fourth quarter of 2011. The sustainability of improvement in EBITDA and profitability for 2012 will depend on the level of steel prices and welded pipe sales, particularly large-diameter welded pipe.

We intend to further reduce our indebtedness and to continue to optimise the debt profile. Despite some negative developments on global financial markets, we continue to refinance our debt at favorable terms and expect to extend maturities of our debt facilities as planned.

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