Development Trends

TMK expects the demand for pipe products to remain strong during 2011 driven by high oil prices and continuing economic recovery.

Russian oil companies continue to increase exploration and production (E&P) expenditures in order to sustain the oil production volumes at maturing oil fields. Given the current level of oil price, the Company expects E&P budgets to further increase in 2011, which should result in a sustainable growth of OCTG and line pipe demand. The consumption of large diameter pipe in Russia reached high levels in 2010 and is expected to hold up in 2011 and further years, driven by construction of Gazprom’s and Transneft’s major pipelines.

Drilling activity in North America remains robust on the back of growing operations in shale gas and oil, as well as oil sands plays. The structure of drilling continues to shift from traditional operations to higher share of unconventional drilling, which results in a favorable product mix change. With current levels of rig count expected to be sustainable, the Company plans to further increase OCTG and line pipe shipments in North America in 2011. Overall, TMK expects to increase sales should current market trends continue to prevail.

To address significant raw material price increases observed since the beginning of 2011, the Company increased prices for pipe products in the first quarter of 2011. Although the Company has an ability to pass on the cost increase to customers in the medium term, the recent spike in ore and steel prices adversely affected the margins in the first quarter of 2011. The Company expects ore and steel prices to decline going into the second quarter of 2011 which should support the Company’s margins for the remainder of the year.

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