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Jesus Esmoris – CEO, Tubacex, Spain

Jesus Esmoris, CEO of Tubacex, the global leader in stainless steel tube manufacturing, shares the importance of diversification, acquisition of new competencies, and continued R&D investment to successfully navigate periods of market instability, as well as how Tubacex competes in terms of technology rather than on price.

Tubacex is the largest worldwide producer of seamless tubes in stainless steel and high-nickel alloys. In May 2017 you reached your largest backlog for Premium products, with a special focus on Iran, where you signed the largest contract in monetary terms in the company’s history with Iran’s National Petroleum Company (NIOC). Can you tell us about this deal as a first mover in the Iranian Market?

“Our extensive know-how in the sector has allowed us to advise our clients, and as a matter of fact, I think this was key to winning the Iranian tender.”

We are indeed a leading tube supplier, and I believe our competitive advantage lies in our ability to provide a comprehensive and all-encompassing solution to our clients as opposed to just a product. In some cases, our extensive know-how in the sector has allowed us to advise our clients, and as a matter of fact, I think this was key to winning the Iranian tender. Indeed, we did a great job understanding the customer’s needs, the best solutions to address those needs, and how to provide them. We then agreed on the raw materials to be used, which application, the tubing, the connection and everything that is around.

The deal was signed after an official negotiation tender that lasted over one year and involved other competitors. I believe our technical know-how, local content offer and customer focused solution have won us the tender. The project relates to a 600km CRA OCTG project to be delivered in 30 months with the constraint of local content. Winning the tender has been a thrilling experience and we are very satisfied

However, Tubacex won’t be the last company to be awarded a project in Iran in the coming months! The demand for infrastructure in a country that has suffered from 10 years of international trade restrictions is promising. We think that having been a first mover will set us up in a great position in the coming years.

What are the emerging trends you have noticed in your field of business?

The industry has been in a state of turmoil for the past three years, and when this turbulent phase ends, I expect the market to be very different and we need to prepare for this. Indeed, alongside the huge decrease in price of the Brent, there is a lot less cash in the industry. Therefore, every player is concerned about increasing its efficiency levels and providing value to the customer rather than competing solely on price. We used to consider ourselves as just a service provider producing cables, and have changed our mind-set to a more solution -oriented company. In fact, four years ago, Tubacex started building the capabilities so as to be in a position to offer better solutions than competitors when the business winds would become more favourable again. More precisely, we have been investing in building up a new plant in Austria for umbilicals and we have invested in a new plant in Spain for OCTG, absolute Premium Products manufactured in state of the art facilities, establishing direct standard manufacturing presence in Asia (India and Thailand), as well as broadening our portfolio through the medium of acquisition of complementary services. As a result, Tubacex is capable of producing a wider range of products, notably high-value ones, at a more competitive rate than before. For example, four years ago, the widest tube in our portfolio did not exceed 8 inches. Now we are capable of producing, connection, fitting tubes and tubes of up to 72 inches of diameter. Our ability to propose an all-encompassing solution to our clients has opened new perspectives in the market for us.

Due to the crisis, Tubacex took the decision to revise its initial four-year strategic plan into an updated one for the period 2016-2020. How does the current strategy differ from what had been initially stated?  

Since 2014-15, the market has significantly contracted. Prices have fallen by over 30 percent and maintaining growth in tough market conditions is harder than growing in a favourable market. Our plan was designed in 2013, prior to the crisis, when we knew we had a productivity problem in our plants. Therefore, the objective was to increase our efficiency. If not for the crisis, I am confident this would have been a perfect plan.
However, the new and unpredictable market conditions shook our growth forecasts, but we were able to resist thanks to our strategic approach. We did our homework, to convert this difficult period into an opportunity. Our priority was to maintain positive cash flows while not putting our R&D investments on hold. We believe that cutting technological investments would have jeopardized our chance of future success. I think our strategy has paid off and we have been navigating the crisis better than our competitors. Despite the large investments in technology and acquisitions, we have generated cash in the past years, and looking at the future, I see exceptional opportunities for Tubacex.

How have you navigated the industry’s state of turmoil?

I feel that companies and industries live with cycles, particularly in the oil and gas business. As a manager, our role is to use the growth periods to prepare the company to continue earning money under the worst conditions. While a little more stable than others though, the automotive industry – where I worked for several years – can also be confronted to crisis too. However, margins in automotive are tougher to obtain and therefore preparing for hard times is not easy. In the oil & gas sector, market conditions forced us to reduce costs, and when the Brent was at USD 100, the industry had thought little about efficiency. Those that have cut their investments are suffering more than those who haven’t.

One of the strategies to hedge oneself from a crisis is diversification. Having multiple geographies, suppliers and customers reduces the affect one of them bailing out would have on you as a company. As a matter of fact, Tubacex has followed this strategy. It has helped us find ways around supply shortages and maintain price competitiveness during the crisis.

Flexibility is the third pillar to pursue. Building flexible teams, systems and production processes allow one to react swiftly in the case of a choc. The company is at risk of losing a considerable amount of cash if it cannot adapt to a rapid constriction of the market or increase in orders.

Last, becoming a solutions provider has required us to change our corporate ethos. In other words, our employees have been incited to change their mind on the way they conduct their activities. While our teams were entirely committed to the success of the company, it appeared necessary that they focus on the end user. Our greatest asset in this transition was our direct contact with our end users. Many tier two tier three companies have little to no insight as to how their products are used, rendering it difficult to adjust as the market evolves. Instead, our ties with end users have allowed us to follow their needs. Eventually, we turned into advisors to our clients fully involved in the construction of projects. Tubacex could suggest improvements for the customer itself. This shift in the corporate culture has affected the composition of our staff, as this type of end user focus demands for specialist engineers capable of understanding technical customer requirements.

Tubacex has followed these steps over the course of the last few years. As a result, we increased our market share specifically in high end, high value products. As a publicly listed company, the market has rewarded our successful management and operations. Since 2014, the share price of Tubacex has more than increased twofold. We still have room for improvement in terms of stock market performance but looking forward I am optimistic. Our only weakness is related to the fact we depend on the capital expenditure of large energy companies. So long as their investments are on hold, our performance is limited

What is the rationale behind your recent investments in Asia?

Our competition is international. Many Asian companies are now capable of producing standard pipes and tubes at a competitive rate. With regards to the high labour wages in Europe, we could not continue to produce standard pipes in Austria, Spain or Italy. Instead our competitive edge resides in the ability to produce complex tubes and pipes Delivering a full package solution to our customers requires all sorts of tubes. To maintain these operations inside of our company, while producing price competitive standard pipes, we therefore simultaneously increased our capacity in India and Thailand. In this way, we are present on the full spectrum, from standard to high-end.

You were one of 76 European steel industry CEOs that signed a letter to the EU asking for emissions trading standards to be reconsidered in order to ensure the sustainability of the European steel industry as well as protect the environment. How much of a risk does restrictive regulation on a European level pose to Tubacex?

Traditional steel players are in more distress than Tubacex concerning the EU regulations. This was mainly a gesture of solidarity with our suppliers, although it also affects us since we have a steel mill in our structure. We all agree on the need for CO2 reductions, however, the regulations appear overly burdensome, especially with regards to the fact certain of our competitors are not at the same level of regulations. Chinese steel producers benefit from low labour costs and have not been required to invest in CO2 reduction techniques or equipment. To keep competition fair, it is of the foremost importance that investments and reduction requirements apply to everyone in the industry across the planet.

You have talked about opportunities in this business, where do you see the growth market for Tubacex?

We want to be there where the future growth is. Market opportunities in Asia appear to be the most lucrative at the moment. Adjusting our activity to these opportunities will require us to divest certain parts of the business and reinforce newer segments. We are proactively looking for partners, making acquisitions, building up some Joint ventures in Dubai and Iran: we want to be where the market is growing.

Additionally, a country like Iran, after 10 years of international restrictions, appears like the next big market in terms of investment infrastructure in the world. Our goal there is to be present and good positioned.

You are in a very competitive field… how do you differentiate yourself in the niche markets you are operating in?

The concentration ratio of the top four players in our market is more than 50 percent. In other words, we know each other’s strengths and we are fighting for future performance. Our main battlefield concerns technology and providing adequate solutions to our customers. Fighting for price competitiveness would be deadly.

Our objective is therefore to be the first player to offer the right solution to our customers, I believe our three competitors are pursuing the same strategy. Our success depends on having the products our customers need before our competitors, understanding the customer’s requirements and jointly defining the right service for them.

How does being Basque affect your business when going abroad?

The Spanish market represents less than 5 percent of our turnover. Nonetheless, we are very proud to have established our headquarters here. Indeed, implementing our engineering centre, headquarters and business intelligence in the Basque region is a great asset with regards to its industrial heritage. Furthermore, having established our headquarters here allows us to have great professionals and suppliers.



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