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Vallourec Slumps Most in 21 Years in Paris as Profit Falls

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July 28 (Bloomberg) -- Vallourec SA, a French producer of steel pipes for the oil and gas industry, declined the most in more than 21 years in Paris trading after profit sank.

Vallourec fell 14.18 euros, or 17 percent, to 69.99 euros by the 5:30 p.m. close in Paris trading, the steepest decline since at least Oct. 3, 1989. It was reduced to “neutral” from “buy” by Natixis SA and to “underperform” from “neutral” at BofA Merrill Lynch after posting an 11 percent decline in second-quarter profit as rising raw material costs cut margins.

Net income slid to 112 million euros ($161 million) from 126 million euros a year earlier, Boulogne Billancourt, France-based Vallourec said yesterday after the close of trading. The company said it “will continue to operate in a context marked by the volatility and high level of raw material costs.”

“Vallourec’s very cautious stance on the second half is set to take the market by surprise,” Bofa wrote in a note today. “Unless we see a material uplift in demand and the pricing environment, we expect Vallourec will struggle to convince the market of a quicker pace of margin expansion.”

The pipemaker said revenue will “progress at a lower pace” even as volumes rise in the second half compared with the first six months of the year. Earnings before interest, tax, depreciation and amortization will be “slightly higher.”

Material costs are hobbling steel-product makers’ efforts to emerge from the industry’s worst crisis in 60 years following the world financial crisis. The price of iron ore, a key steel-making ingredient, may average $170 a metric ton in 2011, up from $122 a ton last year, according to Morgan Stanley.

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net.

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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