Keep manufacturing in the country

Argentina

Pablo Rufino, president of Thorsa and Thormetal, talks to TOGY about development in Argentina’s manufacturing sector and the impact of low-quality products on suppliers and producers in the oil and gas industry. Thorsa manufactures valves, filters and oil and gas accessories, while Thormetal produces heavy equipment for energy projects.

YPF’s preference for locally made products and the recent interest in Vaca Muerta’s development has benefitted Thorsa. However, due to the global drop in oil prices since mid-2014, the company is producing at 50% of capacity, as of August 2017.

• On argentina’s manufacturing sector: “The current state of the national industry is quite complex. We have been waiting for it to pick up since 2015. International oil prices and investments that have left or that have not come have affected us significantly. Activities have been reduced. There are no investments in drilling. However, there is a great opportunity and a lot of expectations in the gas sector due to Vaca Muerta.”

• On the impact of low-quality products: “With the import liberalisation during the past few years, we have been seeing a great number of imported products without quality controls. There are a lot of low-quality Chinese products that are causing accidents, which could lead to injuries and environmental disasters. This should be regulated.”

Rufino also discussed how Argentina’s government can support local companies. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Pablo Rufino below.

What is the state of Argentina’s manufacturing sector?
The current state of the national industry is quite complex. We have been waiting for it to pick up since 2015. International oil prices and investments that have left or that have not come have affected us significantly. Activities have been reduced.
There are no investments in drilling. However, there is a great opportunity and a lot of expectations in the gas sector due to Vaca Muerta. For now, there are only a few concrete projects. There might be a great demand for jobs and investments in the future. We hope that translates into sales of some national products.
There has been a great investment in Vaca Muerta from Techint, which has also made a great commitment to the national industry. That company is being supplied with local products. We have made great efforts to be near international prices and Techint has made a great effort to buy local products. Techint is a national company that also wants to sell its products. It is applying this same policy to its providers. That has not been happening with other companies.

How has Thorsa been affected by new import policies and how is the company responding to the situation?
They have affected us. Import levels have nominally stayed the same, but activity is below 50%. What used to be 10% in imports, today is now 70%. The market decreased, but imports have remained the same. Therefore, imported products have won over the national industry.
With the import liberalisation during the past few years, we have been seeing a great number of imported products without quality controls. There are a lot of low-quality Chinese products that are causing accidents, which could lead to injuries and environmental disasters. This should be regulated.
Thorsa is working with the secretary of production and the secretary of commerce on a technical regulation for valves to control products coming into the country. This regulation will be approved soon. It will protect against low-quality products.
We are working on technical regulations. If the foreign market is supplied by products with the same quality as ours, we could be more competitive. Our products are sometimes even better priced, but the service and quality have to be the same.
We use international certifications to measure quality. However, not all certifications are reliable. We are trying to validate certificates through a competent national organism.

What are the biggest costs for local manufacturers?
Casting is the largest cost for valves; second is workforce and third is taxes. Our product does not compete as do imported products, which only pay 14% in Customs duties.
We pay more than 50% in taxes through the entire value chain. About 50% of salaries goes towards taxes, retirement funds, social benefits and so on. We have provincial, fuel, municipal and national taxes. They add up to huge sums of money that foreigners do not have to pay.
Low-quality imports represent a huge loss. Companies want immediate and cheap results. They do not care about safety, quality and durability.

What should the government be doing to address this situation?
There is a lot of work that can be done. We are seeing some promotions, help, loans, subsidies and deductions. It is still not enough. It is very difficult or almost impossible to be competitive.
There is no country in the world that can compete with low-quality Chinese products. We have to demand quality and commitment. The state should control safety and reliability of products, companies and the environment.
Valve companies in Argentina only represent 2-3% of total hydrocarbons production costs, and we end up doing the adjustments needed by the industry. Petroleum companies buy foreign products that only represent 2-3% of their costs so they can save money instead of saving in other sectors. That destroys part of local industry. It destroys an entire professionalisation chain.
When oil and gas companies need special or urgent things, they come to us. We have the manufacturing capacity. It is a battle that we have to win. The state has to support us. It will benefit everybody – the country, economy, people and industry. We have to invest in national metallurgical products.
The state should provide more support so things could be done here. Argentina has a lot potential to develop an industry that could provide Latin America and the world with equipment and technology.

Who are Thorsa’s main clients?
Our clients are oil and gas companies and contractors. It depends on who is working for each project. The petroleum market is divided into two sections. YPF accounts for a big part, about 40-50%. Pan American has 30-40% and other smaller companies represent the rest.
Thorsa sells to all of them in different amounts. Some companies are more committed to the national industry. YPF is very committed and demands quality. Thorsa has strict regular inspections around its factories. We are happy about this.

What tools does Thorsa use to reach out to other clients?
We mainly use CAPIPE [Argentine Chamber of Suppliers for the Petro-energy Industry], which is a very important organisation that collects a lot of information. For example, there is currently a huge development in the railway sector. CAPIPE has a supplier database. The chamber launches opportunities, meetings and information.
Oil and gas companies used to do this. Now they have stopped. We should restart this. It should not be an obligation, but a benefit.
Things constantly change and the internal market is very important. We have to take care of the national industry. The foreign market is huge. There is a lot of stock now. However, two years ago, the timeframes were insane. It would take 190 days to complete huge batches of products.

How qualified is Thorsa’s workforce?
Thorsa had highly experienced people working in design, many of whom come from other important factories. We are bringing in high school students from technical institutes so they can do internships. The ones that have the right profile stay with us and are eventually hired.
Every day we improve. It is difficult to develop new products due to the competition of Chinese products.

What is the outlook for Thorsa’s future activity?
We are very well positioned in terms of capacity, image and quality. We have machinery that is not being used. We are in a balanced situation. Some months we are motivated and some months we are worried.
We believe activity will increase in the next two years. We have the capacity to work at 100%. We are looking for alternative products, new lines of business and niche markets.
Tecpetrol’s project in Vaca Muerta is a very good thing for us. It requires about 300-400 valves quickly. We are already preparing the valves. We are acquiring stock so we can offer immediate deliveries. We are waiting for other companies to follow the Techint group’s policies.

Where do you see Thormetal and Thorsa in the next five years?
I would like to see Thormetal as a leading company in the national wind energy sector. I want it to be part of a big group of companies working in the same area. We want colleagues working in different parts of the national industry, to have a process that it is 100% produced here.
We would also like that for Thorsa’s valves. The factory should be a proud pioneer of national products. We want to generate jobs. I expect the same from both companies, and also from my colleagues.

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