Vallourec Q3 Profits Drop on Brazil

Steel pipes maker Vallourec (VAC.F) reported a 27.1 percent drop in core profits to 175 million euros ($218 million), hurt by lower orders by major customer Brazilian state oil company Petrobras.

The French group had warned in June that earnings before interest, tax, depreciation and amortisation (EBITDA) would drop 10 percent this year as Petrobras ran down inventories to save money. Vallourec reiterated this target on Thursday.

"This adjustment in stocks we flagged in June has taken place for the most part in the third quarter and will be less marked in the fourth quarter, which explains that we confirm our full-year profit target," Chief Financial Officer Olivier Mallet told reporters on a conference call.

The Paris-based company also reported a 68.8 percent drop in third-quarter group net profit to 25 million euros. Sales were down 2.6 percent to 1.34 billion euros.

Vallourec Chairman Philippe Crouzet had said it would take Petrobras until about the end of the year to use all of its inventory pipe inventory, something the company confirmed again on the call.

Vallourec depends on Brazil for about 25 percent of its sales, with Brazilian oil and gas bringing in about 12.5 percent. Petrobras itself accounts for between 5 and 10 percent of Vallourec sales.

Petrobras is undertaking a $221 billion five-year oil and gas capital investment programme but is struggling with high debts from the spending and weaker cash flows as it waits for new production to come on stream.

Also weighing on its finances are the costs of state-imposed fuel price controls under the government of President Dilma Rousseff - a former Petrobras chairwoman - and a weakened Brazilian currency.

(Reporting by Leila Abboud)