Khartsyzk Tube Annouces Plans To Increase Pipe Output 20% By 2007.

Khartsyzk Pipe’s (HRTR: Spec. BUY) management said yesterday that the company expects to increase pipe output by 10% in 2006 to 600 mt  and by another 20% in 2007 to 720 mt. HRTR’s Director, Andriy Shishatskii said the company expected demand from Russia for large diameter pipes in 2006 and 2007 to be around 2 mln mt, an amount greater than Russia’s domestic pipemakers could meet. Gazprom and Transneft are HRTR’s largest customers in Russia. Andriy Gostik: Russia is currently carrying out an anti-dumping investigation into imports of large diameter pipes, HRTR’s core product. HRTR’s plans for output increase and further expansion into the Russian market can only be viable provided the investigation does not result in severe sanctions against HRTR’s pipe shipments to Russia. We think that by virtue of Yanukovich’s government being largely pro-Russian, HRTR should be able to successfully lobby its interests in Russia in the near future (2-3 years) and avoid serious export limitations. In the longer term, however, we anticipate a much tougher competition from Russian pipe makers and do not rule out weaker demand for LD pipes. Our recommendation remains a Spec. BUY.