1. Risk Factors

1.  Risk Associated with Dependency on Major Customers

The Company maintains major, established customers to moderate financial
support and to some extent minimize exposure to doubtful accounts. To
date, the Company has been successful in realising lower amount of trade
accounts receivable than many of our competitors’. As such, the Company
may still depend largely on major customers and will consider expanding
the base to include smaller, good credit customers, but with careful
attention.

2.  Risk Associated with Demand-Supply Cycles of Steel

Demand-supply cycle for the steel industry has proven to be much shorter
than before, when 6-7 years cycle was the norm. This is changed by
advent of a much faster steel mill construction and a much more rapid
information flow worldwide. The cycle lately has been shortened to only
about a year. Stock level of raw material and finished products becomes
considerably more important for steel makers to weather this fast-paced
cycling. On a more positive side, the rapid cycling has helped to dampen
large scale price speculation.

3.  The Government’s Anti-Dumping Policy and FTA

  Thai Ministry of Commerce has launched an anti-dumping policy, but has
  more than once reversed itself, for instance, by lifting penalty for
  certain Japanese outfits on hot rolled steel products. Government has
  also shown a great determination to sign FTAs especially with
  powerhouse countries, such as, Japan to allow greater access for the
  steel import.

  Given the weak protection for domestic steel to be expected from the
  Thai government, the Company accelerates the plans to develop high
  quality products for shipment before import duty will be reduced or
  eliminated, by the FTA measures, within the next 5-10 years.

1.4 Risk Associated with Production and Sales of Pickled & Oiled
Products and Galvanneal Products

Since the Company had no history and experience in production and sale
of pickled & oiled products, the Company might face unforeseen local
trade obstacles. Given that Japanese steel makers now dominate this
market, NSM will face competition in price in both the local and foreign
market.

The Company’s plan is to penetrate our new products into the Thai
service centres and in parallel offer good quality coils to Japanese
joint venture companies. Upon quality acceptance of our product, the
Company will then move quickly to expand the customer base in this
market where quality is emphasised and selling price is high. Acceptance
of such products is anticipated to take a considerable amount of time.

1.5 Risks Associated with the Currency Exchange Fluctuation

The Company realizes risks from currency exchange fluctuation in two
areas,

1) Currency Liabilities under Restructuring Plan.

  As at December 31, 2005, the Company has currency liabilities under
  restructuring plan from loans, past accrued interests and accrued
  interests amounting to US$ 144.51 million.

  2) Import Materials and Export Products.

  The Company is heavily dependent on imported raw materials which
  amount to some 54% of the manufacturing cost. Export value was
  approximately Baht 4,984.47 million. There is hence an inherent risk
  with the exposure to foreign exchange and the Company has to recognize
  any unrealized exchange losses or gains. However, NSM may employ
  appropriate financial measures to mitigate the risk, for example,
  entering into a forward contract at appropriate time.

  1.6 Risk Associate with Cash Flow Fluctuation

  Since the restart in 2004 NSM’s production steadily increased, strong
  sales and income resulted for the year. However, market downturn for
  steel during much of 2005 led to a net loss for the year ended 31
  December 2005 of Baht 720.94 million. Such a market fluctuation calls
  for a stringent control of cash flow performance.

  Regardless of the market condition, production requires a substantial
  working capital to secure timely and adequate amount of materials.
  Operating under the terms of debt restructuring agreements, NSM must
  demonstrate sufficient operating cash flow to meet its requirements.
  Accordingly, the Company is constantly reviewing the operating needs
  and applying for various credit facilities to fund its working capital
  requirements.

  1.7 Contingent Liabilities in Connection with Unsettled Liabilities

  There are currently unsettled claims from creditors totaling some Baht
  434.99 million. In the situation where the Court or Official Receiver
  holds or orders the Company to accept claims in all aspects, the
  maximum liabilities are of the order of Baht 362.75 million, or
  approximately 1.11% of total assets as of 31 December 2005.