3.  Business Line

    1.  Company’s Products

  Major products are hot rolled coils and finishing products categorized
  as follows.

  1) Hot Rolled Coil,

  2) Tempered Hot Rolled Coil,

  3) Hot Rolled Pickled & Oiled Product – during 2006,

  4) Galvanized Hot Roll – from 2008,

  5) Galvanized Cold Roll – from 2008,

  6) Galvanneal Sheet – from 2009.

  These products are utilised in the following downstream industries:

  * Currently in Thailand there are no producers for these products

  BOI Privileges

  The Board of Investment (BOI) has granted promotional privileges to
  the Company by issuing certificates for the manufacturing of Hot
  Rolled Coils (BOI privilege for "CSP" project), Direct Reduced Iron
  (for "DRI" project), and Cold Rolled/Coated products (for "PGL"
  Project). The promotional privileges include reduction for import duty
  of certain machinery and corporate income tax exemption for the net
  income arising from the promoted activities for eight years from the
  date when revenue is first earned from the promoted business.

  During 2005, the Company applied for extension for the import duty
  reduction on machinery as BOI privileges approved by the BOI. The BOI
  has granted extension as follows:

  - BOI privilege for "DRI" to April 24, 2006,

  - BOI privilege for "PGL" to March 13, 2006.

  Currently, extension of duty reduction on import machinery up to year
  2007 for “CSP” is under consideration by the BOI.

2.  Marketing

  Product Strategy

  Steel used in Thailand are imported in great volume. Opportunity is
  thus there for local products, albeit of quality, to be offered as
  substitution. NSM is in a good position to capitalise in this as the
  local demand is expected to show a huge growth in the foreseeable
  future. Overseas markets are also on the constant growth path.

  NSM’s underlying strategy is to provide commodity grade products and
  to steadily bring on higher quality, value added products. The
  expansion will enhance sales efficiency and profit margins as well as
  choices to the customers. In 2005, NSM introduced tempered hot rolled
  coils sold at higher prices. Production and sale of hot rolled pickled
  & oiled products are planned during the second quarter of 2006.
  Construction for the continuous galvanising line is expected in 2007.

  Overall product strategy for NSM is as follows.

1)  Concentrate on commercial grade products domestically,

2)  Offer a range of light gauge products (1.2-3.0 mm thickness),

3)  Capitalise on Skinpass services to increase volume,

4)  Penetrate into Pickled & Oiled products for automotive and
    electrical appliance industry,

5)  Produce Hot Rolled for Cold Rolled products market,

6)  Move to higher value added products - High Strength Low Alloy
    (HSLA), Pickled & Oiled Steel Sheet (P&O), Cold Rolled Galvanized
    (CRG), Cold Rolled Galvannealed (CGA) - from 2008.

  Pricing Strategy

1)  Sell standard gauge products at competitive price, to compete in the
    domestic and import markets,

2)  Focus on achieving best return from high value-added products, as a
    low cost producer, utilising advanced technology,

3)  Offer thin gauges from 1.2 mm thickness, widths from 1.1-1.6 metre
    (thinner gauges, higher prices).

  Target Groups

  Target customers can be divided into three main groups.

1)  Steel Service Centres, purchase hot-rolled and cold-rolled steel and
    cut to sizes or model in various forms to sell to end users.
    Thailand has about 15 such centres with production of 1.26 million
    tonnes/year.

2)  Pipe Makers, are, among other things, factories producing pipes of
    various sizes for piping work for export. Thailand has about 30
    makers with capacity of 1.85 million tonnes/year.

3)  Other direct users, such as, domestic cold roll producers,
    manufacturers of auto parts and electrical appliances, with demand
    of about 2.5 million tonnes/year.

  Note: Figures for customers’ demand are based on the information from
  the Iron & Steel Institute of Thailand (ISIT)

  Since the restart in 2004, the Company had a policy to distribute its
  products to cover the three target groups. Initially the Company
  relied mostly on major customers with their high volume orders to
  support the growing, continuous production. Once the Company reaches a
  more steady production, followed by expansion to the finishing
  products, the customer base will be expanded. Dependence on any
  particular major customers will then be reduced.

  Selling Channels

  For domestic sales the Company has two selling channels.

1)  Direct Sale. The Company plans to sell directly to steel service
    centres, pipe makers, auto parts manufacturers, and electrical
    appliance manufacturers. Such sales will be roughly 60% of the local
    sale volume.

  2) Wholesalers. For minor customers, the Company will sell through
  wholesale dealers. This reduces the burden of hiring numerous sales
  staff, added marketing cost, and it will also help the Company to
  share the credit risk with the dealers. This will account for
  approximate 40% of total sale volume in the country.

  For export, the Company sells mainly through agents or wholesale
  dealers, amounting to 90% of the export volume. The other 10% will be
  handled directly by NSM.

  Marketing Strategy

  1) Honour every customer, especially ones with high volume to help
  smooth and sustain our production.

  2) Introduce new Skinpass Quality Products to domestic as well as
  seeking cooperation from steel service centres in foreign countries.

  3) Penetrate into stamped parts markers in the automotive and air
  compressor industries.

  4) Concentrate on higher value added grades.

  5) Penetrate Pickled & Oiled Products for the fast growing automotive
  industry.

  6) Penetrate Hot Rolled for Cold Rolled Products market.

  7) Customers to have full confidence in NSM quality – the Company has
  achieved the ISO 9001:2000 for quality of products and services in
  2005.

  Steel Industry in 2005

  World Steel Consumption

  CRU Monitor Report stated that world steel consumption for 2005 was
  963 million tonnes, 3.7% over the previous year, as consumption was
  reduced in some regions, such as, USA and Europe.

  Consumption for Asian countries was 456 million tonnes, 47.3% of
  global consumption, with China alone at 32.2% of global. Although
  China’s consumption was high, it expanded production with new capacity
  coming on line in 2004 and 2005. Without decisiveness to close old,
  inefficient, smaller plants the Chinese output became an over-supply.
  China has now become an exporter to the world market, driving down
  prices.

+-------------+--------+--------+--------+--------+--------+-------+
| World Steel |        |        |        |        | unit   |       |
| Consumption |        |        |        |        | :1,000 |       |
|             |        |        |        |        | tons   |       |
+-------------+--------+--------+--------+--------+--------+-------+
|             | Q4     | Q4     | %      | Total  | Total  | %     |
|             |        |        |        |        |        |       |
|             | 2004   | 2005   | Change | J      | J      | C     |
|             |        |        |        | an-Dec | an-Dec | hange |
|             |        |        |        |        |        |       |
|             |        |        |        | 2004   | 2005   |       |
+-------------+--------+--------+--------+--------+--------+-------+
|             |        |        |        |        |        |       |
+-------------+--------+--------+--------+--------+--------+-------+
| USA         | 29,367 | 26,166 | -10.8% | 1      | 1      | -     |
|             |        |        |        | 18,711 | 05,969 | 10.7% |
+-------------+--------+--------+--------+--------+--------+-------+
| Canada      | 4,834  | 4,500  | -6.9%  | 18,048 | 17,503 | -3%   |
+-------------+--------+--------+--------+--------+--------+-------+
| North       | 34,201 | 30,666 | -10.3% | 1      | 1      | -9.7% |
| America     |        |        |        | 36,759 | 23,473 |       |
+-------------+--------+--------+--------+--------+--------+-------+
| Europe      | 36,782 | 34,315 | -6.7%  | 1      | 1      | -3.4% |
|             |        |        |        | 49,194 | 43,980 |       |
+-------------+--------+--------+--------+--------+--------+-------+
| Japan       | 18,576 | 19,141 | 3%     | 71,564 | 74,589 | 4.2%  |
+-------------+--------+--------+--------+--------+--------+-------+
| China       | 66,509 | 87,920 | 32.1%  | 2      | 3      | 20.2% |
|             |        |        |        | 58,316 | 10,675 |       |
+-------------+--------+--------+--------+--------+--------+-------+
| South Korea | 12,567 | 12,801 | 1.8%   | 47,048 | 49,192 | 4.5%  |
+-------------+--------+--------+--------+--------+--------+-------+
| Taiwan      | 5,590  | 5,780  | 3.3%   | 23,206 | 21,975 | -5.3% |
+-------------+--------+--------+--------+--------+--------+-------+
| Asia        | 1      | 1      | 21.6%  | 4      | 4      | 14%   |
|             | 03,241 | 25,642 |        | 00,134 | 56,430 |       |
+-------------+--------+--------+--------+--------+--------+-------+
| Russia      | 10,905 | 10,870 | -0.3%  | 40,791 | 42,467 | 4.1%  |
+-------------+--------+--------+--------+--------+--------+-------+
| Brazil      | 5,279  | 4,496  | -14.8% | 19,375 | 17,922 | -7.4% |
+-------------+--------+--------+--------+--------+--------+-------+
| Others      | 43,892 | 44,728 | 1.9%   | 1      | 1      | -1.5% |
|             |        |        |        | 81,858 | 79,034 |       |
+-------------+--------+--------+--------+--------+--------+-------+
| Total       | 2      | 2      | 7%     | 9      | 9      | 3.7%  |
|             | 34,300 | 50,716 |        | 28,113 | 63,305 |       |
+-------------+--------+--------+--------+--------+--------+-------+

  Source: CRU Monitor Report

  Price of Raw Material and Finished Products

  Scrap prices in 2005 fluctuated enormously in the midst of the
  over-supply of the finished and semi-finished products, whose prices
  dropped sharply from the second quarter.

  In first quarter 2005, scrap prices were US$ 250/tonne, not much
  changed from last year’s. By second quarter it dropped to US$
  160-180/tonne and third quarter to US$ 225-260/tonne. Only then, the
  scrap prices began to fall.

  Likewise the world steel price, billet and slab prices moved
  considerably. In USA and Europe billet and slab prices began to
  rebound. Long and flat product’s prices quickly dropped from the
  expectation of the China’s over-supply. Flaming the situation products
  exported from China was at lower prices. The Chinese government’s move
  to close or consolidate mills progressed more slowly than expected.

  Many mills cut production to stabilize the price and balance of
  demand-supply in world market, and to compete with the cheaper
  imports. Tokyo Steel, for instance, announced a reduction of one
  million tonnes.

  It was generally believed that the global market price would decline
  to a lowest while inventory was building by the early part of 2006.
  Price should once again recover.

  Thai Steel Industry Overview in 2005

  In first quarter of 2005, Thai steel manufacturers experienced the
  high price of the stock inventory. Rising interest rate throughout the
  year impacted directly on the government’s large projects’ spending as
  well as private housing projects’. Rebar consumption suffered and
  prices reduced through lower demand.

  Steel prices were settled by users who, counting on falling prices,
  would order the minimum and draw down on existing inventories.
  Steelmakers were increasingly forced to sell products at low or no
  margins.

  Flat steel consumption, driven by automotive, electrical appliance and
  construction industry, was 8.2 million tonnes in 2005. Domestic
  production was only 4.4 million tonnes (with 1.4 million tonnes being
  exported), and import stood at 5.3 million tonnes. Price pressure came
  from cheaper imports.

+----------------+------+------+-------+------+------+------+------+
|   Consumption  |      |      |       |      |      | U    |      |
|   of long and  |      |      |       |      |      | nit: |      |
|   flat         |      |      |       |      |      | 1    |      |
|   products in  |      |      |       |      |      | ,000 |      |
|   Thailand     |      |      |       |      |      | tons |      |
+----------------+------+------+-------+------+------+------+------+
| Year           | 1999 | 2000 | 2001  | 2002 | 2003 | 2004 | 2005 |
+----------------+------+------+-------+------+------+------+------+
|   Production   | 3    | 4    | 4,652 | 6    | 7    | 9    | 9    |
|   Capacity     | ,237 | ,451 |       | ,747 | ,497 | ,009 | ,381 |
+----------------+------+------+-------+------+------+------+------+
|   Import       | 3    | 3    | 4,201 | 4    | 4    | 5    | 6    |
|                | ,832 | ,885 |       | ,549 | ,925 | ,355 | ,213 |
+----------------+------+------+-------+------+------+------+------+
|   Export       | 1    | 1    | 1,246 | 1    | 1    | 1    | 1    |
|                | ,109 | ,574 |       | ,247 | ,455 | ,646 | ,717 |
+----------------+------+------+-------+------+------+------+------+
|   Actual       | 5    | 6    | 7,607 | 10   | 10   | 12   | 13   |
|   Consumption  | ,960 | ,762 |       | ,049 | ,967 | ,718 | ,877 |
+----------------+------+------+-------+------+------+------+------+

Source: Iron and Steel Institute of Thailand (ISIT)

  Long and flat products in Thailand showed a modest 4.1% production
  annual increase as the mills cut production in face of the price
  decline. 16% increased import mostly were high quality steels. Export
  increased 4.3% becoming 1.7 million tonnes , mainly consisting of hot
  rolled coils and cold rolled coils whilst there was a 9.1% increase in
  the domestic consumption.

  Thai Flat Product Industry in 2005

  Flat product consumption for Thailand in 2005 was 8.2 million tonnes,
  15.5% over last year’s. Domestic production increased by a healthy
  13.1% to 4.4 million tonnes. Export and import rose year on year by 9%
  and 15.7%, respectively. Imports to Thailand are generally high
  quality steel, supplied virtually all by Japan.

+----------------+-------+------+------+------+------+------+------+
|   Consumption  |       |      |      |      |      | Unit |      |
|   of flat      |       |      |      |      |      | :    |      |
|   product in   |       |      |      |      |      | 1    |      |
|   Thailand     |       |      |      |      |      | ,000 |      |
|                |       |      |      |      |      | tons |      |
+----------------+-------+------+------+------+------+------+------+
| Year           | 1999  | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 |
+----------------+-------+------+------+------+------+------+------+
| Production     | 1,560 | 2    | 1    | 2    | 3    | 3    | 4    |
| Capacity       |       | ,241 | ,887 | ,972 | ,327 | ,905 | ,419 |
+----------------+-------+------+------+------+------+------+------+
| Import         | 3,272 | 3    | 3    | 3    | 4    | 4    | 5    |
|                |       | ,285 | ,645 | ,773 | ,153 | ,544 | ,260 |
+----------------+-------+------+------+------+------+------+------+
| Export         | 682   | 1    | 697  | 908  | 1    | 1    | 1    |
|                |       | ,145 |      |      | ,077 | ,292 | ,409 |
+----------------+-------+------+------+------+------+------+------+
| Actual         | 4,150 | 4    | 4    | 5    | 6    | 7    | 8    |
| Consumption    |       | ,381 | ,835 | ,837 | ,403 | ,157 | ,271 |
+----------------+-------+------+------+------+------+------+------+

  Source: Iron and Steel Institute of Thailand (ISIT)

  Hot Rolled Sheet

  Local consumption of hot rolled, both plates and coils, in 2005
  increased 8.9% over last year’s to 6.15 million tonnes.

  Thailand plate consumption in 2005 was 600,000 tonnes (9.7% of the 6.1
  million tonnes of the hot rolled consumption). Production capacity
  remained unchanged from last year. Import of slabs increased 22.8%
  while exports, mainly to the USA and Spain, increased tremendously, by
  fourfold.

  Production of hot rolled coils rose to 3.8 million tonnes or a 11.7%
  increase. 2005 export was 772,792 tonnes mostly to China and Vietnam.

  In 2005, import for hot rolled coils was constant at around 2.4
  million tonnes. Imported high quality hot rolled coils for cold
  rolling increased 2.7% to 1.5 million tonnes. Imported pickled & oiled
  hot rolled increased 60.4% from 2004 to 796,993 tonnes, to support the
  growing local automotive and electrical appliance industries.

  Overall hot rolled coil industry in 2004

+---------------------------+----------+---------------+--------------+
|                           | Market   | Source        |              |
|                           | Size     |               |              |
|                           |          | (unit: 1,000  |              |
|                           |          | tons)         |              |
+---------------------------+----------+---------------+--------------+
|                           |          | Domestic      | Import       |
|                           |          | Producers     |              |
+---------------------------+----------+---------------+--------------+
| Hot Rolled Coil           | 2,953    | 2,608         | 345          |
+---------------------------+----------+---------------+--------------+
| Hot Rolled Coil for Cold  | 2,300    | 800           | 1,500        |
| Rolling                   |          |               |              |
+---------------------------+----------+---------------+--------------+
| Pickled & Oiled Hot       | 895      | 100           | 795          |
| Rolled Coil               |          |               |              |
+---------------------------+----------+---------------+--------------+
| Total – Domestic market   | 6,148    | 3,508         |              |
+---------------------------+----------+---------------+--------------+
| Export                    |          | 922           |              |
+---------------------------+----------+---------------+--------------+
| Total – Domestic market   |          | 4,430         | 2,640        |
| and Import                |          |               |              |
+---------------------------+----------+---------------+--------------+
|                           |          |               |              |
+---------------------------+----------+---------------+--------------+

  Source : Iron and Steel Institute of Thailand (ISIT) and Company’s
  estimates

  Coated Products

  All type of coated product consumption increased 5.4% from 2004 to
  2.13 million tonnes. However, overall production capacity dropped
  20.2% from last year driven by the enormous 27.5% imports increase in
  coated products and 22.6% decrease in export.

  The 26% increase in galvanized products consumption compared to 2004
  came from growth in construction, automotive and electrical appliance.
  24.9% decrease in production owed to the huge import.

  Imports of galvanized products increased to 1,017,258 tonnes or 48.1%
  over 2004’s. 865,591 tonnes of this amount were hot dipped galvanized
  products, increasing 55.9% from last year. Electro-galvanized
  products’ import increased 15.3%. 2005 export of hot dipped galvanized
  and electro-galvanized products, mainly to Myanmar and Laos, declined
  41.4% and 60.6%, respectively, comparing to 2004, to 48,131 tonnes.

  Consumption of tin plates and other coated products dipped 16.4%
  comparable to 2004.

  Steel Industry Outlook

  In 2006, world market price trend is expected to be a move up, after
  the sharp drop in 2005. Demand and supply situation should become more
  balanced given the active, ongoing steel plant consolidation. Mergers
  should eventually lead to lower production and administration cost,
  advancing technology, and increasing the bargaining power in the
  procurement of raw materials as well as the selling of the products.
  Still to be realised is that the old Chinese steel mills to be closed
  or consolidated to curb the country’s over-supply.

  Investment in the steel upstream stage and production technology
  development are anticipated as the steel industry continues its
  growth, with China and India are on the path to become dominant
  players.

  Competitive Situation

  Domestic Competition for hot rolled coils and coated steel.

  1) Hot-rolled coil producers are,

-   SSI (Sahaviriya Steel Industry)

-   NSM

-   G-Steel (formerly Siam Strip Mill, SSM)

  Hot-rolled sheet producers,

-   LPN Plated Mill (LPN)

-   Sahaviriya Plate Mill (SPM)

  In 2005, production capacity was 8 million tones, recognising the
  recent SSI expansion. SSI, 4 million tonnes capacity, was expected to
  produce 2 million tonnes or 50% of capacity. G-Steel, at 1.5 million
  tonnes capacity, expected to produce 1 million tons or 66.6% of
  capacity. NSM, at 1.5 million tonnes capacity, produced 0.77 million
  tons or 51.3% of capacity.

  2005 sales for NSM were 57% domestic, mainly to pipe makers and steel
  service centres. 43% were exported.

  In first quarter, low-priced imports impacted domestic competition
  more so than the individual market share. Low-priced imports from
  China, especially the narrow strip hot rolled, sold at US$ 370/tonne
  when the normal-width coils were at US$ 450/tonne. This in turn led to
  an abundant influx of imports, further upsetting the domestic prices.
  The Thai Industrial Standards Institute (TISI) tried to intervene to
  moderate the situation.

  By the second quarter the world market steel price declined abruptly.
  Price gap between normal and narrow-width hot rolled coils was then
  not sufficient to cover the import costs. Still, domestic producers
  could not satisfy the demand fully owing to high-priced raw materials
  bought prior to this round of the price drop. Light-gauge products’
  normally sold at price premium were even depressed by cheap imports.

  Domestic producers reacted slowly to reducing production to stabilize
  prices and balance domestic demand and supply. Meanwhile consumers
  hesitated to buy in this decreasing price market; they bought only
  what they needed and no stocks. By the year end 2005 China announced
  that price will continue to decrease through the first quarter 2006.
  Domestic consumers’ hesitation grew.

  The above mentioned situation is believed to persist for a short
  period. When demand and supply balances, government’s mega-projects
  rolled out, consumers would start to drive a new round of the
  recovery.

  2) Coated Product Producers, include,

-   Bluescope

-   Thailand Iron Works (TIW)*

-   Sangkasi Thai (STC)

-   Sangkasi Far-East (FEIW)*

-   Bangkok Steel Industry (BSI)

-   Thai Coated Steel Sheet (TCSSC)*

-   Thai Tinplate MFG (TTMFG)*

-   Siam Tinplate (STPC)*

  * These are joint ventures with Japanese producers or traders.

  During 2005, the Company did not yet produce coated products.
  Competitors for coated the products are only BSI and Bluescope. Other
  producers serve different end applications, such as, galvanized
  roofing sheets.

  International Competition

  Steel export market to the first quarter 2005 was still good, carrying
  over from the latter part of 2004. NSM had exported to China, India,
  Indonesia, and others. From the second quarter the users’ overstocked
  inventory coupled with China’s growing export drove down the price.
  New plants in China continued ramping up and over-supply ensued.

  Government Regulations

  To protect local producers, the Thai government rolled out
  anti-dumping for hot rolled coils, cold rolled coils and stainless
  steel products. The table below illustrates the import duties and
  anti-dumping measures issued by the Ministry of Commerce from 23 May
  2003 to 22 May 2008.

Existing Thai Government Import Duty and Antidumping Measures

+----------------------------+---------+--------------+----------------+
| Product                    |   Duty  |              |                |
|                            |         | Anti-Dumping |                |
|                            |         |   ⁽¹⁾        |                |
+----------------------------+---------+--------------+----------------+
|   Scraps                   |   1%    |              |                |
+----------------------------+---------+--------------+----------------+
|   Pig Iron                 |   1%    |              |                |
+----------------------------+---------+--------------+----------------+
|   Slab                     |   1%    |              |                |
+----------------------------+---------+--------------+----------------+
|   Hot-Rolled Products      |   5%    |   Japan      | 3.2 -36.25%    |
|   (coils/plate)            |         |              |                |
+----------------------------+---------+--------------+----------------+
|                            |         |   South      | 128.11%        |
|                            |         |   Africa     |                |
+----------------------------+---------+--------------+----------------+
|                            |         |   Russia     |   24.20-35.17% |
+----------------------------+---------+--------------+----------------+
|                            |         |   Kazakhstan | 109.25%        |
+----------------------------+---------+--------------+----------------+
|                            |         |   India      | 26.81-31.92%   |
+----------------------------+---------+--------------+----------------+
|                            |         |   Korea      | 13.96%         |
+----------------------------+---------+--------------+----------------+
|                            |         |   Taiwan     | 3.45-25.15%    |
+----------------------------+---------+--------------+----------------+
|                            |         |   Venezuela  | 78.44%         |
+----------------------------+---------+--------------+----------------+
|                            |         |   Argentina  | 37.94-53.09%   |
+----------------------------+---------+--------------+----------------+
|                            |         |   Ukraine    | 30.45-67.69%   |
+----------------------------+---------+--------------+----------------+
|                            |         |   Algeria    | 33.26%         |
+----------------------------+---------+--------------+----------------+
|                            |         |   Indonesia  | 24.48%         |
+----------------------------+---------+--------------+----------------+
|                            |         |   Slovakia   | 51.95%         |
+----------------------------+---------+--------------+----------------+
|                            |         |   Romania    | 27.95%         |
+----------------------------+---------+--------------+----------------+
|   Cold-Rolled Products     |   6%    |   Russia     | 35.80-64.70%   |
+----------------------------+---------+--------------+----------------+
|                            |         |   Kazakhstan | 26.36%         |
+----------------------------+---------+--------------+----------------+
|   Coated Products          |   7%    |              |                |
+----------------------------+---------+--------------+----------------+
|   Stainless                |   1%    |   Japan      | 0-50.92%       |
+----------------------------+---------+--------------+----------------+
|                            |         |   Europe     | 10.02-32.98%   |
+----------------------------+---------+--------------+----------------+
|                            |         |   Taiwan     | 4.84-33.99%    |
+----------------------------+---------+--------------+----------------+
|                            |         |   Korea      | 50.99%         |
+----------------------------+---------+--------------+----------------+

  Sources: Iron & Steel Institute of Thailand, BOI, and the Ministry of
  Commerce

  Note: (1) Preliminary anti-dumping (AD) measures for hot rolled coils
  imposed by the Ministry of Commerce issued on 23 May 2003 for a period
  of five years, to 22 May 2008

  China is under observation on quantity and quality of their imported
  products. If dumping or unqualified products are discovered, the
  government may move to use tax measures or other rules.

  Non-Tariff Measures

  Non-tariff measures are expected to create a tier of protection to the
  Thai steel producers. These include implementation of mandatory Thai
  industrial standards for steel products to prevent secondary products
  of certain grades to be sold into the market. Importers might also
  need to apply for a license to import specific products, including
  galvanized sheets, hot rolled coils and cold rolled coils.

  3.3 Procurement of Products

  Company’s Plant Status

  NSM houses three production plants, namely, the Hot Strip Mill, Direct
  Reduced Iron (DRI) Facility and the Finishing Facility.

  The Hot Strip Mill is a flat product mini-mill consisting of a Compact
  Strip Mill and installed machinery. The design incorporates a
  single-strand thin-slab caster and a six-stand continuous hot strip
  mill with coilers. This Compact Strip Mill is in turn fed by an
  Electric Arc Furnace (EAF) equipped with a continuous scrap preheating
  (ConSteel^(®)) feeder.

  Upon ramping up the hot rolled production, NSM plans to reduce its
  dependence on imported iron scrap and pig iron and as well to improve
  quality for higher value added products. One approach to realize this
  plan calls for an input of high quality raw material, such as, DRI
  materials. NSM is considering and negotiating with suppliers and
  involved parties to assess the investment needed for completion of the
  suspended DRI project, in which the Company has already invested Baht
  2,038.77 million or US$50 million. For this the Company has
  commissioned an independent feasibility study of the project and a
  report is expected to be finished in the the first quarter of 2006.

  In the Finishing Facility, construction of the Recoil Temper Mill
  (RTM) was completed and the mill put into operation during mid-2004.
  The second, the Push-Pull Pickled & Oil line and associated Acid
  Regeneration Plant are undergoing hot commissioning at this moment.
  Plan is being finalizing for the design and scope with suppliers to
  complete construction of the third facility, the Galvanizing line in
  the next two years.

  The Finishing facility is an important complement to the NSM business.
  It is used to produce value added products from hot rolled coils.
  Temper rolled and edge-trimmed or sub-divided coils have been produced
  for some time now. Pickled and oiled coils are coming available in the
  first quarter of 2006. Hot commissioning is in progress at the moment
  and some pilot production has been achieved. Galvanized products
  should be available during 2008.

  An independent asset appraisal undertaken by American Appraisal
  (Thailand) Limited summarises completion status for the three plants
  as of 1 December 2005 as follows,

  Status for each of the Finishing Facility plant lines is as follows.

1.  Recoil Temper Mill

  Test run commenced in July 2004, the facility is up, ramping to the
  capacity of >600,000 tonnes/year.

2.  Push-Pull Pickling Line

  Contract with the equipment supplier, construction and erection
  contractors concluded in 2004. The Project is to be completed by early
  2006 with commissioning test run during the first quarter of 2006.

3.  Galvanizing/Galvannealing Line

  Contract with machine supplier was signed in April 2004 for the
  remaining parts and equipments necessary to complete the entire line.
  NSM is in the process of amending the CGL contract to ensure its
  applicability to the current and near future customer requirements,
  which will help the Company to expand its market base. The Project is
  expected to be completed in 2008.

  NSM Production Process

  []

  []

  NSM hot rolled coil line utilises the mini-mill production method
  rather than a blast furnace-based integrated production. It
  incorporates a number of unique competitive advantages. Unlike most
  other mini-mills, the melting plant utilises a continuous scrap
  pre-heating and charging, the ConSteel^(®) Process, developed by
  Intersteel Technology Inc, and a thin-slab caster developed by
  SMS-Demag.

  The caster directly, via a tunnel furnace, feeds a six-stand hot strip
  mill equipped with laminar flow cooling bed and coilers. The
  combination of the caster and hot mill is referred to as the Compact
  Strip Process (CSP) line.

  The ConSteel^(®) Process has been installed in various plants in the
  USA, Japan and Italy, and likewise for the CSP lines. Advantages of
  such technologies are as follows.

  1. ConSteel^(®) technology reduces time and energy losses relative to
  conventional EAFs (Electric Arc Furnaces). The furnace roof remains
  closed so that power does not have to be taken off to charge scrap via
  the overhead baskets.

  The scrap, which has been pre-heated by a counter-current flow of
  off-gases from the EAF, is continuously fed into the molten raw liquid
  steel heel in the EAF. Thus, NSM can maintain much more of a
  continuous power-on state and a large heel of low phosphorus, raw
  liquid steel.

  This continuous operation keeps NSM’s steel making costs, especially
  energy costs, below those typically incurred in traditional
  mini-mills.

  2. Development of thin-slab casting, with lower capital investment,
  has allowed the entry of the mini-mills into the flat-rolled segment
  of the steel market.

  3. Ability to produce flat-rolled steel from a thinner slab greatly
  reduces costs. Firstly, the energy in the slab is completely conserved
  by charging direct to a tunnel furnace whilst the slab is still over
  1000 °C. Secondly, far less reduction is necessary in the rolling mill
  because the coil is rolled to selected gauges from 50- to 60-mm thick
  slabs, compared to conventional slabs of 200- to 250-mm thickness.
  These measures save greatly on energy, roll costs and maintenance.

  4. Continuous nature of the process means one can go from raw material
  to finished hot rolled coil in less than three hours. There is almost
  no work-in-process. Flexible manufacturing and just in time production
  are a possibility.

  ConSteel^(®) and thin slab casting are amongst the most significant
  advances in steel production in the last 40 years.

  Hot roll coils are independently, further processed to produce value
  added Finishing Facility products from,

  1. Recoil Temper Mill ( since mid 2004),

  2. Push-Pull Pickle Line (from Q1, 2006), and

  3. Galvanizing Line (from 2008).

  Raw Material

  NSM steel making process is dependent on imported scrap and pig iron
  which are raw materials representing 60% of the fully loaded cost per
  tonne of hot-rolled coil. While there are many grades of scrap, the
  two principal classifications are Obsolete scrap and Prompt industrial
  scrap.

  Obsolete is derived from discarded goods. It can be processed by, for
  example, shredding or shearing but it is not free of residual “tramp”
  element contamination. Such scrap is the bulk of material available
  internationally. NSM needs to exercise care and close control when
  utilising this.

  Prompt industrial scrap is produced as a by-product of various metal
  working operations. Steel fabricators, machine shops, stamping plants
  and auto production operations, such as those being built and operated
  in close proximity to NSM, all generate this type of scrap material.
  Prompt is the most desirable for EAF steel making due to the
  traceability of its origin.

  Prompt industrial scrap is further classified into three categories.

  1. 15% of Prompt is in the form of turnings. Unfortunately, most are
  contaminated with high levels of sulphur containing oils and are high
  in alloy content. As such they do not represent a good source of
  low-residual material. NSM avoids purchasing such material.

  2. Plate and Structural (P&S) scrap generated from fabrication
  operations amounts to 10% of Prompt. P&S Prompt is primarily from
  products originally made from Obsolete scrap and, as such, does not
  normally represent a good source of low-residual material.

  3. The remaining 75% of prompt industrial scrap is in the form of
  bundles, clips and bushelling, all of which are usually from products
  originally made from cold rolled steels which are normally low in
  residuals.

[]

  NSM 2005 Feed Mix

  In the second year of operation, NSM utilized 36% of its charge from
  imported processed and unprocessed scrap from Obsolete material. This
  increase relative to the 27% utilized in 2004, was due to the finite
  availability of the otherwise preferred domestic scrap.

  37% of the input was domestically sourced scrap, some Prompt
  industrial and some Obsolete. Whilst this was proportionally 10% lower
  than last year, the actual tonnage was considerably higher driven by
  the increased overall production to nearly 800,000 tonnes in 2005,
  prior year at around 500,000 tonnes

  A further 24% came from imported pig iron. This is very clean material
  and has the advantage of providing energy in the form of dissolved
  carbon in its chemical make-up. This was a little less than the 25%
  utilized in 2004.

  The small balance of 2.5% was made up by returns arising from the
  process, such as, tundish residues, ladle skulls, caster crops and
  sample remnants.

  Much was learned in our first year of operation about blending the raw
  materials to achieve a balanced combination of quality and performance
  at minimum cost. This know-how was carried forward into manufacturing
  capability in 2005.

  Other Raw Materials

  Other than scrap, the major consumables include fluxes and alloys for
  the production of basic hot rolled coils. Alloy costs for the year
  varied between US$ 10-22/tonne of coil with an overall average of US$
  16.8/tonne. The comparable figure for 2004 was US$ 15.6/tonne. We
  produced a lot more structural steel grades containing higher levels
  of manganese than in the prior year.

  Procurement of Raw Materials

  Scrap and Pig Iron

  Some of the ferrous scrap are obtained from the domestic market.
  Thailand, however, does not generate sufficient scrap for internal use
  and overseas sources are constantly utilised. Hence the “finite”
  availability of domestic scrap is what drove the change in the mix
  ratios indicated in the prior section.

  For our first year after restart, we purchased from US Ferrous Trading
  Division, SIMS Group Limited, Hugo Neu Schnitzer Global Trade LLC. and
  others. This continued in our second year but also new traders were
  utilized – Sino, Taylor Overseas Marketing Pte Ltd. and CKT Metal
  Scrap Trading.

  Fluctuation of Raw Material Price

  Price of the major raw materials, scrap and pig iron, during our first
  year after restart was at an unprecedented high and was also subject
  to enormous and rapid swings. This continued into 2005. This was
  driven by the high growth rates in China which resulted in importation
  of large amounts of raw materials leading to supply shortages in the
  rest of the world. Following a roller coaster ride in the first half
  of 2005, prices began to settle following the market collapse for flat
  products in the second quarter.

  2005 opened with pig iron prices of US$ 340/tonne C&F and HMS#1 scrap
  at almost US$ 300/tonne. After eventually stabilising at mid-year,
  there was a gradual downslide in the second half to US$ 235 for pig
  iron and US$ 210 for HMS# 1 scrap.

  Development of Production in 2005

  Following the over 500,000 tonnes produced in 2004, a plan was for
  900,000 tonnes in 2005. This included two 7-day shutdowns for changing
  the ConSteel® preheater pans, the first of which took place in late
  February.

  This fairly ambitious target was firmly in our sights until the market
  suffered a collapse during the second quarter. The Company was forced
  to reduce production.

  Impact of high volume of inventory coupled with lower demand for
  products continued through the rest of two quarters. To cope with such
  situation, the production volume was maintained. Statistically, the
  Company managed to improve higher percentage of high value added
  products in its product mix and maintain its market position through
  quicker delivery schedules adherence.

  The following chart shows the production development through the year
  2005 ultimately to a tonnage of 773,033 representing over 50% increase
  on the prior year. The product value of 773,033 tonnes represents a
  percentage mix of 39% of lower thickness materials. As per the
  original budget plan of the Company, the Company planned to produce
  900,000 tonnes considering a product mix of 25% of low thickness
  materials.

[]

  Gauges Rolled

  The following chart shows the development of gauges rolled on the Hot
  Strip Mill during 2005. It can be seen that the proportion of material
  rolled with gauges less than 2 mm increased to over 50% by mid year
  without having a major impact on overall throughput. In particular the
  portion less than 1.5 mm, predominantly at 1.2-mm, increased
  substantially as we were targeting the gauge extras that could be
  earned.

  After the midyear production curtailment, when we resumed more normal
  production levels, the market was flooded with 1.2 mm gauge and the
  extras were not available. During the final quarter, the level of
  heavy gauge structural steel orders became more prominent in the mix
  as a result.

[]

[]

  2005 NSM Power Development

  Because of the Electric Arc Furnace as the principal melt facility,
  energy supply and costs play an important role in the overall
  production. For the first half of 2005 the unit power cost was fairly
  stable at US$ 0.057/ kWh. July and August saw a much lower figure of
  US$ 0.047 due to the production curtailment and entirely off-peak
  working.

  The higher figure in the final quarter, rising to US$ 0.062 /kWh, was
  due to tariff increases from the monopolistic, state power supplier.

  As already stated, the ConSteel^(®) process typically allows for much
  lower electrical energy input than conventional EAF technologies. This
  efficiency gain has been seen in other ConSteel^(®) applications to
  represent a substantial reduction in electrical energy requirement.
  The CSP line is more electrically efficient than conventional hot
  strip mills since the slab is discharged directly into a tunnel
  furnace where only “top-up” energy is required to reach rolling
  temperature.

  Dependent upon the specific configuration and age, a traditional plant
  will consume 850 to 1,300 kWh/tonne from scrap to hot rolled coil. The
  high energy unit cost in Thailand is hence somewhat offset by the
  improved efficiencies of our process which so far is attaining 650 to
  700 kWh/tonne and holds the promise to do even better.

  Environmental and Safety Issues

  The Company has evaluated its environmental targets as required by
  law. Plans have been prepared for the annual measurement and
  monitoring of environmental impacts in terms of air quality, noise
  level, water quality, shock, heat and environmental planning downtime.

  Certain corrective and preventive actions have been undertaken for the
  benefit of the environment, including the extraction of direct off-gas
  from the EAF by two “hot” fans and collection of all shop emissions
  via canopies above the EAF, LHFs and VTD-OBs. Filtration of process
  dust from the emissions is achieved through a bag-house equipped with
  reverse air cleaning capability. The capacities of the bag plant,
  extraction fans and cooling ducts are entirely consistent with those
  on EAF steel plants of similar size in the most stringent of
  environmentally controlled regions.

  The production waste in the site such as slag, bag filter dust, mill
  scale, refractory debris and others will be handled in two ways.
  First, the waste from mill scale and the bag filter dust is the source
  of valuable iron oxide which is useful application in cement industry
  will be totally sold. For the other useless waste, the Company will
  use the sub-contractor slag treatment to move slag off site to the
  licensed disposal site.

  Quality Management

  On recommencing operations in the middle of December 2003 with a very
  small production focused crew, it quickly became evident that the
  Company needed support from a quality control perspective. A Quality
  Management section was formed covering the disciplines of:

  Quality Control (QC) – measurement and control of steel chemistry,
  mechanical properties, dimension and surface appearance.

  Product and Process Development (P&PD) – using the information
  acquired from production and quality control together with support
  from external information sources and targeted specialists to improve
  the product and processing further. The Company received active
  support from Corus, SMS-Demag and others.

  Quality Assurance (QA) - setting up of standards and procedures.
  Documenting the systems and subjecting these to audit and feedback in
  order to ensure the customer is satisfied by what the Company
  delivers.

  A substantial improvement in quality of product and stability of
  operation was also achieved from the switch from a 50-mm thick mould
  to 60-mm on our caster. We now cast exclusively at 60-mm. For rolling
  thinner gauges we re-commissioned the Liquid Core Reduction (LCR)
  capability in our caster. This allows us to squeeze the 60-mm slab
  down to 50-mm, when needed, to avoid excessive stress on the Hot Mill.
  The 60-mm thick starting slab also allows us to roll a better quality
  thicker gauge material.

  Some particular highlights during 2005 were:

-   The formulation of a clear concise Quality Policy statement:

  “We are committed to producing excellent and consistent quality
  products and services that meet or exceed our customers’ expectations.
  We employ a Quality Management System based on ISO 9001:2000 to
  prevent or control variation in our processes and ensure continual
  improvement.”

-   The achievement of accreditation to ISO 9001:2000 in November 2005.

-   Successful introduction of gauge extremes between 1.2 mm and 16 mm
    into our range.

-   Successful development and testing of hot rolled coil for cold
    rolling purposes.

-   Successful development of gas cylinder grade steels.

-   Utilization of the newly commissioned Temper Mill to expand our
    product range and add to our product knowledge.

  Going Forwards into 2006

  We initially planned for the production of over one million tons of
  hot rolled coil during the year 2006. This would require over one
  million tons of liquid steel from our EAF, representing ~30% growth of
  production over 2005’s. The scarcity of business through the December
  to early 2006 period has already and unfortunately compromised this
  initial target and we will have to set our sights somewhat lower at
  ~900,000 tonnes.

  It seems that a portion of export business will always be with us. As
  a result, we are entering a programme to achieve the CE-Mark which
  will be a necessary accreditation for sales into Europe from November
  2006. We will also start a programme to achieve accreditation to ISO
  TS 16949. This will be important to achieve any meaningful penetration
  into the automobile industry.

  The Company will continue to seek improvement in equipment
  availabilities and efficiencies. Late in 2005, a significant change
  was made to the engineering support structure in order to centralize
  control under a single Senior Engineering Manager who was appointed to
  the task. This will allow the other plant operation managers to focus
  more on purely operational issues driving cost and quality.

  The advent of commissioning the PPPL (Push-Pull Pickle Line) has
  highlighted some deficiencies in hot strip quality which were not
  readily apparent in the normal black finish material. Further, the
  tightness in the market generally has led to some quality claims which
  in more favourable market conditions may not have surfaced as issues.
  Nonetheless we have to be measured against our competitors in both
  good and bad times. Quality improvement will be the source of a great
  deal of activity in the immediate future