3. Risk factors

Raw material prices

The primary raw material for manufacturing carbon black is carbon black
feed stock oil, which is mostly imported and constitutes about 90-95% of
the total raw material cost and about 85-90% of cost of production. The
prices of carbon black feed stock oil are closely related to fuel oil
prices internationally. Though during the first 3 quarters of the year
the oil prices remained low as compared to average of 2001, it started
going up again in last quarter of 2002 and any further increase in oil
prices and adverse economic situation due to possible US led war on Iraq
may adversely affect company’s profitability in the year 2003

The company also endeavours to buy the larger quantities of oil when the
oil prices are low for requirement of future periods and by this company
gets ample time to monitor oil prices and buy again when oil prices are
low.

Carbon Black prices

The prices of company’s product “Carbon Black” of various grades is
generally governed by demand & supply situation in the world market,
international price trend, oil prices in world market and specific
features of the product. The company has the policy of fixing the price
with major customers on 3-6 months basis to provide stability in the
prices.

Any increase in oil prices, adverse economic situation due to possible
US led war on Iraq and its impact on economies of various countries,
reduction in consumption and impact on Automobile Industry will affect
the company’s profit margins. The ability to pass on the full impact of
increase cost of raw material through higher selling prices of carbon
black is limited due to competitive market condition of carbon black
industry and the company may be able to pass on the impact of increase
cost only partially.

Exchange rates

The company exports almost 60-65% of its production. The domestic sales
prices are also indirectly influenced by exchange rates as the major raw
material is imported. The company have negligible dollar denominated
borrowings. As the inflow of export earnings are matched with outflow of
raw material payments, the risk from currency fluctuation in naturally
hedged and any fluctuation in Thai Baht may not have significant impact
on profit margins, however the weaker Thai Baht does benefit the company
and any appreciation in the value of Baht may impact company’s revenues
and profits as it also affects the export competitiveness of the local
automobile & tire industry and therefore may impact our domestic sales
volume & pricing

Thai Baht has been volatile during the current year but with a
strengthening trend which is expected to continue in the next year.

Environmental risk

Generally our production process is environmental friendly and does not
generate any solid wastes. In fact our company is the first Asian Carbon
Black manufacturing plant to receive ISO 14001 certificate for ensuring
the highest standards of environment cleanliness and company
continuously monitors its pollution control system to adhere to the
standards prescribed by authorities.

We have also received the international awards like Deming Prize, TPM
excellence award and Prime Minister Productivity award and these awards
include stringent criteria for environmental control, which the company
have positively demonstrated.

During the year the company also received ISO 9001: 2000, OHSAS-18000:
1999 and ISO/IEC 17025 for its quality systems and these certifications
also demonstrates company’s commitment for environmental safety.

Competitive Environment

Thai Carbon Black is one of the largest producers of Carbon Black in the
world. Due to its excellent quality and customer services together with
its low cost of production, Thai Carbon Black is competitively placed in
the world market. In addition, due to company’s capabilities to develop
Carbon Black grades as per the customers’ requirement, it is able to
meet important customer needs which give the company more competitive
advantage.

Domestically company is market leader and commands 54% market share.
Board of investment has some time back approved for new Carbon Black
plant in Thailand but company understands that the implementation of the
new plant will take 1-2 years time and it will be manufacturing certain
speciality grads for specific requirements and it will not affect
company’s competitive position both in domestic and international
market.