5. Industry situation and Market Competition

5.1 Type of Product

Our company manufactures various grades of Carbon Black which is
basically consisting of elemental carbon in the form of colloidal
particles. The main process for obtaining furnace carbon black is by
controlled combustion and thermal decomposition of hydro-carbon oils
under controlled conditions. The hydro-carbons used are highly aromatic
oils such as FCC bottoms, creosote oils or any other oil which are
highly aromatic.

Type of Customer

Nearly 95% of our product is used by automobile tyre and rubber
industry. Small quantity of the product is used in producing plastics,
paints, ink and technical rubber goods. Our company supplies the product
to major tyre manufacturers in Thailand and abroad.

Type of Product

Carbon black provides tensile strength and abrasion resistance to
automobile tyres and it is very important for achieving long life of
tyres.

There are three kinds of Carbon black :

1. Channel Black

2. Furnace Black

3. Thermal Black

The commonly used product is the Furnace Black kind.

Carbon black is divided into different grades with respect to its
application :

1. Hard Carbon Black is used for the production of outer tyres and is
further divided into different grades

2. Soft Carbon Black is used for the inner tyres and it also has
different grades

The above grades of carbon black are manufactured according to ASTM
specifications which are commonly used by most producers of carbon black
in the world.

During the year the company has developed 1 new grade.

The product of Thai Carbon Black Public Co.,ltd has been accepted by the
Thai Industrial Standards Institute (TISI)

Type of Revenue

 Million Baht

+----------+-----------+------+-----------+------+-----------+-------+
|          | 2003      |      | 2002      |      | 2001      |       |
+----------+-----------+------+-----------+------+-----------+-------+
|          | Amount    | %    | Amount    | %    | Amount    | %     |
+----------+-----------+------+-----------+------+-----------+-------+
| Local    | 1,632     | 51   | 1,339     | 42   | 1,189     | 38    |
+----------+-----------+------+-----------+------+-----------+-------+
| Export   | 1,587     | 49   | 1,828     | 58   | 1,910     | 62    |
+----------+-----------+------+-----------+------+-----------+-------+
| Total    | 3,219     | 100  | 3,167     | 100  | 3,099     | 100   |
+----------+-----------+------+-----------+------+-----------+-------+

5.2 Production 

5.2.1 Production and Capacity

Our factory is located at Angthong province. It has four production
lines with capacity of 140,000 metric ton per year. The details of
capacity, actual production, capacity utilization, the percentage change
in actual production, maximum and actual number of work shift etc are as
follows :

  -------------------------- -------------- -------------- --------------
                             2003           2002           2001

  Production Capacity        140,000        140,000        140,000
  (MT/Year)                                                

  Actual Production          158,954        159,679        150,607
  (MT/Year)                                                

  Capacity Utilization (%)   114            114            108

  Increase in Actual         6%             6%             1%
  Production (%)                                           

  Maximum Work Shift         3              3              3
  (Shift/Day)                                              

  Actual Work Shift          3              3              3
  (Shift/Day) *                                            
  -------------------------- -------------- -------------- --------------

* Except for few days of planned maintenance in one of the four
production lines at a time

5.2.2 Raw Material and Suppliers :

Our company uses following raw materials :

1. Carbon Black Feedstock Oil

2. Fuel Oil

The important raw material used for carbon black production is Carbon
Black Feedstock oil which accounts for 92% of total raw material cost.
Carbon black feedstock oil is imported mostly from USA. Fuel oil and
Kerosene oil accounts for 8% of raw material cost and is purchased from
local suppliers in Thailand.

This raw material is F.C.C. bottoms which is most commonly used in
Carbon Black production. Other types of oils which can be used for
Carbon Black production include Anthracene Oil, Creosote Oil and
Ethylene Bottoms. However, these oils are not available in big
quantities and not economical also. Therefore, there are no economical
substitute to F.C.C. bottoms at present.

Effect of Change in Technology on the Raw Material Usage

We do not foresee any change in carbon black manufacturing technology on
large scale. Therefore, no impact is foreseen on present raw material
usage.

Change in Prices During the Past 5 Years

The price of raw material “Carbon Black Feedstock Oil” is closely
related to fuel oil. For the past five years, the average cost of major
raw material is as follows :

  ------------------------------------ ----------------------------------
  Year                                 Baht per Ton

  2003                                 6,363

  2002                                 5,910

  2001                                 7,257

  2000                                 6,024

  1999                                 4,119
  ------------------------------------ ----------------------------------

The proportion of the amount of raw material from local VS. import in
the past 3 years

  ---------------------------- -------------- -------------- --------------
                               2003           2002           2001

  Local                        8%             8%             4%

  Import                       92%            92%            96%

  Total                        100%           100%           100%
  ---------------------------- -------------- -------------- --------------

The company has 3-4 local suppliers and 5-7 overseas suppliers. Out of
5-7 overseas suppliers for imported raw materials, one of them has
supplied more than 30% for the last three consecutive years.

The relationship with the suppliers above are in the ordinary course of
business and under normal commercial terms and conditions of all of the
companies concerned. In case of loosing the major supplier, the company
is able to purchase raw material from other suppliers since there are
5-7 major suppliers in the competitive market.

5.2.3 Process and Production Technology

Source of Production Technology

There were many processes to manufacture Carbon black but M/S.Phillip
Petroleum Co., U.S.A. is the one who developed first time the Oil
furnace Black method on continuous basis.

In the Oil Furnace method - the feed stock oil is injected in the
reactors along with Fuel oil (which keeps & maintains the high temp. in
the reactor) and an excess of Preheated Air. The combined heat from all
this heat starts the THERMAL CRACKING of Feed stock oil and decomposes
into Carbon, Hydrogen and other gases. When the reaction has reached its
desired point, it is stopped by quenching with water. Partially cooled
gases are passed through AIR PREHEATERS and Oil preheater to recover the
SENSIBLE HEATS.

The Carbon black is filtered in specially chemical treated FIBRE GLASS
FILTER BAGS at a temp. of 300^(o)C from the gas. The light fluffy black
from Bag Filter is passed through pulverisers and pneumatically conveyed
to Mixer where the density increases by pelleting with water and other
chemicals, then it is dried and packed.

Adequacy of Machinery and Manufacturing Staffs

The company has four production lines in which different grades of
Carbon Black can be manufactured. The major equipment includes Reactors,
Air Preheaters, Oil Preheaters, Bag Filters, Purge Gas Filters,
Palletizers, Mixers, Dryers, Boilers, Turbo Generators, PCB’s, PABs,
Packing Plant, Demin water Plant, Storage Tank, Silos etc. All our
production facilities are modern and continuously upgraded to new
standards. We keep all critical imported spare parts for major machines.
Therefore, we are fully prepared to meet any unforeseen breakdowns in
any of the major machines. In addition, the company has the production
staffs of 131 persons who can service the full production capacity

The company keep on replacing the important equipments on completion of
life to have the plant in good conditions all the time and to produce
quality grads of carbon black

Possibility of New Technology Substitution

We do not foresee any change in the technology for manufacturing of
Carbon Black in the near future.

Ability, Necessity, and Expenses to adjust the machines for competition

We are capable of manufacturing major grades of Carbon Black and have
also developed new grades to meet the global customer requirements and
have the facilities to meet the new requirements of our customers. For
this reason, we do not need to make any expenses to change the
production facilities.

5.2.4 Environment Impact

Environmental Impact Caused By Production Process

 

In the manufacturing process, waste gas (Flue Gas) is combusted in Dryer
and Boiler and the Flue Gas is emitted through the stacks. Flue Gas
sample is collected and tested regularly for NO₂ and SO₂ contents which
are within the maximum standard limits set by the government.

In the production process, there is no waste material.

The environmental impact control of Thai Carbon Black is under the
control of the following government agencies :

(1) Pollution Control Department, Ministry of Science, Technology &
    Environment.

(2) Industrial Work Department, Ministry of Industry.

Following Pollution control devices are used in our factory :

a) Rotary Dryer & Waste Heat Boiler Combustion Furnace : Waste gases
from the production of carbon black are used as fuel in Rotary dryer
combustion furnace. The remaining waste gases are burnt in waste heat
boilers to generate steam.

b) Reactor Vent Scrubber : All our process reactors have reactor vent
scrubbers to prevent air pollution from carbon black smoke when there is
an emergency.

c) Quench Boiler : By installing the quench boiler we are able to
recover extra heat in the reactor there by conserving energy for power
generation

d) Rekuperator Boiler : By installing this boiler we are able to recover
extra off gases which were earlier vented in air and this also help
prevent air pollution

The company has implemented the Environmental Management System ISO
14001 in order to reduce and control the environmental impact caused by
emission of Flue Gas, effluent water, etc. The company has received ISO
14001 certificate for Environmental Management System Standard on 14th
March 1997 by Bureau Veritas Quality International (BVQI), UK.

5.3 Marketing

5.3.1 Marketing Strategies

Competitive Strategies

We are producing highest quality grades of Carbon Black for our
customers worldwide. The different grades are widely accepted in the
world market. Our company obtained important quality awards under ISO
9001-2000, ISO 14001, re-certified QS 9000, OHSAS-18001 and ISO/ISE
17025 certification system etc. Due to the high quality of our product,
our company is able to supply Carbon Black to three largest tyre
companies in the world namely Bridgestone, Michelin and Goodyear in
various countries including Japan, South East Asia, China, Europe, India
and Taiwan as well as in Thailand where our product is being used by all
leading manufacturers of tires and rubber products.

Due to the excellent quality of the products with prompt and efficient
services to its customers, Thai Carbon Black is very well and
competitively placed in the world market.

Our company has also received Deming prize for Total Quality Management,
TPM consistency award for Total Productive Maintenance and Prime
Minister’s award for out standing productivity and these awards confirms
about company’s commitment for Total Quality Management and give
competitive advantage for marketing of its products

During the year, the company has won many prestigious international and
national awards for its excellent performance like Best Employer in
Thailand, 5^(th) Best Employer in Asia, Best performance award in the
industry category by Stock Exchange of Thailand, Outstanding Company for
Labor Relationship and Welfare Management by Labor Ministry, etc and
these awards are testimony to company’s excellent management systems
which helped the company to achieve competitive edge to market its
products efficiently and to serve its customer better.

Recently the company has also won the prestigious Thailand Quality Class
award 2^(nd) time by Thailand Productivity Institute and was also rated
among top 200 small companies in the world by International magazine
“Forbes” for the 3^(rd) time.

Strength and Weakness

Strengths

1)  Excellent quality

2)  Competitive pricing

3)  Prompt and efficient services

4)  International quality approval from major world producers

5)  Technical service to customers

6)  Low cost of production

7)  Highly energy efficient

8)  Major quality accreditions: ISO9001: 2000, ISO14001, QS9000, IQRS
    level 7, TPM Excellence award, Deming Prize, Prime Minister’s
    Productivity award, OHSAS 18001 Thailand Quality Class Award,
    ISO/IEC 17025

9)  Well established brand image

10) Well established export market

11) Just in Time (JIT) deliveries to major customer

12) Export to growing market China

Weakness

1)  Smaller production capacities compared to major producers.

2)  Very far from European / American customers

3)  Far off location of raw material source

Pricing Policy

Our export pricing is governed by the market conditions and is based on
the world wide price trend of Carbon Black and its raw material, “Carbon
Black Feed Stock Oil” whereas our domestic pricing is set on the basis
of International prices and local import duty structure. Our prices in
the world market are very competitive due to excellent quality with
prompt and efficient customer service.

5.3.2 Distribution Channels

Most of our sales is direct to the end users and only 3-5% is through
agents in various countries. At present we have only 5 sales agents in
the specific countries to sell our product.

5.3.3 Type of Customers

Type of customer & relationship

Our major customers are International tyre manufacturers like
Bridgestone, Michelin, Goodyear, Yokohama and Toyo Tire, etc. in various
countries. Other important customers in domestic market include Siam
Tyre and Siam Tyre Industry, Otani Tyre, Inoue Rubber, Siam Rubber, Thai
Sin Rubber Industries, Camel industry , Vee Rubber, Inoue Rubbers and
Hwa Fong Rubber etc. We do not have special relationship with any of our
customers.

% Sales (quantity) to the first top ten customers in the past 3 years

  ----------------------- --------------- --------------- ---------------
                          2003            2002            2001

  % Sales to top-ten      73%             69%             67%
  customers                                               
  ----------------------- --------------- --------------- ---------------

Customers sold more than 30%

We do not have any individual customer to whom we sold more than 30% of
our sales volume for three consecutive years.

5.4 Privileges and Restriction on Businesss

The business of our company including capacity expansions have been
promoted by the Board of Investment (BOI). The major privileges included
corporate tax exemption, duty reduction on import of machinery and
exemption of income tax on dividends paid. The last-exemption expired on
12^(th) August 1999.

Now Carbon Black business is no more a promoted business activity of BOI
and in future no privileges will be available for Carbon Black business
by BOI. As a listed company on Stock Exchange, the company will have
reduced rate of corporate tax at 25% (normal rate being 30%) for a
period of 5 year for profit of first 300 million Baht for the accounting
period starting from 1^(st) January 2002.

Our business is not subject to any kind of restrictions imposed by any
government agencies locally on internationally.

5.5 Industry Situation and Market Competition

Carbon Black Product (Thai Carbon Black Public Co.,ltd)

Industry Structure

Carbon Black is a major raw material for manufacturing of Automobile
tyres and nearly 95% of Carbon Black production is used in Automobile
tyres and small quantity of product is used in producing plastics,
paints, ink, and technical rubber goods.

There are five major tyre producers in Thailand and two Carbon Black
producers in Thailand which are Thai Carbon Black Public Company Limited
and TOKAI Thai Carbon Product Co.,Ltd.

Key Success Factors

1)  Excellent quality product

2)  Major Quality Accreditions : ISO 9001:2000, ISO 14001, QS 9000, IQRS
    Level 7, TPM consistency award, Excellence award, Deming Prize,
    Prime Minister’s Productivity award, OHSAS18001, Thailand Quality
    Class award , ISO/ISE-17025, SET Best Performance award in the
    industry category

3)  Low cost of production

4)  Well established brand image

5)  Quality approved by all major tyre producers

6)  Highly energy efficient

7)  Excellent customer services

8)  Just In Time delivery to major customers

9)  Well established export market

10) Highly efficient production facilities

11) Joint Venture in China to meet demand of Chinese market

Opportunity

1)  Low cost of production

2)  Development of specialty product

3)  Possibility of export growth in the region and in China

4)  Higher economic growth in Thailand and in the region

5)  Expansion of existing plant

6)  New Tire Plants in Thailand and expansion of tire plants

7)  Very big market in China

Threats

1)  Partial product substitute may be developed in long term period

2)  Change in Carbon Black manufacturing technology

3)  Stringent pollution control norms

4)  Trade barriers in some countries

5)  Stronger local currency will dampen export and growth of export
    based Auto industries

6)  New Carbon Black Manufacturer in Thailand

7)  Expansion by other producer of Carbon Black in Thailand

Impact of External Factors

1)  Volatility in Thai Baht exchange rate

2)  High price of crude oil and related products (e.g. CBFO)

3)  Country’s economic stability

4)  Government regulations on pollution

5)  Impact of sudden spread of epidemic like SARS, Bird Flue etc.

6)  High Shipping freights world wide

7)  Impact of terrorism and Middle East tensions

Competitive Environment

Thai Carbon Black is one of the largest producers of Carbon Black in the
world. Its product is well accepted and established in the international
market. Presently, the company exports approx. 50% of its production and
is able to meet all customer requirements by developing new grades as
per customer specifications.

Number and Size of The Competitors

In the international market, three largest competitors producing Carbon
Black in the world:

1.  Cabot – USA

2.  Degussa – Germany

3.  Columbian – USA

These producers have plants at different locations.

In the local market, there are two producers of Carbon Black :

1.  Thai Carbon Black Public Company Limited with the production
    capacity of 140,000 MT/ year.

2.  Thai Carbon Product Co.,Ltd. with the production capacity of 65,000
    MT/ year.

Local Market Share for the year 2003 (approximately in term of sales
quantity)

  ----------------------------------- -----------------------------------
  Company                             Market Share (%)

  1. Thai Carbon Black Public Company 54
  Limited                             

  2. Thai Carbon Product Co., Ltd.    46
  ----------------------------------- -----------------------------------

Competitive Status

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

During the year the company has formed Joint Venture Company in China to
produce carbon black and the production has already been started in July
2003, which will help company to capture growing carbon black market in
China.

Entry of New Competitors

Board of Investment has approved new Carbon Black plant in Thailand and
it may take another 1 year to start production and the company
understand it will be manufacturing certain specialties grades for
specific requirements and it will not affect company’s competition
position both in domestic and international market.

Product Substitute

Silica is being developed as a product substitute. However, it will be a
long time before Silica can fully replace Carbon Black in the tyre.
Also, the cost of production of Silica is much higher than Carbon Black.
At present, there is no major threat to Carbon Black industry.

Purchase and Supplier Bargaining Power

The major raw material for Carbon Black is Carbon Black Feed Stock Oil
(CBFO) which is a special grade of oil. Due to a large quantity of CBFO
imported by the company, the company has strong bargaining power. Also
as there are 5-7 major oil suppliers in the world, the company has the
benefit of competitive environment in raw material purchasing.