Nature of Business

Thai Carbon Black Public Co., Ltd. (TCB), a member of the Aditya Birla Group (India) which is the third largest business group of India. TCB is the group’s first carbon black manufacturing operation, and associates itself with prominent names in global tire manufacturing industry as Bridgestone, Yokohama, Goodyear, Michelin, Sumitomo, Toyo Tire etc. Today, the company has a capacity up to 275,000 metric tons of world-class furnace grade carbon black in its sophisticated manufacturing plant in Angthong. The company was established in 1978 with technical know-how from M/S Phillip Petroleum Co., Ltd., USA and commenced commercial production in 1980.The company is the first carbon black operation in the world to achieve ISO 9002 (in 1994), and the first carbon black manufacturer in Asia to achieve ISO 14001 (in 1997). Others certifications and international recognitions received are ISO/TS 16949, OHSAS 18001, ISO/IEC 17025, TPM Excellence Award, the Deming Application Prize, Thailand Productivity award, Best employee in Thailand and fifth best employer in Asia, Asia Pacific’s, Best 200 small companies under a billion of “FORBES” etc. 

Carbon Black

Carbon Black is elemental carbon in the form of extremely fine particles
having an amorphous molecular structure. It’s derived from the
incomplete combustion of through controlled process. In the older times,
the Chinese used Carbon Black produced from resins and vegetable oils in
inks and water colors. The Greeks and Romans used Carbon Black to paint
the walls of their buildings. Today, Carbon Black's biggest application
is as reinforcing filler in rubber products. Manipulation of Carbon
Black surface can enhance the physical properties of rubber. Almost all
rubber products, especially those that need to have abrasion wear
properties, use Carbon Black; hence, they are black in color. It also
helps conduct heat away from the tread and belt area of the tire,
reducing thermal damage and increasing tire life. Carbon black particles
are also employed in some radar absorbent materials and in photocopier
and laser printer toner, and other inks and paints. The high tinting
strength and stability of carbon black has also provided use in coloring
of resins and films. Additionally, carbon black has been used in various
applications for electronics. As a good conductor of electricity, carbon
black is used as filler mixed in plastics, elastomer, paints, films,
adhesives, and paints. Application of carbon black as an antistatic
agent has provided uses as an additive for fuel caps and pipes for
automobiles.

Manufacturing process

Carbon Black is produced by partial combustion of oils and pyrolysis in
the reactor. Carbon Black feed stock is suitably blended before charging
into the reactors. Predetermined quantities of process air from a
process air header system, fuel natural gas and Carbon Black feedstock
are introduced into the reactor, which has been brought up to the
desired temperature level.

At the initial stage, carbon nuclei or precursors formed from the oil
combine to form aggregates. The reaction is stopped at suitable points
by direct quenching with water, at predetermined locations with
predetermined quantities. The entire operation of flow, including the
temperature measurements is controlled by computer-supervised electronic
instrumentation.

Effluents from the reactors are essentially carbon-laden flue gases
containing some combustibles. These gases are at a temperature between
700oC and 900oC. This heat is first utilized in preheating incoming
process air in an air pre-heater and then reused to heat incoming Carbon
Black feed stock in an oil pre-heater. This process maximizes heat
recovery and process efficiency. The effluents from the reactors pass
into an inline boiler and then into a common header called smoke header.

The smoke header leads the carbon-laden flue into the main bag filter.
Inlet of the flue is controlled at about 280 degree Centigrade. The main
bag filter is a filter house consisting of multi-cylinders, where Carbon
Black is filtered. Clean gases containing combustibles pass out of the
filter to the Carbon Black pellet dryer. Carbon black is recovered from
the bag filters by reverse flow of the flue gases into the cylinders,
performed in rotation one at a time. Carbon Black thus released from the
bags accumulates in the hopper and is dropped into a pneumatic conveying
line through air lock valves. Two pneumatic conveying fans draw carbon
black from underneath the hopper.

[]

Loose Carbon Black and the conveying gases are drawn through two micro
pulverisers and transferred to the accumulator tank through a conveying
cyclone separator. The purpose of this cyclone is to separate Carbon
Black from the conveying gas. Loose Carbon Black from the cyclone
separator falls into the accumulator tank and the conveying gas is drawn
by a return fan and returned to the smoke header at the bag filter
inlet.

Carbon Black collected in the accumulator tank is in a fluffy, powdery
form, and being difficult to handle as such, has to be pelletized.
Pelletization is achieved in a proprietary machine called wet pelletizer
where the loose Carbon Black is mixed with a near equal quantity of
water and small quantities of pellet binders. An indirectly fired rotary
drum dryer is used to dry the wet pellets. Drying is achieved by burning
the part of the waste gases from the main bag filter in a specially
designed combustor. Water vapors from the dryer are drawn by an exhaust
blower and the exhaust or purge gas exits to the atmosphere.

The entire operation is completely automatic, achieved by sophisticated
electronic distributed control system of instrumentation. The dried
Carbon Black is lifted by a bucket elevator and passed through a scalper
screen — to separate lumps from the product- and a magnetic separator —
to separate accidental contamination of Carbon Black by magnetic
particles — before discharging into product storage tanks by product
screw conveyors. Lumps separated from the product are returned for
reprocessing.

The black is then packed into multi-wall paper bags, polyethylene bags
or super-sacks for dispatch to customers. The packing of paper bags/
polyethylene bags are achieved by fluidizing of Carbon Black and
super-sacks by gravity fill.

Market Structure

There are more than 100 carbon black producers worldwide. These are
categorized into Global, Regional and local players. The global players
have plants spread all over the world and operate regionally to keep the
freight cost low. Three big players – Birla Carbon, Cabot and Orion, who
together hold about 40% of the market share, dominate the market. The
global players compete on value propositions of global presence, R&D
capabilities, superior product quality and strong customer engagement.

Regional Players are medium size players operating in particular
continents or a group of two to three countries. OCI Company Ltd, Sid
Richardson Carbon & Energy, Bridgestone Carbon, CSRC and Tokai Carbon
Co. Ltd are important regional players. Some players like Black Cat
though operate from single country production facilities can be termed
as regional players because of their higher production capacities. The
regional players compete on varied propositions of price, optimum
quality and proximity to point of consumption.

Local players are manufacturers who have single country production
facilities and operate in smaller markets with very low percentage of
exports. These players are small in size and primarily compete in the
local markets on prices.

[]

Post economic crisis of 2008-09, World carbon black consumption had
shown a strong expansionary trend with 10 straight quarters of volume
growth as the industry recovered from economic crisis. However 2012 saw
a reversal of the trend again, highlighting that growth in 2011 was
largely influenced by temporary factors, economic stimulus programs of
trillions of dollars by various governments, restocking of depleted
inventories, and a moderate recovery in passenger car replacement tires.
Signs of weakness started to emerge by 4^(th) quarter of 2011, and
conditions worsened over 2012.

World economic outlook by IMF forecasts suggest 2013 will continue to be
challenging, as Japan also slides deeper into recession, Euro zone
shrinks further and ASEAN grows at a slower rate. Hopefully by 2014 the
economic policies to combat recession should result in a stable growth
over wider part of the globe. This should see some growth momentum in
carbon black market too. Over a longer term 2011 to 2015, world
consumption of carbon black is forecasted to grow at 3.9% p.a.

Imbalance in Asia Pacific Region

[]Carbon black, particularly the tire and rubber grade which accounts
for almost 93% of total carbon black consumption, is essentially a
regional market, because freight economics play a large role in price
competitiveness. Asia Pacific region, due to concentration of tire
manufacturers, is one of the largest consumer markets of carbon black
accounting for 59% of world’s production and consumption. China is the
dominating player in the market followed by India, Japan, South Korea
and Thailand.

[]While the region was largely balanced till 2010 with Chinese
consumption very near to domestic production, thereafter rapid capacity
expansion in China, primarily led by cheap availability of coal-tar, has
created a demand supply mismatch in the region. This is leading to low
capacity utilizations, severe competition and pressures on margins. The
situation aggravated in 2012, and is likely to stay or worsen in coming
years, with production in other Asian countries shrinking at expense of
increase in production and exports from China, till a balance is
restored with increase in demand.

Thailand Market

[]Due to abundant availability of rubber, Thailand is one of the major
tire manufacturing countries. It has presence of all five global tire
producers, three major regional tire producers apart from fragmented two
wheeler tire and tube producers. Thailand mainly produces PCR tires and
is a major exporter of these tires to North America and EU. The tire
segment accounts for about 79% of the Carbon Black demand in Thailand
and the balance is consumed by manufactured rubber goods and specialty
products like inks and coatings manufacturers.

Carbon black consumption in Thailand has been growing at a steady rate
in tandem with tire production, barring the dip in 2009. Between 2006
and 2011, the market grew at an average rate of 9.6%. The market demand
for carbon black is being driven by an increase in passenger car tire
output, which is estimated to increase to 3m tires in 2012 largely
driven by an increase in export shipments, and an increase in vehicle
production of up to 400,000 vehicles this year.

Thailand manufacturers are gradually losing competitiveness against
Chinese products due to costlier oil imports, freight disadvantage, and
increase in operational costs.[] In Thailand carbon black output reduced
in year 2012 despite having increased demand as the imports from China
far outpaced the demand growth. In 2012 for first time, Thailand became
a net importer of Carbon Black. Plant utilization rates are estimated to
have declined further to average 68% in 2012 as a surge in the volume of
carbon black imports.

Thailand has three Carbon Black producers

1.  []Thai Carbon Black Public Company Limited - capacity of approx
    275,000 MT/ year.

2.  Thai Tokai Carbon Product Co. Ltd. - capacity of approx 180,000 MT/
    year.

3.  Bridgestone Carbon Black (Thailand) Co. Ltd - capacity of approx
    50,000 MT/ year. (Mostly produces for captive consumption for their
    Thailand and overseas tire plants)

The increased imports from China owing to surplus capacities in China
and cheaper raw material sources emerge as the fourth key player in
domestic market.

Thai Carbon Black is the largest producers of Carbon Black in Thailand.
Being part of Birla Carbon gives a distinctive advantage of having
global foot prints and access to customers in various export markets
compared to other players in the region. The products are well accepted
and established in the international market including the Japanese
customers which form a major portion of the South East Asia region. The
company exports approx 47% of its production and is able to meet
stringent customer quality requirements through advanced TQM and Quality
Circle processes.

Looking forward in 2013, Thailand Carbon Black market is going to be a
mix story. The export tire market will largely depend on world economic
recovery which though likely to be flat in 2013, should show some sign
of stable growth in 2014. On positive side, the domestic automobile
market has a high volume of pending orders from “the 1^(st) car” project
which will make first half of the year automobile sales high. The new
capacities coming up, newer models of cars, especially, eco-car and
marketing campaign from car makers will lead to an increase in
automobile sales by 3-5% in 2013.Thailand tire market will also see
capacity expansion by existing players and new entrants in 2013-2015.
The Automobile export market will continue to grow at 20-26% increase
compared to last year. These factors should increase the domestic tire
demand and have positive impact on consumption of carbon black. During
2011 to 2015, Thailand carbon black consumption forecast is 4.3% annual
growth.

Key Success Factors

-   Robust customer engagement and regular technical collaborations with
    Key customers.

-   Excellent and consistent product quality, approved by all tire
    manufacturers worldwide enables a strong brand image in Asia Pacific
    region.

-   Major quality accreditations : ISO/TS 16949, ISO 14001, IQRS Level
    7, TPM Special award, TPM Consistency award, TPM Excellence award
    and Deming Prize

-   Low cost of production through efficient utilization of production
    facility, and continuous improvements in technology and process.
    Columbian acquisition has proved invaluable for TCB by providing it
    access to latest technology developments in Carbon black process.

-   Excellent customer services including just In Time delivery to major
    customers

-   Experienced, Qualified and motivated workforce and management team

-   Sound financial position for making required investments in process,
    technology and environment

-   Focus on sustainable development, excellent relations with all
    stakeholders, high business ethics and good corporate governance

Opportunities

-   With access to technology from Columbian acquisition, move into high
    value added products and specialty grades for various tire and
    non-tire applications.

-   Offer packaged solutions to customers with a mix of Thailand,
    Chinese and Korean products to cater to complete spectrum of
    requirements

-   Increase share with existing global customers leveraging the global
    engagements and excellent service history

-   Become a cost leader in Domestic market through technology and
    process improvements

Threats

-   Partial product substitute may be developed in long term period.
    Trends in tire labeling may prompt tire companies to switch to
    costlier, less effective but greener products like silica.

-   Stringent pollution control norms may require huge investments time
    to time.

External Factors

-   Recession in development economies, and also the regional imbalance
    in demand supply situation in Asia pacific may take much longer time
    to correct.

-   Volatility in Thai Baht exchange rate with USD, and other major
    currencies

-   Volatility in feedstock prices

-   Natural Calamities like flood, Tsunami etc in either Thailand or any
    of major export countries

-   Some countries may impose trade barriers to protect domestic
    industry.

 

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