3.  Operation of business of each product line

3.1 Natures of products

3.1.1 Natures of products in each product line

The natures of products manufactured and distributed by the Company and
the subsidiary are as follows:

(1) Pre-Stressed Concrete Wire

  Diameters are from 4, 5 to 7 millimeters. Used in the fabrication of
  piles, electric poles and pre-fabricated floor slabs.

(2) Pre-Stressed Concrete Strand

  Diameters are 3/8, 1/2 and 0.6 inch. Used in major construction such
  as bridge beams, large piles and silos.

(3) Tyre Bead Wire

  Used in the inflated tyre production industry to enable the rubber
  tyre to fit more tightly to the tyre rim. Diameters range from 0.7 to
  1.4 millimeters.

(4) Welding Wire

  Diameters range from 0.8 to 1.6 millimeters. Used in the metal welding
  industry, e.g. car assembly, ship building, containers, water
  transmission pipes.

(5) Galvanized Wire

  Used in the construction and telecommunications industries. Part of
  the target customers belongs to the same group as that for PC-Wire and
  including manufacturers of telecommunications transmission cable. The
  Company’s Galvanized Wire production was paused since mid-1998.

3.1.2 Production flow

[TABLE]

Brief descriptions

Wire Rods : Raw materials used in the production

Pickling : Wire surface cleaning and heat drying

1^(st) drawing : First drawing of wires to reduce them down to the size
required before going to the next production process

-   PC-Wire

Straightening : Wires are to be straightened

Bluing : Heat treatment of wire at 400°C to relieve stress after
straightening

-   PC-Strand

Stranding : 2 or more reduced sized wires stranded together

Stabilizing : Heat treatment of wires for stability to suit their use

-   Tyre Bead Wire & Welding Wire

Patenting : Heat treatment of wire at about 1,000°C to soften them
before undergoing the 2^(nd) drawing

2^(nd) drawing : Another drawing of wires to reduce their size after the
1^(st) drawing

Bronze & copper : Coating of the wire surface with copper

Coating

-   Galvanized Wire

Galvanizing : Coating of wire surface with zinc

3.1.3 Customer classification

The Company’s customer target groups are classified into 3 groups as
follows:

(1) The group of manufacturers of piles, electric poles, pre-fabricated
floor slabs, bridge beams and car tyres

(2) The group of construction contractors and bidders with government
authorities

(3) Various government authorities, e.g. the Electricity Generating
Authority of Thailand, the Metropolitan Electricity Authority and the
Provincial Electricity Authority

The subsidiary distributes its products directly to the customers and to
the Eastern Wire (Public) Company Limited, specifically for the
government sector, e.g. the Metropolitan Electricity Authority and the
Provincial Electricity Authority.

3.1.4 Methods of distribution

The subsidiary company distributes each product directly to the
customers and to the Easter Wire (Public) Company Limited as follows:

Pre-Stressed Concrete Wire

(1) Distribute 90 per cent of the PC-Wire to manufacturers of Pressed
Concrete.

(2) Participate in bidding with the government sector for 10 per cent of
the PC-Wire.

Tyre Bead Wire

Distribute 100 per cent directly to car tyre manufacturing plants.

Welding Wire

Distribute 100 per cent directly to distributors.

Galvanized Wire

Distribute 100 per cent to Pressed Concrete manufacturers.

3.1.5 Investment promotion certificate

The Rayong Wire Industries Company Limited, the subsidiary company, was
granted interests by the Board of Investment for the business of the
production of PC-Wire, Tyre Bead Wire and Galvanized Wire since 1996.
The interests still enjoyed by the subsidiary company comprise:

(1) Exemption of juristic person income tax on the net profit for a
period of 8 years from the date income is first derived from such
activity.

(2) Dividends are exempted from computation of taxable income throughout
the period of the promotion.

(3) A 50 per cent reduction of the normal rate of juristic person income
tax on the net profit derived from the promoted activity for a period of
5 years commencing from the expiry date of exemption of juristic person
income tax.

(4) Permission to deduct for the purpose of assessing juristic person
income tax an amount double the costs of transportation, electricity and
water supply for a period of 10 years from the date income is first
derived from such activity. The interests granted to the Rayong Wire
Industries Company Limited by the Board of Investment in respect of
exemption of juristic person income tax on the net profit shall cease in
2003. The interests in respect of a 75 per cent reduction of the normal
rate of import duties for raw materials for production of PC-Wire has
ceased in April 2000 as the raw materials could be produced
domestically, resulting in the company’s having to pay the import duties
in full.

However, the company has during the previous year exported the PC-wire
to overseas markets, thus entitled the company to an exemption of import
duties for raw materials imported for production for export. The
entitlements shall expire in August 2004 for PC-Wire and PC-Strand.

3.2 Marketing and competitions

3.2.1 Marketing and competition strategies

The Company’s marketing strategies may be summarized as follows:

(1) All products of the Company have been certified by the ISO 9002.

(2) All products of the Company have been certified in respect of
quality by the industrial standards of the Ministry of Industry.
Moreover, their production also meets international standards such as
ASTM, BS, AS, hence their quality is assured.

(3) The Company has after-sale services to monitor the sold products on
a regular basis.

(4) The Company has a policy to set relatively the same prices as the
competitors’ to maintain the customer base and the market share, and to
offer special prices to customers with good payment records.

(5) The Company is a manufacturer and distributor of more types of
products than the competitors who manufacture and distribute PC-Wire
only. Moreover, the Company has an advantage in being the only
manufacturer of tyre bead wire in Thailand.

3.2.2 Competitions

PC-Wire

There are currently 7 manufacturers of PC-Wire in Thailand. Competitions
are the pricing strategy adopted by domestic manufacturers as well as
imported products with similar prices to domestic ones, despite the 20%
import duties required by the Government.

The factors effecting the business operation are the changing in raw
material prices that directly influences the product costs, the
flexibility of the foreign exchange rates and the impact from the
products imported by customers from AFTA member countries that enjoy a
5% import duties as reduced from 20%.

The total demand of PC-Wire is currently about 96,000 tons per year. The
Company has a market share of about 9%. Most customers of the Company
are those dealing mainly with the government sector. As PC-Wire
manufacturing requires a rather high investment coupled with the current
aggregated capacities that can adequately serve the demand for many more
years, it is unlikely for a new competitor to enter into this industry.

Steel rods may be used in place of PC-Wire, but it shall take longer
working time and a higher cost. PC-Wire therefore remains a product
widely required at present.

The market is currently that of the buyers since the overall demand is
much lower than the production capacities. Moreover, imported PC-wire
with cheap prices is also available.

Trends of future industrial conditions and competitions depend on the
government policy whether which part of the economy shall be stirred up.
But in the overview, the PC-wire consumption is still stable at
approximately 96,000 tons per year for some time. In such situation, the
Company shall maintain its existing market share of 9% and turn to find
other products.

Tyre bead wire

The Tyre Bead Wire industry is dependent upon the growth of motor
vehicle industry. Domestic manufacturers also emphasize on export of
tyre products and continually increase their capacities, thus increasing
the demand therefor. The overall market in 2000 is about 16% higher than
that in 1999.

Currently, the Company is presumably the only manufacturer of Tyre Bead
Wire in the country. Its market share is about 16% while the rest is
imported from overseas, e.g. Korea, Japan, India etc. since the prices
are cheaper and with a problem in quality that is highly expected by
customers.

As Tyre Bead Wire manufacturing requires a rather high investment
coupled with a rather complicated manufacturing process, it is therefore
necessary to import the product or implement overseas manufacturing
technology, and to train personnel on specialized aspects. If the
production is ineffective, wastes from production shall be very high,
hence there is very little chance for a new competitor to enter into
this industry.

There is no replaceable item for this product since in the manufacturing
of car tyres the quality of the Tyre Bead Wire is clearly specified and
not replaceable by any other type of wire.

The bargaining power seems to belong to the buyers since there are
cheaper products from overseas, and if the purchase is for manufacturing
of car tyres for export, a 20% reduction of import duties shall be
granted. But the Company has an advantage in that customers can manage
their inventories more conveniently than ordering products from
overseas. The Company also provides expeditious support to customers in
case there is any problem with the products and customers can readily
use the products without having to undergo the wire assembling process,
unlike the imported wires that assembling time and cost are involved.

Trends of future industrial situation and competition are still good and
the demand is increasing. However, the product quality and the
after-sale services shall be significant contributing factors in the
competition.

Welding Wire

There are so far 4 manufacturers of Welding Wire in the country, namely
Messrs. Yawata (Thailand) Company Limited, Kobe Mixed Wire (Thailand)
Company Limited, Usha Siam Steel Company Limited and Rayong Wire
Industries Company Limited. The 4 manufacturers hold about 94% of the
market share and the remaining 6% are imported from other countries,
e.g. Australia, Korea, USA, Taiwan, Italy, Sweden etc.

The import duty for this product is set at 20% (except in some AFTA
countries where only 5% import duty is levied). This, coupled with the
risks from flexibility of the foreign exchange rates for imported
products, is advantageous to domestic manufacturers. The Company
forecasted that the domestic demand for Welding Wire in 2000 is around
8,000 tons with a growth trend of about 10% in 2001.

Since Welding Wire is used in various types of industries, there are
several distribution channels in many industries. The distribution
system should be developed to directly reach the users, through
distributing agents.

Galvanized Wire

The Galvanized Wire industry covers telecommunications business and
various public utilities. Galvanized Wire is used in electricity
transmission and telephone lines. The Company forecasts that its market
shall be growing on a continuous basis. There are currently 6 domestic
manufacturers that can meet about 80% of domestic requirements. The rest
is imported mainly from Korea and Taiwan.

3.2.3 Marketing characteristics of customers of each product

PC-Wire

Customers of this product are classified into 3 groups as follows:

(1) The private sector, comprising manufacturers of pressed concrete
    piles, electric poles, pre-fabricated floor slabs, bridge beams and
    others relating to all types of pressed concrete work, representing
    about 94% of the total order.

(2) The government sector, comprising the Metropolitan Electricity
Authority and the Provincial Electricity Authority, representing about
4% of the total order.

(3) The export sector, comprising the Lao Electricity Authority,
representing about 2% of the total order.

Tyre Bead Wire

Customers of this product comprise factories of about 20 manufacturers
of all types of tyres. The Company is the only manufacturer of this
product in the country.

Welding Wire

This product is used in all types of metal welding, covering almost all
types of industries and users, e.g. motor-vehicle industry and various
public utilities. Its distribution is carried out through distributing
agents.

Galvanized Wire

This product is used in construction and telecommunications industries.
A part of the target customers belongs to the same group as that of the
PC-Wire, including manufacturers of telecommunications transmission
cables. The Company ceased producing Galvanized Wire since mid-1998.

3.3 Product procurement

(1) Production and production capacities

The subsidiary company is located at No. 5, I- Five Road, Tambon
Maptaput Amphur Muang, Rayong. Its total production capacities are
39,600 tons per year, and actual production capacities are 13,285 tons
per year, classified by product as follows:

  ------------------------------ ------------------- ------- ------------------ --
                                                     (Unit :                    
                                                     Mt.)                       

  PRODUCT                        2000                                           

                                 MAX CAPACITY                PRODCUTION         

  Prestressed Concrete Wire      13,200                      7,909              

  Prestressed Concrete Strand    14,400                      2,317              

  Tyre Bead Wire                 6,000                       2,392              

  Welding Wire                   1,200                       667                

  Galvanized Wire                1,200                       -                  

  Total                          39,600                      13,285             
  ------------------------------ ------------------- ------- ------------------ --

(2) Raw materials and types of raw materials

-   Piano Wire Rod with diameters of 9, 10, 11 and 13 millimeters, used
    in the production of PC-Wire and PC-Strand.

-   High Carbon Wire Rod with a diameter of 5.5 millimeters, used in the
    production of Tyre Bead Wire.

-   Low Carbon Wire Rod with a diameter of 5.5 millimeters, used in the
    production of Welding Wire and Galvanized Wire.

Currently the Company’s consumption of raw materials represents 64 per
cent of the total production costs. The above-mentioned raw materials
are not replaceable by other materials since technologies for the
production of various steel wires are not changing rapidly as those for
other products.

Most raw materials, representing 30 per cent of the total procurement,
are imported from overseas, e.g. Indonesia, Malaysia England etc. In
2000, the Company commenced using domestically produced raw materials,
representing 70 per cent of the total procurement. It was found that
some companies were producing substandard products affecting the product
quality.

(3) Environmental Effects

  Effect from production process to environment can be determined as
  follows;

1.  Pollution in the water such as acid content and volume of dregs
    waste water.

2.  Pollution in the air such as hydrochloric arising from cleaning
    process

3.  Pollution arising out of trash and industrial wastes

Measures taken by the Company to reduce effects are; hiring GSG
(Thailand) Company Limited to set up plans to handle the environment
requirements in conformity to the Terms used by Environment Maintenance
Committee, hiring Jenco Company Limited to handle sewage in order to
comply with the standard regulated by Industry Ministry, and hiring
National Petrochemical Public Company Limited to monthly examine quality
of waste water in accordance with the Terms issued by Industrial Estate
Authority of Thailand.

Results achieved by the Company for environmental conservation are
detailed herewith;

1. Air pollution, the Company has controlled it by means of Scrubber at
all point where pollution may arise and measurements are made in
accordance with the Standard of Industry Ministry.

2. Waste water from production process, water used in process is
chemically treated to conform to the Standard of Industry Ministry
before being release out of the plant.

hailand

3. Pollution arose by trash and industrial waste, trashes and wastes
shall be selected separately and stored properly before being eradicated
as per Standard of Industrial Estate Authority of Thailand