Elementis Chromium
Overall volumes at Elementis Chromium were 3 per cent lower than prior year, largely due to volumes lost during the first round of price increases. The volume lost due to the de-registration of CCAs for residential use, which accounted for approximately 12 per cent of Elementis Chromium sales during 2003, was replaced by sales to Asia, albeit in lower margin sectors, by the end of the first half of 2004. Average prices improved throughout the first half of 2004 but were still 5 per cent lower than during the first half of 2003.

Demand, especially in the premium aerospace, refractory and pigments markets, has recovered in the US and Europe during the period. Global supply and demand of chrome oxide, chrome sulphate and dichromate are closely balanced and prices have moved upwards, albeit from an historic low.

Rationalisation of the industry is expected to continue, driven by both economic and environmental factors and geographically focussed on the Far East. China and Japan have become significant net importers of chromium chemicals. Elementis is now the world's largest supplier to the Asia Pacific market, which has increasing strategic significance.

Costs of energy, freight and sulphuric acid have moved upwards significantly throughout the first half year, with consequent margin impacts. Currency had a negative effect on operating profit, largely due to the weaker dollar.

Phased price increases, introduced by Elementis Chromium from January 2004, have now reversed the previous downward pricing trend. Further price increases have been announced for the third quarter and it is anticipated that prices will continue to move upwards during the latter part of the year. It is anticipated that margins will consequently improve. General market prices are increasing, availability of all chromium chemicals is tightening and producers are running at high levels of capacity utilisation.

During the first half of 2004 Elementis Chromium successfully implemented the Elementis ERP programme, the second of the four Elementis businesses to do so. It is expected that benefits from this implementation will be fully realised from 2005 onwards.

Chief Executive's strategic and operating review continues on the next page >
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