Mark Davis, Chief Executive Officer

Good morning, ladies and gentlemen.

I'd like to cover three things today. I'll spend most of my time describing Chemtrade's business and how we have built upon our business model since our 2001 IPO.
     

Secondly, I'll talk briefly about recent financial results. Finally, I'll mention our current focus.

First let me give you a broad description of Chemtrade.

   
  Chemtrade is a diversified business that provides industrial chemicals and services to customers in North America and around the world.  We are one of the world's largest suppliers of sulphuric acid, liquid sulphur dioxide and sodium hydrosulphite, and a leading processor of spent acid in the US Gulf Coast region.  Chemtrade is also a leading regional supplier of sodium chlorate, phosphorous pentasulphide, sulphur and zinc oxide.
     
  Industrial chemicals is an industry where size and scale are important. During the five years since our IPO, Chemtrade has substantially enhanced its size and scale, primarily through acquisitions, and this is reflected in our greatly increased EBITDA, revenues and asset value. Since we've publicly released our 6 month results, this slide compares our first half 2006 numbers to 2002.
     
 

But perhaps even more importantly,

•  Our product portfolio has grown.

•  Our geographic reach has expanded across North America and been enhanced in Europe.

•  We have diversified our earnings; and

     
 

•  We have diversified the end markets we serve. For example, before the middle of 2005 approx 58% of our products were sold to the pulp and paper industry. Now that has been reduced to about 46% and we've added 2 new key markets being refineries and automotive lubricants.
   

Although we have changed quite significantly since 2001, our aggregate business portfolio still contains a key element of our original business model.

     
 

A substantial portion of our earnings are derived from contractual agreements that contain attributes that tend to mitigate, but do not eliminate, the effect of typical commodity price movements.  Initially this mitigation was provided by our key sulphur products contract. Since that time, we have bolstered this contractual mitigation by the contracts we obtained in our Pulp Chemicals acquisition and in last year's Peak acquisition.

   

I'd like to describe these contracts, as they are a significant part of earnings within our two largest reporting segments, i.e., Pulp Chemicals and SPPC.

Pulp Chemicals is located in Prince George, British Columbia. It produces sodium chlorate and crude tall oil for use in the pulp industry.

Pulp Chemicals has two 10-year exclusive contracts with Canfor. Under one agreement, Canfor purchases about 70% of our sodium chlorate capacity at a price that adjusts for changes in raw materials, namely electricity, salt, caustic soda and steam. These raw materials constitute approximately 95% of variable costs and 70% of the total cost of producing sodium chlorate.
     
 

Clearly, with Canfor purchasing the majority of the capacity and our ability to adjust the price Canfor pays for changes in the costs of the major inputs, we have significantly stabilized the earnings we can expect from these sales.

The second agreement provides us with a fixed tolling fee for processing Canfor's crude tall oil.

     
From our unitholders' perspective, these contracts substantially mitigate a significant portion of price and volume risk on the Pulp Chemicals products.
   
 

Just over a year ago, we completed the acquisition of the Peak assets, our largest acquisition since the IPO.

     
 

As you can see from this map, these new businesses took Chemtrade into new geographic areas in North America. The Refinery Services business, which is by far the larger of the two, operates from its four plants in Beaumont, Texas; Shreveport, Louisiana; Riverton, Wyoming; and Tulsa, Oklahoma. The Phosphorous Specialties business is located in Lawrence, Kansas.

   

Refinery Services processes various types of sulphuric acid – including regenerated sulphuric acid (or “regen”), merchant, and ultra pure.

The foundation of the Refinery Services business is the regen/spent acid operations. In most chemical processes where sulphuric acid is used, it is totally consumed. In other processes,

  however, the acid is only partially consumed and becomes “spent” acid. Spent acid is sent to regeneration facilities where it is then processed into merchant grade sulphuric acid. Oil refineries are the largest producers of spent acid. Refinery Services has a significant market share of the regen acid business in the U.S. Gulf Coast area, and it is the only regen facility in the U.S. Rocky Mountain district.
     
 

A key to the Peak assets is that a large portion of the earnings is generated by contracts that adjust the customer's price for changes in the cost of the major input. Refinery Services' regen business is based on 2-5 year contracts, which form the foundation of its earnings. These contracts adjust pricing to pass through changes in natural gas, the main raw material input cost. This contractual basis helps mitigate the financial impact of cyclical movements of natural gas pricing.

     
This business fits particularly well with our original Sulphur Products business. That original business is based on a contract that mitigates merchant, as opposed to regen, acid pricing movements. The contract provides that the producer of this product assume 60% of any risk or benefit of acid price movements.
     
 

Since the Peak acquisition is our most recent, let me briefly describe how these businesses fit within our business portfolio.

     
  • Refinery Services produces, sells and distributes industrial chemicals, which is consistent with our core competencies. In fact, the majority of the acquired business is based on sulphuric acid, a chemical that was already a significant part of our portfolio of products.
  • The business diversifies our end use markets. Most of the revenues are derived from the refinery industry, which adds a substantial new end market for Chemtrade and reduces our reliance on the pulp and paper industry.
  • We significantly diversify our product offering. Phosphorous Specialties' earnings, the smaller part of the Peak acquisition, are solely derived from a product (P2S5) that we did not previously market; and Chemtrade did not previously process spent acid.
  • Refinery Services incrementally expands our existing merchant and ultra pure acid businesses.
  • The acquisition improves the quality of our earnings. As I've said, the majority of Refinery Services' earnings are derived from 2 to 5 year term Regen or Spent contracts that adjust pricing to changes in certain input costs, particularly natural gas, the key raw material input.
     

Turning now to a brief financial recap.

The financial contribution of these businesses since their acquisition has been affected by the impact of Hurricane Rita, which hit Beaumont in late September, and by the aftermath, which interrupted operations for us as well as our customers until late October and continued to have flow-through effects in the first half of this year.

The financial impact on our 2005 results was significant. Although we were comparatively lucky that the plant sustained only limited physical damage, in terms of plant downtime and market disruptions, the hurricanes reduced distributable cash last year by approximately $3 million.

     
 

Although some of the effects of last year's hurricanes were still working their way through the business cycle in the first half of this year, I'm pleased to say our operations, and our customers' operations, are now back to normal, and we are beginning to see the full potential of an uninterrupted refinery services business.

   
 

The other factor that continues to affect our SHS products is the cost of raw materials, particularly caustic soda and sodium formate. Raw material costs were approximately $4 million higher in the second half of 2005 compared with 2004, and in the first half of this year, they were approximately $2 million higher than in the same period in 2005.

 

We've taken lots of initiatives to reduce operating costs and improve efficiencies, but they have not been enough to offset the higher costs and the reduced demand we've experienced from our newsprint customers.

This remains the most challenging part of our operations.
   
  Looking briefly at the results for the first half of 2006...
     
  Chemtrade generated distributable cash of $24.2 million, or 72 cents per weighted average unit. Revenue and EBITDA were $256.5 million and $34.7 million respectively.
     
  All of our operating groups reported higher revenue than last year, although other than our Pulp Chemicals group, this was the result of acquisitions.
     
In addition to the higher raw material costs and reduced demand that continues to impact our SHS business, there are some factors that were reflected in our first half results.
     
 

 

The first half of the year is when we incur our major maintenance turnarounds at Shreveport, Beaumont, Leeds and Pulp Chemicals. In addition to regular maintenance, we had identified a number of opportunities where additional, unplanned work would improve the long-term reliability and efficiencies of both the Shreveport and Beaumont plants.

     
The extra costs in the first half due to the extended Shreveport and Beaumont plant shutdowns were about $1.7 million of foregone distributable cash. We will continue our efforts to improve the reliability of these plants over the years, but have taken a very good first step.
     
  The decision to improve our plants' reliability is already starting to show a return. We were able to benefit from strong regen demand in the second quarter, especially during the end of the quarter when Beaumont was fully back on line. In fact, despite the longer than planned turn around at Beaumont, our regen volume was 10% higher than we anticipated.
     
  Despite the various challenges we faced in the first half, we generated sufficient distributable cash to satisfy our distributions for the year to date. We intend to improve our generation of distributable cash as we move forward and return to a relationship between the distributable cash we generate and the amount we pay out that is more consistent with our 5-year history as an income trust than the recent relationship.
   
 

Since our IPO Chemtrade has shown an ability to grow and growth will continue to be a major focus for us. However, growth is only possible through successful execution of what we have called “sustainable earnings”.

     
In mature businesses, such as Chemtrade's current product portfolio, the ability to execute numerous initiatives is essential to ensure the strength and longevity of the business. When we talk about a focus on sustainable earnings we are focused on executing initiatives including operational excellence (which encompasses safeguarding our employees and communities, and increasing efficiencies), cost control, effective relationship management, successfully integrating our acquisitions and incremental growth opportunities. I think our team has performed extremely well on each of these key sustainability initiatives.
     
  As we have said, we are  clearly focused on improving the reliability and efficiency of the assets we acquired last year and are spending some additional capital to achieve this result. These activities will pay off in improved operations and more reliable earnings.
   
  Looking forward, we expect the second half of the year to benefit from fewer maintenance costs, improved operating reliability and the seasonality of our regen acid. We also expect strong demand for our regen services and sodium chlorate products, but expect the seasonal increase in demand for our SHS products to be somewhat weaker than usual. Demand for all our other products is expected to be generally firm for the remainder of the year.
     

From a cost perspective, we continue to expect the cost of caustic soda to trend lower; however, we expect ongoing cost pressures on sodium formate, zinc, freight, and potentially, salt.

Overall, we still expect to generate more distributable cash in the second half of the year than in the first half.
     
 

Chemtrade has certainly faced its share of issues over the past year. However, we believe that we continue to improve the strength and sustainability of Chemtrade's earnings and that the initiatives we have taken to strengthen our businesses will provide long-term growth for unitholders.

Thank you for your attention.