Good day, ladies and gentlemen. And welcome to the Q1 2008 Albemarle Corporation Earnings Conference Call. My name is Cynthia, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. [Operator Instructions]. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host, Ms. Sandra Rodriguez, Director of Investor Relations. Please proceed. I would now like to turn the call over to your host, Ms. Sandra Rodriguez, Director of Investor Relations. Please proceed.

Thank you, Cynthia. Good morning everyone, and thank you for joining us today for a review of Albemarle's first quarter results, which were released after the close of the market yesterday. Our press release contains preliminary results for the quarter, and this information is subject to further review by the Company and our auditors as part of our quarter-end review process. Please note that we have posted supplemental sales information as well as reconciliations for net debt and EBITDA on our website under the Investor Information section at www.albemarle.com. I'd also like to caution that the remarks today contain forward-looking statements. Factors that could cause results to differ from expectations are listed in our Annual Report on Form 10-K. Participating with me on the call this morning are Mark Rohr, President and CEO; John Steitz, Executive Vice President and COO; and Rich Diemer, Senior Vice President and CFO. Now, I'd like to turn the call over to Mark.

Thanks, Sandra, and good morning, everyone. We're pleased to have the opportunity to share our first quarter results today, and we all look forward to answering your questions after a few remarks. Before I comment on Albemarle's consolidated results this quarter, I will mention a few strategic initiatives. First, you may have seen our recent press release announcing we have signed a letter of intent to acquire Sorbent Technologies. Sorbent is a full-service mercury control provider for coal-fired power plants. Combining Sorbent's proprietary technology with Albemarle's experience in commercializing innovative new technologies provides a great opportunity for us. We're excited about shaping this new market for bromine, one that could significantly expand the demand for US bromine near term and global demand over the longer term. While this acquisition is small in comparison to others we have done, it will be a good strategic fit in our bromine portfolio and has tremendous growth potential, which is being driven by Federal and state regulations to control levels of mercury emitted into the atmosphere. These regulations, which have already begun in some states this year, will rapidly expand throughout the United States in the next two to three years, creating step out growth prospects for companies participating in creating solutions for power generation. We have commenced due diligence and expect to close the Sorbent acquisition during the second quarter. Another exciting strategic project we have underway is the expansion of our antioxidant plant in China. Our recent acquisition of a majority ownership position in our Jinhai joint venture, coupled with this significant expansion, will solidify our leadership position in Greater China. Our consolidated results include an after-tax charge of 2.1 million, or $0.02 per share for costs associated with the consolidation of a number of our offices. Looking ahead, we expect to…

Thanks, Mark. Good morning, everyone. Before I go into the segment results for the quarter, I would like to comment on the raw material and energy costs as well. The unprecedented escalations we're seeing this year are broad based across most materials and affecting all three of our business segments. Raw material and energy costs are up over $52 million in the first quarter of 2008 compared to the similar quarter of last year. About half of that increase put significant pressure on our Polymer Additives and Fine Chemicals segment performance this quarter, which I will address shortly. The other half is in metals and rare earths consumed our Catalyst products. With crude oil approaching $120 a barrel and natural gas exceeding $10 per million BTU, we do not foresee the headwinds slowing as these costs push through our supply chain. To weather this inflation, we will continue to work extremely hard at offsetting most of this material and energy inflation with pricing and cost saving initiatives. I will begin with our Fine Chemicals segment, reporting net sales for the quarter of $147.5 million, an increase of 6% year-over-year and 12.5% sequentially. Segment income for the quarter was $21.5 million, up 22% over last quarter, improving segment income margins to 14.6%. Double-digit sequential improvement in Fine Chemicals' top and bottom lines demonstrates very solid performance in the face of escalating raw material, energy, and transportation costs. Increased pharmaceutical and agricultural intermediate sales, as well as pricing gains achieved in some of our performance chemicals sectors, helped offset raw material headwinds. Our completion fluids sales lagged the first quarter '07, but continued to show sequential improvement, particularly in the Gulf of Mexico, where we are starting to see shifts to more deep-well drilling in high-pressure formations, one of the benefits to…

Thanks, John, and good morning to you all. The items I would like to highlight on today's call include discretionary expense control, taxes, cash flow, and our quarter-end balance sheet and financial position. Unallocated corporate expenses were 12.8 million in the first quarter, down 1.9 million from the prior year and essentially flat with Q4 2007. Anticipating the strong material cost headwinds we have experienced and the guarded economic outlook we are all reading about in the paper, we put a stranglehold on all discretionary spending companywide and sought to keep spending flat with Q4 ex-finance -- FX exchange impacts. The SG&A leverage we achieved at 9.5% of net sales versus 10.6% in Q1 last year is a reflection of this cost discipline. We intend to continue to keep our eye on the ball in this area and are launching several companywide cost efficiency initiatives as it relates to our operational and transactional processing efficiency. Taxes. Our effective tax rate for the quarter on a reported basis was 21.8%. It is 22.3% if we adjust for the tax benefit related to the special item charges for severance. The year-over-year improvement in our quarterly effective tax rate is principally due to the full year of benefit we will have from our Belgian-based trading and finance companies. Our tax rate is lower than my previous estimate of 23.5 to 24.5% communicated on our year-end call based on our current forecast of the level and mix of income and the benefits from our tax planning actions. Our EBITDA this quarter is 120 million, up 8% from last year and 12% sequentially. We ended the quarter with cash and equivalents of $135 million. CapEx for the quarter was 20 million and our full year CapEx plan is now 90 to 100 million. Depreciation and…

Thank you, Rich. Okay, we would like to open it up for your questions now. Question And Answer

Thank you. [Operator Instructions]. Your first question comes from the line Jeff Zekauskas from JPMorgan. Please proceed.

Hi, good morning.

Good morning, Jeff.

In the Catalyst area your volumes were up 3.4%. I would have thought they would have been stronger with the new hydroprocessing catalyst capacity you brought on. Were there parts of the catalyst business that were up and parts that were down and what were they, and how many tons of hydroprocessing catalyst that you sell?

Well, Jeff because of competitive nature HPC we really wouldn't want to broadly broadcast the actual volume, but HPC volumes in the first quarter was down year-over-year, okay slightly I'd say in the range of about 5%. But we still in '07, we... that plant was sold out, so fortunately we had the new plant that are kicking in the first quarter and we were able to make product for the growing volumes there. But your observations about the overall catalyst business are right on because the FCC catalyst volumes were down year-over-year, and there was a big mix effect, because our FCC volumes are 4x to 5x of what our HPC volumes are. So that, hence gives you the net volume impact that you observed.

I'm sorry; you said HPC was down 5% or up 5%?

Down year-over-year 5%, but up sequentially like 25%, 30% in that range.

Sequentially, all right. Secondly, a question for Rich, how did you... how did their shares outstanding get to 93.7? I thought you bought shares from Gottwald family in February?

You are right Jeff.

So, on an average basis, why would your shares go down as much as they did?

The calculation of EPS based on average shares. So it wasn't the full amount that is breaking it down, but net-net I think it was the pro rata amount and you will see that more fully reflected as the year goes on.

What I mean is that if you bought 4 million shares in, say the first two months, right, wouldn't that just drop your shares outstanding by about 2.7 million?

But then you have certain buybacks we had during the course of last year that weren't fully reflected then, right. So that all kind of catches up and net-net you get the rest of the reduction that we had.

So what are your actual fully diluted shares or your actual average shares right now?

I know we had 92.5 outstanding at the end of the quarter, I believe.

92.5?

I think that's what it was.

All right. I will get back in the queue. Thank you very much.

Your next question comes from the line of Mike Judd from Greenwich Consultants. Please proceed.

Yes. Good morning and congratulations on a good quarter.

Thank you, Mike.

You did a good job buying back shares last quarter, and you talked about your net debt-to-total capital. Given the gyrations and the volatility that we've seen in the overall stock market, would you be willing to step up to plate again? Should we have another swoon in the market and acquire additional shares? Or are we at a point now where there are other things that you would prefer to do with the cash that you are generating?

Mike, this is Mark Rohr. We went back to the Board and upped our authorization to 5 million shares. So we are standing by and we feel that the, probably speaking our share price remains undervalued. But having said all that, we continue to look at lot of acquisitions. So, I think as we go forward, you are going to see measured movement on our part to use that cash, to grow the company through acquisitions organic growth, capital; Rich talked about briefly. And then as we feel appropriate to be back and buying shares as well.

Okay. And then just secondly in the Catalyst business, I wondered if you could just give us an update on what business conditions look like in April and what your expectations are May and June?

Starting out in our Catalyst business, April started out pretty strong, but you have to keep in mind that we are anticipating our HPC volumes to dip in the second and third quarters and picking up in the fourth quarter. So overall, our projections for the year are intact. But generally costs of company were off to a start in April, not only in Catalysts but also in our Polymer Additives businesses as well.

And Mike, I think you know that, while all these refineries take their outages, as they prepare for gasoline season. So, there is this natural sort of ebb and flow of HPC volumes that John was talking about, strongest in the first and fourth and weaker in the second and third.

Thank you very much for the help.

Yeah. Well thanks Mike.

Your next question comes from the line of Bob Koort from Goldman Sachs. Please proceed.

Thank you, good morning.

Good morning, Bob.

Bob, good morning.

Could you guys talk a little bit about what you are seeing on new refineries and what your success rate is bidding on Catalyst charge to those new refineries that might be built in the emerging market?

Yes, you bet Bob. In fact, we just had a review of our UOP alliance the other day, and our UOP alliance in hydrotreating continues to gain a lot of victories, driving primarily our technology and it's a new refining throughout India and Middle East. So we feel we're making a lot of good solid gains there and this is creating a pretty bullish longer-term view for us.

Hey, winning a disproportionate amount relative to your install base today, or is it --?

We're winning at a rate that's probably 20% to 30% higher than our traditional share in that market. So we feel pretty good about that.

And on polymer additive, I know you will be reluctant to give us specific margins by specific application or product type. But, can you talk about maybe where there is the greatest variation in profitability in that product line? Your margins have obviously come down quite a bit. Is it broad-based, or is there one or two particular product lines that are taking the lion share of that erosion?

Yeah, that's a great question. I think the majority of the hit we're seeing… we're seeing a lot of inflation in phosphorus and related products so phosphorus flame retardant business continues to struggle. And in our stabilizers and curatives business where the whole phenol chain kicks in as oil went on so rapidly in the first quarter, that business is struggling and there is basically a built-in lag there that we see in terms of getting that pricing up. But we seem to be so far a successful. We're getting some of our bromine flame retardants prices up as we speak and we're also successful in some of the stabilizers and curatives and antioxidant businesses. So we feel pretty good about that. Overall, I think we've seen with this margin erosion in our polymer additives business. I think there is going to be probably towards the second half of the year where we see margins up to more acceptable levels. So in that might being in the 15.5% to 16% range, but we do for the year see good sequential improvement as the year progresses in polymer additives.

And then last question if I might, for Rich. Obviously, you had some successful belt tightening, you mentioned maybe pinching up the belt a bit more, you've got the headcount reduction that you took the charge. What can we expect on talked metrics [ph] as we go into the second half of the year?

What I'd tell you Bob is that I think three to four quarters in the last five years, we've kind of hit the glass ceiling that we call it which is about 9.5% SG&A to sales and we were there again this quarter. Some of the things we're looking at and I think I probably got to say watch this space because we'll be talking more about this at our shareholder meeting, at our investor meeting in May, our design to breakthrough of glass ceiling so to say. So we're looking at things both operationally and our footprint… manufacturing footprint and also SG&A effectiveness that will… that we think will have the major impact on that as we go into the future. Now these are things like implementing best practices, fully integrating our acquisitions looking at the potential of kind of closed arbitrages in terms of where we run our transactional process of that I think. So hopefully, that's a little bit of allure to get people at our investor meeting in May.

Got it. See you then here in a couple of weeks.

Thank you, Bob.

Your next question comes from the line of Laurence Alexander from Piper Jaffray. Please proceed. Laurence Alexander - Jefferies & Co.: Good morning, actually Jefferies. Good morning.

Good morning, Laurence. Laurence Alexander - Jefferies & Co.: Just wanted to follow up on a couple of points. First of all, on the raw material headwinds for this year, was that including or excluding moly?

That includes it, Laurence. Laurence Alexander - Jefferies & Co.: So, what would it be excluding moly?

Probably 160 versus 190. Laurence Alexander - Jefferies & Co.: And given the rapid increase in your estimate for the raw material costs, I mean each time I talk with you it seems to move higher. How are you thinking about your longer-term segment targets, I mean and your margin targets for this year and then for three, four years down?

Let me start this off and John may have a few comments he wants to throw in, Lawrence. But you recall that as we ended last year, I think the number we threw on the table was 80 million was our first tranche, our first cut at this number and that number has gone up from 80 to 190 in literally three months. And so the rate inflation really is frightening. And as John mentioned earlier, the team is working hard to get ahead of that and in some areas we have been able to do that, but it's taken its toll quickly in polymer additives and in some fine chemicals. Broadly speaking, we don't see this as being, if you take out some of this intermediate period, we don't see this as being something that should change overall margin targets, overall. There should be a reason, it should. We are not disadvantage to anyone. In fact, we think we have some solid advantages in a few areas. So I don't think it changes the margin target, but that rate of inflation is a pretty frightening thing. And it can cause people to do few good things and make mistakes. So we are just very nervous about how we manage this transition to some higher level of cost, that's more stable. So John, do you want to make any comments on that?

Yeah. I think it hasn't altered at all our views on the business segment. So I think in polymers, there is a bit of a lag we are dealing with here, Laurence and really that's about it. Laurence Alexander - Jefferies & Co.: And if I recall properly on the moly side, you have more trouble passing through those costs when prices are volatile. When your customers sometime pushback on the swing?

Well, that used to be case, but now we have really instituted more real time pricing mechanisms particularly in whether that volatility exists. But that used to be the case years ago, but no longer…

I think the takeaway on this Laurence today is that, when we used to be talk about inflation with you guys we would talk primarily about metals, because that was the issue that John and team were most engaged with. Today, what we're seeing is inflation everywhere and so it just really permeates the entire aspect of everything we buy. And I think many company's are seeing this. So, management becomes actually more complicated scenario as John is talking to. So, we actually are, I don't want to say metals on issue, ATH or something we struggled a bit with. But broadly speaking it's the nature and the scope of inflation now that's causing us the biggest challenge. Laurence Alexander - Jefferies & Co.: Okay. And then lastly, John perhaps if you could just give us a little bit more detail on the demand outlook for some of the smaller businesses both in Fine Chemicals and in curatives and stabilizers?

Yes, let me, I will start with Fine Chemicals once. Basically we are seeing pretty good demand in bromine. We're seeing as a result of that pretty good pricing momentum, particularly out of China on pricing. So, overall the cost of bromine changed pretty solid including a pickup in activity around our clear brines business. So, it is down year-over-year, but we're seeing nice improvement on a sequential basis in performance chemicals. In our Fine Chemistry business, we are getting really a hyped up about some of the new opportunities, not only in Ag, there is some proprietary work we're doing an Ag for some big Ag companies which is very exciting for us, but also in Fine chemistry. We've announced a number of kind of branding opportunities with Anthera and a smallpox vaccine with SIGA where J&J is actually involved in that and... so we're getting really pretty pumped up about the prospects of commercializing our pipeline in Fine Chemicals. The Polymer Additives business is the biggest volume, because all you have to do is listen to CNN for a little bit and you go, my god what is going on out there, but we are continuing to see a lot of resilience in our Polymer Additives volumes and we're starting our April pretty strong. So over all brominated flame retardants, volumes we see a good year-over-year volume growth, I would say more moderate sequentially but good year-over-year volume growth there. The mineral flame retardant business was soft in the first quarter, and I think that's a pretty good reflection of a couple of markets, home building and automotive. Automotive was in pretty sad shape over the last few months. So with that said, pretty good strength in electronics and maybe little weaker in the construction side I think. Laurence Alexander - Jefferies & Co.: Okay. And then just to flog the horse a little bit; if the curatives and stabilizes with more niche market they are holding up fairly well?

Yeah, those are holding up pretty well. We got a new product curative product that we call SD10, we made a small announcement on that about a month ago and a lot excitement over that is for lining, for pickup truck linings and things like that, very durable curative, very broad based product that does what a good jobs. So, overall curatives we're pretty excited about it. The antioxidant business volumes is held up pretty strong in China and that business continues to do as we had expected when we initially did the deal. So that's meeting our expectations there. Fuel business, fuel antioxidants has been pretty as well. Laurence Alexander - Jefferies & Co.: Okay, thank you.

You're welcome.

Your next question comes from the line of Jason Miner from Deutsche Bank, please proceed.

Good morning.

Good morning, Jason.

Good morning.

Just re-circling to the raw facts. I wonder are you making any structural changes in either how you buy or how you sell your products in like this new environment.

Jason, let me give that a shot, I think if you look broadly speaking we've been very successful in creating pressure on suppliers by bringing new people into the market and things like that. We've done a good job collaring our raw materials so the rate of inflation would be checked or limited. But those days are gone. I think we're seeing…Everyone out there is desperate to cover this costs, so the market even if it's a contractual market it has just a lot more volatility to it and supplier who are demanding it, have the ability to past new cost at a faster pace indeed historically. So yeah we continue to do everything we can, but I think in this period of as John said hyper inflation, the willingness on the part of suppliers to seek incremental volume at the expense of potentially foregoing the ability to past through our cost in just not there.

The only thing I'd add, Jason is we have made an absolute practice, a disciplined practice at making sure that our purchasing leadership is communicating what is going on in these raw material and energy markets almost on a daily basis. We want to make sure all our global sales and marketing and commercial people are aware of what's going on. So a good, solid explanation and rationale can be given to our customer base. So they understand what's happening here. I think that's probably the most significant behavioral change we have enacted in over the last six months. We have done it on a more routine, more processed way, as the recognition of this issue is probably one of the most important aspects and that especially a chemical company can demonstrate right now.

Well, it's very clear. Thank you. It sounds like it would be fair to characterize the selling environment as broadly supportive amongst your competitors in passing these sorts of things through?

Two varying degrees, I would say. Yeah.

Are there any specific trouble areas that you'd highlight where you folks might be trying to take share in this environment?

Well. I can't say that in this environment some of our competitors would deliberately try to take share, but I do know that the cost inflation in FCC catalyst has been higher on an incremental and on a sequential basis than any of our other product lines. So the pricing gains we have made in FCC catalyst have not covered the raw material inflation in that sector on a sequential basis. So there has got to be a recognition of those input costs that are going up dramatically and something has to be done about it.

Okay. Yeah, that's helpful. And then, just to focus on catalyst for a minute knowing that refiners are facing negative margins at the moment. I know this is a question you address often, but can you just remind us how that persist, how long does it impact you, how does this impact HPC versus FCC, how should we think about that kind of environment for your customers?

Well, HPC definitely was the more sour crudes. The importance of performance there becomes more and more important everyday because regulations are getting tighter, the crudes is getting more sour and the constraints and pressures on the refiner becoming even greater. So, the catalyst performance there is more and more important. On FCC, as the crudes have gotten heavier, more volatile, there really is, you have to have a robust high performance catalyst in there to do the job. So, that has only been heightened with the declining the margins at the refiner level.

Okay. That's clear. And then lastly, can you help us gauge the size of the FX tailwind, I think there was if I understand correctly tailwind in catalyst, sort of an earnings level for the quarter?

We don't really talk about earnings. The impact I would say on the top line was 4% for the whole company. It wasn't disproportionately different than the catalyst business. I would say any attempt to stab at the bottom line impact, you then have to counter act with the fact that, the lower dollar and what that's doing for oil cost and gas cost. So, if that 4% top line or slightly that's in the third of our top line total growth is because of the weaker dollar.

We're pretty naturally hedged because we've got, we have sales in Europe and we also have production in Europe, we have lot of expenses in Europe. We've broad base, so that's just to accentuate Rich's comment there is, creates enormous natural hedge for us against the Euro.

Okay. That's very helpful. Thanks a lot.

Your next question comes from the line of Mike Sison of KeyBanc. Please proceed. Michael J. Sison - KeyBanc Capital Markets/McDonald: Hey, good morning. Let's consider on a tough environment. In polymer additives, you talked about sort of strong pricing, you had price mix only up 2.4%. What was sort of the mix negative in the quarter?

Yes, Mike, good observation. Year-over-year, our volume was up, mostly it was tetrabrom which is the lower priced product de facto. So that was probably the biggest mix effect that we had year-over-year. But sequentially, prices in bromine flame retardants were flat. Michael J. Sison - KeyBanc Capital Markets/McDonald: For the squeeze in polymer additives profitability year-on-year going from let's say 16.07 to 12.02, that's mostly raw materials?

Well, yeah, I'd say mostly raw material and stabilizers and curatives, but there is also another effect that we haven't really talked about is year-over-year our production volume was significantly down like 15%. Michael J. Sison - KeyBanc Capital Markets/McDonald: Okay.

So our volume in polymer additives inventory was down, okay. Because as we mentioned sales were up, production was way down, it doesn't really show in our numbers because that backs and the raw material inflation is close to our working capital that was very significant. Michael J. Sison - KeyBanc Capital Markets/McDonald: When do you think via pricing you can sort of close the gap between raw materials, or can you close the gap this year in polymer additives?

No, we believe we can't. We believe it's just going to take some more time to be really that stabilizers and curatives business. We're gaining a bit of traction out of the gate here in the first quarter in bromine flame retardants and we are getting prices up, not to the level of our announcement but I would say half of that level. Michael J. Sison - KeyBanc Capital Markets/McDonald: So the operating rates for bromine flame retardants are what 70%, 80% and do you think that will continue and improve as the year progresses?

Yeah, we believe so. That's the current view right now, Mike. We had a good what I would inventory correction in the fourth and first quarters, we pretty well work through that, so we got to keep our plants running pretty hard. Michael J. Sison - KeyBanc Capital Markets/McDonald: So profitability year-on-year maybe start, should improve in the third quarter, right. But in the second quarter probably still a little bit... probably still squeeze a little bit year-on-year.

Yeah, but we were hoping for some improvement profitability wise in the second quarter with even greater improvement in the third quarter. Michael J. Sison - KeyBanc Capital Markets/McDonald: Okay. And you talked about earlier, I think Mark that you though comfortable with the outlook for HPC for the full year. Could you update us on how the order bidding is for the expansion and you start to use to give us percentages of how you felt it could be by the end of the year?

I want to let John do that.

Yeah, thanks Mark. Our view and this might seem kind of boring figure, but our view hasn't change over the last few months. So from our last quarter and last quarter's call, we still have a consistent view on HPC, so that we're talking 40% of that capacity occupied this year with the balance in '09. Michael J. Sison - KeyBanc Capital Markets/McDonald: Okay, and then Rich, you had some other income that was sort of a positive that could you just... what was that?

Yes, it was just about a $1 million benefit from some debt we had over in Europe that was dollar denominated, so that comes through because of the changes in the rates, that was $0.01 [ph]. Michael J. Sison - KeyBanc Capital Markets/McDonald: Okay, so that doesn't persist going forward?

Well, if rates kept going in that direction we'd have that and if it went the other direction that would correct itself for the year so. Michael J. Sison - KeyBanc Capital Markets/McDonald: Okay. And then last one on Fine Chemicals in terms of. I guess similar question in Polymer Additives. You feel pretty good about closing the gap there for raw materials at some point in the year.

Absolutely Mike. One of the biggest issues we had in the Fine Chemicals was our purchases olefins which go into our means or intermediates business and our paper sizing business. Michael J. Sison - KeyBanc Capital Markets/McDonald: Okay.

And that created in the first quarter about a 100 basis points headwind for us, and we had announced that as soon as we saw these olefins go up so dramatically and in February, we announced pricing increases there to cover that raw material inflation. And it looks like we have achieved that in the second quarter. Michael J. Sison - KeyBanc Capital Markets/McDonald: Okay. So in total Mark, with raw materials being up; as I recall, maybe $60 million to $70 million higher than what you had thought in January, you still feel pretty good about the total year in terms of your outlook?

We haven't, we are not changing that. I think we are trying to be clear that we think the next three quarters is going to be a bit tougher than the first quarter if these prices continue to roll through. Michael J. Sison - KeyBanc Capital Markets/McDonald: Okay.

We are seeing strength in our business. But when we look at it from an overall year point of view we don't see anything that would change our perspective to that. Michael J. Sison - KeyBanc Capital Markets/McDonald: Okay. Great. Thank you.

Thanks Mike.

Your next question comes from the line of PJ Juvekar from Citi. Please proceed.

Yeah. Hi, good morning.

Good morning.

Good morning, a couple of questions. First on Fine Chemicals. Margins are down significantly year-on-year, and the performance doesn't seem to be that consistent. I mean I would have thought that this segment should be resistant to the economy. What's going on there? Is it the lumpiness of the business or something else going on?

Well, I'd say PJ, a big piece of this issue of olefins that I mentioned, that's about 100 basis point decline sequentially. And my guess is probably a 150 basis point decline year-over-year. And hat's a big portion of the decline year-over-year. So you are right. The margins in the first quarter of '07 were just a hair over 16%, and now we are 14.6%. But for the year we are still very bullish on this business and feel actually more excited about the pipeline than we ever have been. But we are dealing with tremendous amount of raw material inflation and then in a couple of more distinct businesses that's been affected in means and I say this. Now with that said, we also had a very strong first quarter in our clear brines area, and that was a pretty distinct year-over-year decline. But we are seeing that improve sequentially now and saw really nice sequential business in our clear brine actually sequentially, those volumes are up almost 20%. But the decline year-over-year was pretty significant and amounted to another 150 basis points to 200 basis points decline on a year-over-year basis. So, your observations are right, I'd say its raw material and due to olefins and that clear brines business year-over-year.

And how big is this paper sizing business that you mentioned?

It's… Rarely do we go down to that level of granularity. But we sell depending on the amount, about $1 million to $2 million a month of product there.

Okay. And then another clarification question. You said your HPC, hydroprocessing volumes were down 5% and that is despite the new plant starting up. So, what's going on? I thought you with the new plant you would have gotten volume growth?

Well we say down 5%, but that's the equivalent of probably one order or half order. So, we've continue to try to explain kind of the lumpy nature of our HPC business. But this was in line with our expectation for the year. We were sold, everything we produced we sold in '07 and in '08, we're seeing a pretty bullish volumes so we need to produce for future orders.

P.J., I think I'd just add to that and you kind of… if you recall this or not but we actually built inventory quite dramatically in the third and fourth quarter last year for this unprecedented sales volume we had in the first quarter of 2007. So you got a little bit of an anomaly there quarter-to-quarter, but as John said sequentially, we're seeing this business grow. We've said all along we expect to be in the 50% range by the end of this year in terms of operating utilization of this unit and we don't see anything change that and you are seeing that reflected in the profitability of the business. So it's strong, I don't think as John said, I wouldn't read too much into those numbers unless you go back and look at each month's volume and understand what's happening here.

And just one last question. There was an earlier question about refine… negative refining margins. Refinery runs had been cut and so could that be a negative surprise in the second half?

I don't know. I think yeah, I mean refinery margins are under more pressure today than it were, if you look back last year and year before that, is that going to have ripple effect. I kind of don't think so. I mean it's hard for refineries to sit down and actually start cutting throughput in this period of unprecedented demand and time. So my gut is that that's going to sold itself out due to higher prices at the pump and in the by-products. So we haven't seen that 110 in my opinion that $110, $120 barrel as John talked about roll over to the by-product shift. That's what refinery should telling you when you said the margins were down.

And I only add that our fundamental belief is that our catalyst improved refining margins.

Right. Okay. Thank you.

Thank you, P.J.

Your next question comes from line of Dmitry Silversteyn from Longbow Research. Please proceed.

Good morning, gentlemen, congratulation on getting off to a good start in a very difficult environment. A lot of my questions have been answered. But kind of looking at the fine chemicals business and the margins that you posted in the beginning of last year versus the margins that you posted in the second half of last year and so far this year. What does it going to take to get the margins up kind of back into the high teen, 17, 18, I'm not talking 20% margin? Is that a question of getting clear brine fluids up and running or some of your smaller volume research projects heading a stride to maybe getting into a phase III or something like that? What, or is it just the strictly mix in raw material issue?

Yes, yes, yes, it's really – just as you said, Dimitry, it's getting a passthrough on the raw material inflation that we've seen. It's continuing rebound in clear brines, which we fundamentally believe, especially with oil at $120 a barrel it's going to happen. And we see that, though it is a fairly volatile business for us. And then it's commercializing a new product pipeline, where we see some really nice opportunities blossoming for the second half of the year. So it's a combination of all those activities, but those are the highlights.

Okay. So basically we're starting out at a level of the profitability level in the first quarter. Given what you said, it sounds like it should be at that level or slightly better as the year unfolds?

That's our belief. That's correct.

Okay. Second question and it was a little bit addressed by Mike earlier. Your price increases or your average price increases in Polymer Additives up about 3 percentage points in the quarter. I think that was – well, actually 2%. That was – the low was going back about three years, and this comes in at a time, as you yourself said, where there is unprecedented inflation in raw materials. Are the customers becoming more resistant to price increases? Is it taking you – is it more difficult to justify them or is it just a question that you got moving a little bit late in the quarter to get the full price increase realized and we should see kind of more like high single digit price increases as the year unfolds?

Yeah, I think it's a combination of effects. It's the declining volume environment of '07. And with the turn into '08, we're seeing stronger volumes. And that always helps in terms of getting price increases through. But the bigger effect, I would say, in our business year-over-year, from first quarter '07 to first quarter '08, was a mix effect, which is basically a healthy thing for us as our Tetrabrom volumes rebounded nicely. So what we do is, as you said, we've got to get these prices up. In particular, in mineral flame retardants, there's a lot of ATH inflation going on there. And in the phosphorous flame retardants, we have had lot of unprecedented levels of increases in phosphorous-based products now. The last effect is the whole phenol chain in our antioxidant and related products in stabilizers and curatives. We've got to get that margin up in the business. It's basically dragging the entire polymer portfolio down a bit. So – and that is where we see the most rampant inflationary impact.

Okay. So it would be fair to say that the pricing was actually up about mid single-digits, but you had a negative mix component in there?

Yes, that's true.

Okay, good. And then final question. Your equity income continues to grow at a pretty nice clip and is becoming kind of a meaningful driver of earnings. Can you give us a little bit more detail of what's in your equity income line, kind of what are the major JVs that are being accounted for there?

Yeah.

And how they are doing and what their projections are for the balance of the year?

Yeah, you bet. There's, I'd say, three important ones. There is our alkyls JV in Japan with Mitsui and that's doing better, some new products kicking in, and our alkyls price increase even in Japan is doing better than expected. Our Nippon Ketjen joint venture out of Japan did actually a bit better sequentially. It's not near where we would like to see it, but it's improving sequentially. We had hoped for a pretty good uptick in the second quarter. It looks like that's rolling into the third quarter now. And then most significantly, I would say, would be our FCC SA – FCC catalyst joint venture with Petrobras in South America. And those volumes and price level are doing just fine. A lot of unprecedented raw material inflation in that venture down in South America as well. So we've got to continue to work to get pricing up down there to offset this raw material inflation. But it's a combination of primarily those three.

Okay. Thank you very much.

You are welcome.

Your next question comes from the line of Chris Shaw of UBS. Please proceed.

Yeah, hi. Good morning, guys. How are you doing?

Good morning, Chris.

You covered most of things, but I had a question on – can we see the natural gas surcharges come back in from – was it FCCs – or are they still in place? And just curiously, how much of that raw material inflation is natural gas?

Yeah, the raw material inflation, the view today is about $30 million out of the total. But that was when natural gas was at just a hair over 10, and I think maybe it is at 10.80 this morning. So to answer your question and we have got to cover that, so it's either got to be done through just price per ton or it's got to be done through some surcharge kind of implementation. But it has a big impact. Every dollar per million BTU impacts the company by a nickel. And the majority of that goes into FCC. So the answer to your question is, yes, we've got to recognize that and reflect that in our price level.

When you had to pass surcharges on, did they just roll off when natural gas went back down?

Yes, they did. There was a trigger point what they used to be, but our FCC margins were pretty sad then. That was a matter of desperation more than anything.

And they're not contractually retriggered when it goes up?

In some agreements, yeah, they are in there. But it depends what the price level is, what the application is and a lot of variables, Chris. But it's not automatically across our entire portfolio. But this unprecedented inflation triggers additional action and we look at these things almost every day.

Okay. And then quickly on clear brines, why have they been weak? Aren't they just sort of related to drilling activity?

Yeah, I wish I could answer that question. That business, we get no lead time. We get a call on a Friday night to ship out a couple of hundred tons of products over the weekend. It's a difficult business to really understand and it's really real-time online. So – but the fundamentals of that business, with oil at $120 a barrel, I mean, production companies are going to seek to procure every additional barrel they can at this kind of level. So, I think it's just – it's kind of somewhat a mix effect and it's a geographic effect. But at the end of the day we're seeing stronger drilling today than we did over the last six months. And we're seeing it go deeper, which requires more bromine content and overall the fundamentals of that business are perfect [ph].

Thanks. All right, good job. Thanks a lot.

Thanks, Chris.

Your next question comes from the line of Kevin McCarthy of Banc of America Securities. Please proceed.

Thanks. Good morning. Kevin McCarthy.

Hi, Kevin.

Mark, you mentioned that the Sorbent Technologies deal has potential to expand demand for bromine. Would you explain why that's the case and how significant could that be?

Yeah, Kevin, the fundamental technology that's being used to control mercury is one have taken, activating carbon and impregnated with bromine or some inorganic bromide. And then that's injected into the flue as a powder, and then that – the bromine catalyzes a reaction that creates mercury bromide, which stays on the carbon. And then it goes out in the ash collection system of these power plants. If you take and look at it from a broad perspective, we anticipate that in the US we could see bromine demand by the turn of this decade or early next – few years after that 2010 to 2012 we would see an additional 30 million pounds of bromine – I am sorry, 30,000 tons of bromine demand increase. The global bromine production today is between 5 and 600,000 tons. So you are seeing a pretty dramatic and of course it's much lower than that in the US, pretty dramatic uptick. The other place this could really apply beyond the US is in China, and it's too early to tell what that holds. But we are pretty excited by dialogue that's already started to occur in China to use this technology. So net-net you could see the global demand of bromine being really impacted in a very favorable way through this process.

Great. And then, John, shifting gears to raw materials. If I look at the headwind on raw materials that you experienced in the first quarter, and net against that the various selling price increases that you've implemented, how much of a drag do you think it was in the quarter on a net basis?

Well, it's such a relative question, Kevin, because if we didn't have it, our profitability would've been higher in some product lines. So it was sequentially $20 million. And I would say roughly – I haven't looked at it in terms of the way you are questioning me, but I would say about half of that we need to work through. We were surprised by the relative degree of it, and we think we can get going forward.

So it sounds like maybe you have under recovered by about $10 million or so. Is that fair?

Yes, I would say directionally in that order of magnitude.

Okay, certainly moving target, I know.

Well, yes.

But it is difficult when your exposure is so broad and it's very difficult to model explicitly that way. So I think of it in terms of a gap that you need to recover.

Yes, it's a very good point, because we used to see, as Mark mentioned in his comments, a lot of tremendous metals volatility and inflation. And now with oil, I think it hit 118 this morning and that is becoming a much more broader issue that we have got to deal with. But your point is dead on.

And then finally, Bisphenol has been in the headlines recently. How would you characterize your risk, or lack thereof, in molecules like Tetrabrom, since you are a large buyer of BPA? If that were to be phased out several years down the road, let's say, do you have alternative chemistry that you could employ or would there be any meaningful impact to you?

Yeah, I think BPA is coming under a lot of attack. And that concern has primarily been directed towards BPA that is coming in contact with formulas and waters and things like that that can be consumed especially by children. BPA is found to some extent in the environment, so there's more broader concern about that product. In Tetrabrom's case, Tetrabrom is a reactive product, primarily in its use today. So the BPA is fully bound, so it is much like a polycarbonate or something else. I mean, it doesn't fundamentally exist after the reaction. So my fundamental belief system is that it is not going to be impacted by that. Having said that, John and his team are doing a lot of work to find other alternatives for polymer additives or flame retardants or reactive flame retardants or polymer flame retardants that go into these applications. So we are not sitting idly by and claiming everything is great. We are working hard to make sure should we get concerned about that product or somebody else get concerned about it, that we've got viable options.

Okay. Then last question, Rich, what is your latest thought on the tax rate for the year?

Kevin, the beauty of the accounting for income taxes now is that you basically have to book to what you think your full rate is. So what you should be using, our best point estimate right now is the number we book to X the special items, right? So 22.3 is the number that we would say is our best estimate right at this moment. And I hope it is going to be higher, because if it is higher that means we made more money.

Very good. Thank you, guys.

Thanks Kevin.

And your final question comes from the line of Steve Schwartz of First Analysis. Please proceed.

Good morning. Thanks for taking my question.

Hi Steve.

On the Bayport expansion and so forth, I think for the year we've all been talking on previous calls double-digit volume growth. And just based on the first quarter and then the outlook you're giving for sequential quarters, do you still expect that we could be above 10% volume growth in this business for '08?

Yes. I think I commented earlier too, Steve, that we're being very boring in that regards. So that's a good thing.

Okay. And then – on the pricing, as I tally up the price increases, in the fourth quarter you put out – and I recognize this is crude, but you put out like 10 announcements. And so far this year you've got six. So as we look at how those carry through and the effectiveness of them, you've got quite a bit of a gap, so would you expect that you're going to be putting out a significant number of announcements? Or how do you expect that you'll overcome this?

Well, there is no question what we're seeing is unprecedented. So to answer your question, I think, yes, and we've got to continue to drive it. We've got to understand internally exactly how much we're dealing with and what the issues are on a business-by-business basis, which we're doing. And then communicate to our customer base around the globe. Because, yes, what we're seeing is just, I would say, historical levels.

Yes. Okay. So that being said, as late as March at various conferences and so forth, I think you've expressed a certain comfort with hitting 280 on the year, and I know you don't give guidance. But do you still feel comfortable hitting – coming in, in that range?

I think as I said earlier, we're not making any forecasts. But we are – we think we have a strong business and we're going to do our best to have a great year.

Great. Okay, thanks. Look forward to seeing you all in Houston.

All right.

Thanks Steve.

You may proceed with your closing remarks.

Thank you, Cynthia. I would like to thank everyone for participating on the call today. And if you have any further questions, you can contact me at the number indicated on the press release. Have a great day, everyone.

Thank you for participating in today's conference. Your conference call has finished. Have a great day.