ELEKEIROZ S/A

MANAGEMENT REPORT

YEAR 2004

ECONOMIC ENVIRONMENT

2004 ended with 5% of economic growth in Brazil. The aggregate income recovery coupled with higher consumer credit offer boosted sales and production of all industrial sectors, as a consequence. These auspicious economic results, however, clearly point up to the difficulty of maintaining growth at a steady pace in the future, due to the limited capacity of production sectors and infrastructural bottlenecks.

The Brazilian chemical industry´s sales in Reais rose by 23% and exports in US Dollars by 20%. However, these industry´s structural limitations caused its imports to grow by 30%, with a US$ 8.5 billion balance of trade deficit as a result.

OPERATIONS

The Company´s statutory statements for fiscal 2003 refer to those of former Ciquine Cia Petroquímica, who merged with Elekeiroz S/A in July 2003, subsequently taking the latter´s name. In order to ensure better comparison between 2003 and 2004, the figures shown below are taken from consolidated statements of the two companies´ pre-merger operations.

At its three industrial units Elekeiroz produces: oxialcohols (octanol, butanol and isobutanol), plasticizers, phtalic products and fumaric acid – Camaçari (BA); phtalic and maleic anhydrides, plasticizers, fumaric acid, unsaturated polyester resins, formol, urea-formol concentrate, sulphuric acid and carbon bisulphide - Várzea Paulista (SP); and plasticizers - Taubaté (SP). Shippings totaled 485 thousand tons, with a 4% decrease. 440 thousand tons were shipped in the domestic market, of which 196 thousand of organic products (8% +) and 244 thousand of inorganic products – sulphuric acid and carbon bisulphide (12% -). Direct exports amounted to 45 thousand tons, or 6% less than the previous year.

The chart below shows the annual average use of installed capacity by product line.

The segmentation of the Company´s markets based on gross revenue shows that a great number of industrial sectors use the Company´s products, thus minimizing the risk of sharp sales variations due to possible reduction in purchases of any of these sectors.

INVESTMENTS AND STRATEGIC MANAGEMENT

Investments of R$ 170 million over a three-year period funded by "BNDES” (National Social and Economic Development Bank) (on October 20) and “BNB” (Northeast Bank of Brazil) loans contracted on October 20 and December 28, respectively, started the modernization, rationalization, automation and bottleneck-elimination efforts at the Camaçari complex´s production lines. This investment program also provides for implementation of a new line for production 2 ethyl-hexanoic, which is due to become operative by the second quarter 2005, using the Unit´s own technology and part of its currently idle assets, with an initial capacity of 5 thousand tons per year. Currently, all of this product is imported for use in the paint and varnish industry, in which Elekeiroz´s presence is already important.

The investments made during the year totaled R$ 30 million, with the sulphuric acid unit´s automation during the biannual Várzea Paulista maintenance work standing out. With this work the first automation cycle at the main production areas in this industrial complex was completed.

As publicized on November 5, Elekeiroz entered into a technological cooperation agreement with DSM Composite Resins AG, a leading company in the unsaturated polyester resin segment in Europe. Through this strategic alliance the Company will have access to innovative, high-tech products that will enable it to better meet its trade partners´ demand. The agreement in question was registered with the “INPI” (Brazilian Industrial Property Institute).

Also, the Company resumed the discussions with Petrobrás for conducting the necessary commercial, technical and economic-financial studies for implementation of a complex in which acrilic acids and superabsorbing polymers, now imported, can be produced. Given their technological content, value and increasing consumption, these products are of high strategic interest for the country.

In order to fund investments and meet obligations with the “BNDES” (National Social and Economic Development Bank) a first capital increase of R$ 10,7 million through reserve capitalization without share issue was ratified at the General Extraordinary Shareholders´ Meeting of December 30.

PERFORMANCE IN THE YEAR

As previously stated, the individual and consolidated amounts for fiscal 2003 in the table below allow better comparison with 2004. The price of petrochemical raw materials, the most important variable cost component of the Company´s products, rose substantially – by 17% and 78% - in the year, thus causing costs throughout the production chain to increase.

At Elekeiroz, an average 42% increase in the price per ton of product shipped, the highest participation of organic products in shippings, coupled with higher productivity arising from investments and other cost-reducing measures taken at all the Company´s sites resulted in improved margins, which reflected on its main result indicators. Also worth mentioning is the 24.6% profitability as measured by the Net Income (after the provisions for taxes and the management´s and employees´ participation) on Shareholders´ Equity.

ENVIRONMENT-CONSCIOUS PERFORMANCE

In the second quarter this year the Company´s own 4-km-long draining pipe began to transport liquid efluents from the Várzea Paulista complex to the “CSJ” – Jundiaí Sanitation Company treatment station. Thus, Elekeiroz surpassed the government in the efforts to improve the quality of water in the Rio Jundiaí watershed Such important accomplishment for the benefit of the community won the Company the “Tintas e Vernizes” award for “Social Responsibility”, for which several big local and multinational companies competed.

As usual in this field of activity, the Company needs to periodically renew its operating licenses. In meeting this requirement this year, the Company pioneered by obtaining its licenses by electronic means, after accrediting over a thousand equipment pieces at its production and auxiliary units in Várzea Paulista.

Besides subjecting all vehicles used in transportation to previous inspection, the Company sponsored the publication of a “Manual de Manuseio e Transporte de Produtos Perigosos” (Dangerous Product Handling and Transport Manual ), which was distributed to service providers at all its units, in a joint, continuing effort to reduce accidents to zero.

HUMAN RESOURCES

At the end of the year, the Company´s co-workers at its three industrial complexes numbered 787, with R$ 51,4 million of salaries and payroll taxes paid, and R$ 6,2 million of meal, staples, transportation allowances, medical care, insurance, and supplementary retirement/pension expenses. Over 38 thousand hours were spent on training and development plus 31 scholarships for college and postgraduate courses, 19 scholarships for language courses and 66 scholarships for technical chemistry courses. Additionally, R$ 520 thousand was spent on a subsidized Continuing Education Program.

DIVIDENDS

As published on December 28, subject to the approval at the General Shareholders´ Meeting, the Administrative Council decided to pay supplementary dividends on the income for the year, by way of interest on own capital, in the gross amount of R$ 22.42 per thousand-share lot, net of 15% withholding tax, or R$ 19.057 per thousand-share lot, net. If one considers the prepaid dividends also by way of interest on own capital (as deliberated by the Administrative Council and published on June 30) the dividends paid in the year add up to R$ 20.4 million in the form of gross interest on own capital, or R$ 17.4 million – net.

CVM INSTRUCTION 381

The work performed by Directa Auditores S/C was restricted to the legally required independent auditing.

ACKNOWLEDGEMENTS

We thank all our co-workers, clients and shareholders, without whose commitment, partnership, trust and continuing incentive the results attained would not have been possible.