##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-Q

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the Quarterly Period ended March 31,
    2004                                           
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the Transition Period
    from           to                                             

Commission file number 000-50132

Sterling Chemicals, Inc.

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                                         
|------------------------------------------------------------------ |  | --------------------------------------------------------
|Delaware                                                           |  | 76-0502785                                              
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS Employer
    Identification No.)                   
|                                                                  
|333 Clay Street, Suite 3600
    Houston, Texas 77002-4109          |  | (713) 650-3700                                          
|(Address of principal executive
    offices)                       |  | (Registrants telephone number, including
    area code)

Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, par value $.01 per
share

(Title of class)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o.

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes o          No þ.

APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:

Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan
confirmed by a
court.     Yes þ          No o.

As of April 30, 2004, Sterling Chemicals,
Inc. had 2,825,000 shares of common stock outstanding.



---






---



##### Table of Contents



IMPORTANT INFORMATION REGARDING THIS FORM
10-Q

Unless otherwise indicated, references to
we, us, our and
ours in this Form 10-Q refer collectively to
Sterling Chemicals, Inc. and its wholly-owned subsidiaries.

Readers should consider the following information
as they review this Form 10-Q:

Forward-Looking Statements

Certain written and oral statements made or
incorporated by reference from time to time by us or our
representatives are forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act).
All statements other than statements of historical fact are, or
may be deemed to be, forward-looking statements. Forward-looking
statements include, without limitation, any statement that may
project, indicate or imply future results, events, performance
or achievements, and may contain or be identified by the words
expect, intend, plan,
predict, anticipate,
estimate, believe, should,
could, may, might,
will be, will continue, will
likely result, project, forecast,
budget and similar expressions. Statements in this
report that contain forward-looking statements include, but are
not limited to, information concerning our possible or assumed
future results of operations and statements about the following
subjects:



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the cyclicality of the petrochemicals industry;                                                                                                       
|
| |  | current and future industry conditions;                                                                                                               
|
| |  | the potential effects of market and industry
    conditions and cyclicality on our business strategy, results of
    operations or financial position;
|
| |  | the adequacy of our liquidity;                                                                                                                        
|
| |  | our environmental management programs and safety
    initiatives;                                                                                     
|
| |  | our market sensitive financial instruments;                                                                                                           
|
| |  | future uses of and requirements for financial
    resources;                                                                                          
|
| |  | future contractual obligations;                                                                                                                       
|
| |  | business strategy;                                                                                                                                    
|
| |  | growth opportunities;                                                                                                                                 
|
| |  | competitive position;                                                                                                                                 
|
| |  | expected financial position;                                                                                                                          
|
| |  | future cash flows;                                                                                                                                    
|
| |  | future dividends;                                                                                                                                     
|
| |  | financing plans;                                                                                                                                      
|
| |  | budgets for capital and other expenditures;                                                                                                           
|
| |  | plans and objectives of management;                                                                                                                   
|
| |  | outcomes of legal proceedings;                                                                                                                        
|
| |  | compliance with applicable laws and                                                                                                                   
|
| |  | adequacy of insurance or indemnification.                                                                                                             

i



---



##### Table of Contents



Such statements are based upon current
information and expectations and inherently are subject to a
variety of risks and uncertainties that could cause actual
results to differ materially from those expected or expressed in
forward-looking statements. Such risks and uncertainties
include, among others, the following:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timing and extent of changes in commodity
    prices;                                                                                    
|
| |  | petrochemicals industry production capacity and
    operating rates;                                                                         
|
| |  | market conditions in the petrochemicals industry,
    including the supply-demand balance for our products;                                  
|
| |  | competition, including competitive products and
    pricing pressures;                                                                       
|
| |  | obsolescence of product lines;                                                                                                               
|
| |  | the timing and extent of changes in global
    economic and business conditions;                                                             
|
| |  | increases in raw materials and energy costs,
    including the cost of natural gas;                                                          
|
| |  | our ability to obtain raw materials, energy and
    ocean-going vessels at acceptable prices, in a timely manner and
    on acceptable terms;
|
| |  | regulatory initiatives and compliance with
    governmental regulations;                                                                     
|
| |  | compliance with environmental laws and
    regulations;                                                                                      
|
| |  | customer preferences;                                                                                                                        
|
| |  | our ability to attract or retain high quality
    employees;                                                                                 
|
| |  | operating hazards attendant to the petrochemicals
    industry;                                                                              
|
| |  | casualty losses;                                                                                                                             
|
| |  | changes in foreign, political, social and
    economic conditions;                                                                           
|
| |  | risks of war, military operations, other armed
    hostilities, terrorist acts and embargoes;                                                
|
| |  | changes in technology, which could require
    significant capital expenditures in order to maintain
    competitiveness;                    
|
| |  | effects of litigation;                                                                                                                       
|
| |  | cost, availability and adequacy of insurance;                                                                                                
|
| |  | adequacy of our sources of liquidity and                                                                                                     
|
| |  | various other matters, many of which are beyond
    our control.                                                                             

The risks included here are not exhaustive. Other
sections of this report and our other filings with the
Securities and Exchange Commission, including, without
limitation, our Annual Report on Form 10-K for the fiscal
year ended December 31, 2003 (our Annual
Report), include additional factors that could adversely
affect our business, results of operations and financial
condition and performance. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Certain Known Events, Trends,
Uncertainties and Risk Factors contained in our Annual
Report. Given these risks and uncertainties, investors should
not place undue reliance on forward-looking statements.
Forward-looking statements included in this Form 10-Q speak
only as of the date of this Form 10-Q and are not
guarantees of future performance. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, no assurances can be given that such expectations
will prove to have been correct.

ii



---



##### Table of Contents



Subsequent Events

All statements contained in this Form 10-Q,
including the forward-looking statements discussed above, are
made as of May 12, 2004, unless those statements are
expressly made as of another date. We disclaim any
responsibility for the accuracy of any information contained in
this Form 10-Q to the extent such information is affected
or impacted by events, circumstances or developments occurring
after May 12, 2004 or by the passage of time after such
date and, except as required by applicable securities laws, we
do not intend to update such information. All subsequent written
and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements.

Document Summaries

Descriptions of documents and agreements
contained in this Form 10-Q are provided in summary form
only, and such summaries are qualified in their entirety by
reference to the actual documents and agreements filed as
exhibits to our Annual Report, other periodic reports we file
with the Securities and Exchange Commission or this
Form 10-Q.

Access to Filings

Access to our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on
Form 8-K and amendments to those reports filed with or
furnished to the Securities and Exchange Commission pursuant to
Section 13(a) of the Exchange Act, as well as reports filed
electronically pursuant to Section 16(a) of the Exchange
Act, may be obtained through our website
(http://www.sterlingchemicals.com). Our website provides a
hyperlink to a third-party website where these reports may be
viewed and printed at no cost as soon as reasonably practicable
after we have electronically filed such material with the
Securities and Exchange Commission. The contents of our website
are not, and shall not be deemed to be, incorporated into this
report.

iii



---










STERLING CHEMICALS, INC.

INDEX

|                                                                                                       |  |      |    | 
|------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                       |  | Page
|                                                                                                       |  |     
|PART I. FINANCIAL
    INFORMATION                                                                     
|Item 1.  Financial
    Statements                                                                      |  |      | 2  | 
|Item 2.  Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations |  |      | 14 | 
|Item 3.  Quantitative
    and Qualitative Disclosures about Market Risk                                |  |      | 19 | 
|Item 4.  Controls
    and Procedures                                                                   |  |      | 19 | 
|PART II. OTHER
    INFORMATION                                                                        
|Item 1.  Legal
    Proceedings                                                                         |  |      | 21 | 
|Item 4.  Submission
    of Matters to a Vote of Security Holders                                       |  |      | 21 | 
|Item 6.  Exhibits
    and Reports on Form 8-K                                                          |  |      | 21 | 
|Fourth Amended and Restated Key Employee PP                                                           
|Letter of Deloitte & Touche LLP                                                                       
|Rule 13a-14a Certification of CEO                                                                     
|Rule 13a-14a Certification of CFO                                                                     
|Section 1350 Certification of CEO                                                                     
|Section 1350 Certification of CFO                                                                     



1



---



##### Table of Contents






PART I.

FINANCIAL INFORMATION






|        |                     
|------- | --------------------
|Item 1. | Financial Statements

STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                               |                   |                        |         |           |  |   |         |           | 
|-------------------------------------------------------------- | ----------------- | ---------------------- | ------- | --------- |  | - | ------- | --------- | 
|                                                               |                   |                       
|                                                               |                   | Three Months Ended    
|                                                               |                   | March 31,             
|                                                               |                   |                       
|                                                               |                   | 2004                   |         | 2003     
|                                                               |                   |                        |         |          
|                                                               |                   |                       
|                                                               |                   | (Dollars in thousands,
|                                                               |                   | except share data)    
|                                                               |                   | (Unaudited)           
|Revenues                                                       |                   | $                      | 147,902 |           |  | $ | 122,368 |          
|Cost of goods sold                                             |                   |                        | 157,701 |           |  |   | 124,493 |          
|                                                               |                   |                        |         |           |  |   |         |          
|Gross loss                                                     |                   |                        | (9,799  | )         |  |   | (2,125  | )        
|Selling, general and administrative expenses                   |                   |                        | 3,181   |           |  |   | 4,686   |          
|Other income                                                   |                   |                        |        |           |  |   | (3,678  | )        
|Interest and debt related expenses, net of
    interest income |                   |                        | 2,529   |           |  |   | 1,838   |          
|                                                               |                   |                        |         |           |  |   |         |          
|Loss from continuing operations before income tax              |                   |                        | (15,509 | )         |  |   | (4,971  | )        
|Benefit for income taxes                                       |                   |                        | (5,649  | )         |  |   | (1,431  | )        
|                                                               |                   |                        |         |           |  |   |         |          
|Loss from continuing operations                                |                   |                        | (9,860  | )         |  |   | (3,540  | )        
|Loss from discontinued operations, net of tax
    expense      |                   |                        |        |           |  |   | (634    | )        
|                                                               |                   |                        |         |           |  |   |         |          
|Net loss                                                       |                   | $                      | (9,860  | )         |  | $ | (4,174  | )        
|Preferred stock dividends                                      |                   |                        | 1,412   |           |  |   | 1,207   |          
|                                                               |                   |                        |         |           |  |   |         |          
|Net loss attributable to common stockholders                   |                   | $                      | (11,272 | )         |  | $ | (5,381  | )        
|                                                               |                   |                        |         |           |  |   |         |          
|Net loss per share of common stock, basic and
    diluted      |                   | $                      | (3.99   | )         |  | $ | (1.90   | )        
|                                                               |                   |                        |         |           |  |   |         |          
|Weighted average shares outstanding:                           |                   |                        |         |           |  |   |         |          
|                                                               | Basic and diluted |                        |         | 2,825,000 |  |   |         | 2,825,000 | 

The accompanying notes are an integral part of
the condensed consolidated financial statements.

2



---



##### Table of Contents



STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED BALANCE
SHEETS

|                                           |                                      |                            |         |              |         |   |         |         |         | 
|------------------------------------------ | ------------------------------------ | -------------------------- | ------- | ------------ | ------- | - | ------- | ------- | ------- | 
|                                           |                                      | March 31,                  |         | December 31,
|                                           |                                      | 2004                       |         | 2003        
|                                           |                                      |                            |         |             
|                                           |                                      |                           
|                                           |                                      | (Dollars in thousands)    
|                                           |                                      | (Unaudited)               
|ASSETS                                    
|Current assets:                            |                                      |                            |         |              |         |   |         |        
|                                           | Cash and cash equivalents            |                            | $       | 30,198       |         |   | $       | 42,384  |        
|                                           | Accounts receivable, net             |                            |         | 63,777       |         |   |         | 87,565  |        
|                                           | Inventories                          |                            |         | 66,755       |         |   |         | 61,583  |        
|                                           | Prepaid expenses                     |                            |         | 5,415        |         |   |         | 6,430   |        
|                                           | Deferred tax asset                   |                            |         | 9,221        |         |   |         | 9,081   |        
|                                           |                                      |                            |         |              |         |   |         |        
|                                           |                                      | Total current assets       |         |              | 175,366 |   |         |         | 207,043 | 
|Property, plant and equipment, net         |                                      |                            | 274,703 |              |         |   | 277,613 |        
|Goodwill                                   |                                      |                            | 48,463  |              |         |   | 48,463  |        
|Other assets, net                          |                                      |                            | 19,095  |              |         |   | 17,384  |        
|                                           |                                      |                            |         |              |         |   |         |        
|                                           |                                      | Total assets               |         | $            | 517,627 |   |         | $       | 550,503 | 
|                                           |                                      |                            |         |              |         |   |         |        
|                                          
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|                                          
|Current liabilities:                       |                                      |                            |         |              |         |   |         |        
|                                           | Accounts payable                     |                            | $       | 43,846       |         |   | $       | 64,833  |        
|                                           | Accrued liabilities                  |                            |         | 25,886       |         |   |         | 24,045  |        
|                                           |                                      |                            |         |              |         |   |         |        
|                                           |                                      | Total current liabilities  |         |              | 69,732  |   |         |         | 88,878  | 
|Long-term debt                             |                                      |                            | 100,579 |              |         |   | 100,579 |        
|Deferred tax liability                     |                                      |                            | 44,337  |              |         |   | 49,909  |        
|Deferred credits and other liabilities     |                                      |                            | 88,109  |              |         |   | 86,407  |        
|Redeemable preferred stock                 |                                      |                            | 36,706  |              |         |   | 35,294  |        
|Commitments and contingencies (Note 5)     |                                      |                            |         |              |         |   |         |        
|Stockholders equity:                      |                                      |                            |         |              |         |   |         |        
|                                           | Common stock, $.01 par value         |                            |         | 28           |         |   |         | 28      |        
|                                           | Additional paid-in capital           |                            |         | 203,990      |         |   |         | 205,402 |        
|                                           | Accumulated deficit                  |                            |         | (25,603      | )       |   |         | (15,743 | )      
|                                           | Accumulated other comprehensive loss |                            |         | (251         | )       |   |         | (251    | )      
|                                           |                                      |                            |         |              |         |   |         |        
|                                           |                                      | Total stockholders equity |         |              | 178,164 |   |         |         | 189,436 | 
|                                           |                                      |                            |         |              |         |   |         |        
|Total liabilities and stockholders equity |                                      | $                          | 517,627 |              |         | $ | 550,503 |        
|                                           |                                      |                            |         |              |         |   |         |        

The accompanying notes are an integral part of
the condensed consolidated financial statements.

3



---



##### Table of Contents



STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                |                                    |                        |         |         |   |   |         |         |  
|------------------------------------------------------------------------------- | ---------------------------------- | ---------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                |                                    |                       
|                                                                                |                                    | Three Months Ended    
|                                                                                |                                    | March 31,             
|                                                                                |                                    |                       
|                                                                                |                                    | 2004                   |         | 2003   
|                                                                                |                                    |                        |         |        
|                                                                                |                                    |                       
|                                                                                |                                    | (Dollars in thousands)
|                                                                                |                                    | (Unaudited)           
|Cash flows from operating activities:                                           |                                    |                        |         |         |   |   |         |        
|Net loss from continuing operations                                             |                                    | $                      | (9,860  | )       |   | $ | (3,540  | )      
|Adjustments to reconcile net loss to net cash
    used in operating activities: |                                    |                        |         |         |   |   |         |        
|                                                                                | Depreciation and amortization      |                        |         | 7,094   |   |   |         | 6,521   |  
|                                                                                | Interest amortization              |                        |         | 99      |   |   |         | 63      |  
|                                                                                | Deferred tax benefit               |                        |         | (5,712  | ) |   |         | (1,692  | )
|                                                                                | Other                              |                        |         |        |   |   |         | (1      | )
|Change in assets/liabilities:                                                   |                                    |                        |         |         |   |   |         |        
|                                                                                | Accounts receivable                |                        |         | 23,788  |   |   |         | (17,848 | )
|                                                                                | Inventories                        |                        |         | (5,172  | ) |   |         | (8,242  | )
|                                                                                | Prepaid expenses                   |                        |         | 1,015   |   |   |         | (879    | )
|                                                                                | Other assets                       |                        |         | (2,632  | ) |   |         | 204     |  
|                                                                                | Accounts payable                   |                        |         | (20,987 | ) |   |         | 994     |  
|                                                                                | Accrued liabilities                |                        |         | 1,841   |   |   |         | 595     |  
|                                                                                | Other liabilities                  |                        |         | 1,702   |   |   |         | 1,022   |  
|                                                                                |                                    |                        |         |         |   |   |         |        
|Net cash used in operating activities                                           |                                    |                        | (8,824  | )       |   |   | (22,803 | )      
|                                                                                |                                    |                        |         |         |   |   |         |        
|Cash flows used in investing activities:                                        |                                    |                        |         |         |   |   |         |        
|                                                                                | Capital expenditures               |                        |         | (3,362  | ) |   |         | (1,892  | )
|                                                                                |                                    |                        |         |         |   |   |         |        
|Cash flows from financing activities:                                           |                                    |                        |         |         |   |   |         |        
|                                                                                | Other                              |                        |         |        |   |   |         |        |  
|                                                                                |                                    |                        |         |         |   |   |         |        
|Net decrease in cash and cash equivalents from
    continuing operations        |                                    |                        | (12,186 | )       |   |   | (24,695 | )      
|Cash and cash equivalents  beginning
    of period                             |                                    |                        | 42,384  |         |   |   | 99,818  |        
|                                                                                |                                    |                        |         |         |   |   |         |        
|Cash and cash equivalents  end of
    period                                   |                                    | $                      | 30,198  |         |   | $ | 75,123  |        
|                                                                                |                                    |                        |         |         |   |   |         |        
|Supplemental disclosures of cash flow information:                              |                                    |                        |         |         |   |   |         |        
|                                                                                | Net interest paid (received)       |                        | $       | 112     |   |   | $       | (782    | )
|                                                                                | Cash paid for reorganization items |                        |         |        |   |   |         | 12,701  |  

The accompanying notes are an integral part of
the condensed consolidated financial statements.

4



---



##### Table of Contents



STERLING CHEMICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(Unaudited)




|   |                      
|-- | ---------------------
|1. | Basis of Presentation



| |                                   
| | ----------------------------------
| | Interim Financial
    Information:

In our opinion, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments necessary to present fairly our consolidated
financial position and consolidated results of operations and
cash flows for the applicable three-month periods ended
March 31, 2004 and March 31, 2003, respectively. All
such adjustments are of a normal and recurring nature. The
results of operations and cash flows for the periods presented
are not necessarily indicative of the results to be expected for
the full year. Certain amounts reported in the financial
statements for the prior periods have been reclassified to
conform with the current financial statement presentation with
no effect on net loss or stockholders equity.

The accompanying unaudited condensed consolidated
financial statements should be, and are assumed to have been,
read in conjunction with the consolidated financial statements
and notes included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2003 (our Annual
Report). The accompanying condensed consolidated balance
sheet as of December 31, 2003 has been derived from the
audited consolidated balance sheet as of December 31, 2003
included in our Annual Report. The accompanying condensed
consolidated financial statements, as of March 31, 2004 and
for the three-month periods ended March 31, 2004 and
March 31, 2003, respectively, have been reviewed by
Deloitte & Touche LLP, our independent public
accountants, whose report is included herein.



| |                     
| | --------------------
| | Recent Developments:

On April 2, 2004, we entered into a Purchase
and Sale Agreement with Sigma Investment Holdings, L.L.C.
(Sigma) that governs the possible sale of our idled
methanol plant. If the sale is consummated, the purchaser has
informed us that they will dismantle the methanol plant and
reassemble it in Asia. Under our Methanol Production Agreement
with BP Amoco Chemical Co. (BP Chemicals),
BP Chemicals is entitled to a portion of the net proceeds
from any sale of our methanol plant. After taking into account
sales commissions and various costs and expenses we will incur
in connection with preparing the methanol plant for dismantling,
as well as the distribution to BP Chemicals, we expect to retain
approximately $3 million from any sale of our methanol
plant to Sigma. Under the Purchase and Sale Agreement, the sale
of our methanol plant is anticipated to occur during the second
quarter of 2004. The methanol plant assets were not ascribed any
value upon the application of fresh start accounting in 2002,
therefore no assets have been recorded as held for
sale.

We have approximately 180 hourly employees
at our Texas City facility, all of whom are represented by The
Texas City Metal Trades Council, AFL-CIO, of Galveston County,
Texas (the Union). Our collective bargaining
agreement with the Union expired on May 1, 2004 and, on
May 3, 2004, the Union ordered its members to walk off the
job after rejecting our final and concluding offer. However, on
May 7, 2004, the Unions membership voted to end the
strike and return to work. We expect to complete the process of
reassimilating our workforce over the next few days although a
new collective bargaining agreement has not been ratified by the
Union. We and the Union have, however, agreed that a new strike
or a lockout may not be called on less than 48 hours
notice. We will be resuming negotiations with the Union over the
next few weeks and hope to enter into a new collective
bargaining agreement with our hourly workforce in the near
future, although no assurances can be given to that effect.
During the strike, we have been able to operate our facilities
and supply our customers without interruption.

5



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                           
| | --------------------------
| | Bankruptcy Reorganization:

On July 16, 2001, Sterling Chemicals
Holdings, Inc. (Holdings), Sterling Chemicals, Inc.
and most of their U.S. subsidiaries (collectively, the
Debtors) filed voluntary petitions for
reorganization under Chapter 11 of the United States
Bankruptcy Code (the Bankruptcy Code) in the
U.S. Bankruptcy Court for the Southern District of Texas
(the Bankruptcy Court). The Debtors filed a plan of
reorganization with the Bankruptcy Court on May 14, 2002
which, after several amendments, was confirmed on
November 20, 2002 (as confirmed, the Plan of
Reorganization). On December 19, 2002, the Plan of
Reorganization became effective and the Debtors emerged from
bankruptcy pursuant to the terms of the Plan of Reorganization.
During the period from July 16, 2001 through
December 19, 2002, the Debtors operated their respective
businesses as debtors-in-possession pursuant to the Bankruptcy
Code. Due to the Debtors emergence from bankruptcy and the
implementation of fresh-start accounting, we refer to ourselves
as Predecessor Sterling for periods on or before
December 19, 2002 and Reorganized Sterling for
periods after December 19, 2002.

On December 6, 2002, Holdings was merged
with and into Predecessor Sterling. Under the terms of the
merger and the Plan of Reorganization, all equity interests in
Holdings were cancelled upon consummation of the merger. Upon
the effectiveness of the Plan of Reorganization, Resurgence
Asset Management, L.L.C., on behalf of itself and certain of its
and its affiliates managed funds and accounts
(collectively, the Investor), paid $30 million
for certain shares of Reorganized Sterlings Series A
Convertible Preferred Stock. An additional $30 million was
contributed to Reorganized Sterling in exchange for
2,175,000 shares of Reorganized Sterlings common
stock pursuant to a rights offering made available to the
Debtors unsecured creditors (other than unsecured
creditors of Holdings), which offering was underwritten by the
Investor. In addition, upon the effectiveness of the Plan of
Reorganization, the unsecured creditors of the Debtors (other
than unsecured creditors of Holdings), received pro rata shares
of 11.7% of Reorganized Sterlings common stock (on a fully
diluted basis assuming the conversion of all shares of
Reorganized Sterlings Series A Convertible Preferred
Stock into shares of Reorganized Sterlings common stock)
and warrants to acquire 949,367 shares of Reorganized
Sterlings common stock at an exercise price of
$52 per share (subject to adjustment).

Pursuant to the Plan of Reorganization, on
December 19, 2002 the Debtors pulp chemicals business
was sold to Superior Propane, Inc. for $373 million and the
Debtors acrylic fibers business was sold to local
management of that business for nominal consideration. Following
these sales, Reorganized Sterling retained $80 million of
the net proceeds from the sale of the Debtors pulp
chemicals business and Reorganized Sterling owned and operated
only the Debtors core petrochemicals business. The
remaining net proceeds from the sale of the Debtors pulp
chemicals business were paid to the holders of Predecessor
Sterlings 12 3/8% Senior Secured Notes (the
12 3/8% Notes), who also received
$94.3 million in principal amount of new 10% Senior
Secured Notes due 2007 issued by Reorganized Sterling (our
Secured Notes) in satisfaction of their claims. In
accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment and Disposal of Long Lived Assets, we have
reported activity pertaining to the Debtors prior pulp
chemicals and acrylic fibers businesses as discontinued
operations in the condensed consolidated statements of
operations.

On December 19, 2002, Reorganized Sterling
also established a new revolving credit facility providing up to
$100 million in revolving credit loans (subject to
borrowing base limitations) with The CIT Group/ Business Credit,
Inc., as administrative agent and a lender, and certain other
lenders (the Revolver). As of March 31, 2004,
we had not borrowed any money under the Revolver, although we
had $1 million in letters of credit outstanding.

6



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                         
|-- | ------------------------
|2. | Stock-Based Compensation

In connection with the implementation of the Plan
of Reorganization, we adopted our 2002 Stock Plan. Under our
2002 Stock Plan, officers and key employees, as designated by
our Board of Directors, may be issued stock options, stock
awards, stock appreciation rights or stock units. We have
reserved 379,747 shares of our common stock for issuance
under our 2002 Stock Plan (subject to adjustment) and on
February 11, 2003, we granted options to
purchase 348,500 shares of our common stock at an
exercise price of $31.60 per share.

We account for our stock-based compensation
arrangements using the intrinsic value method in accordance with
the provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25), and related
interpretations. Under APB 25, if the exercise price of
employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is
recognized. All stock options issued under our 2002 Stock Plan
were granted with exercise prices at estimated fair value at the
time of grant. Therefore, no compensation expense has been
recognized under APB 25.

The following table illustrates the effect on our
net loss and loss per share attributable to common stockholders
if compensation costs for stock options issued under our 2002
Stock Plan had been determined using the estimated market value
at the grant dates amortized on a pro rata basis over the
vesting period, calculated pursuant to SFAS No. 123,
Accounting for Stock-Based Compensation, for the
three-month periods ended March 31, 2004 and March 31,
2003, respectively. There were no options outstanding under our
2002 Stock Plan prior to February 11, 2003.

|                                                                                                                                                    |  |                        |         |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | - | ------ | -
|                                                                                                                                                    |  |                       
|                                                                                                                                                    |  | Three Months Ended    
|                                                                                                                                                    |  | March 31,             
|                                                                                                                                                    |  |                       
|                                                                                                                                                    |  | 2004                   |         | 2003
|                                                                                                                                                    |  |                        |         |     
|                                                                                                                                                    |  |                       
|                                                                                                                                                    |  | (Dollars in thousands,
|                                                                                                                                                    |  | except share data)    
|Net loss attributable to common stockholders, as
    reported                                                                                       |  | $                      | (11,272 | )    |  | $ | (5,381 | )
|Add: Stock-based employee compensation expense
    included in reported net loss, net of related tax effects                                        |  |                        |        |      |  |   |       |  
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |  |                        | 432     |      |  |   | 297    |  
|                                                                                                                                                    |  |                        |         |      |  |   |        |  
|Pro forma net loss                                                                                                                                  |  | $                      | (11,704 | )    |  | $ | (5,678 | )
|                                                                                                                                                    |  |                        |         |      |  |   |        |  
|Loss per share attributable to common
    stockholders:                                                                                             |  |                        |         |      |  |   |        |  
|As reported                                                                                                                                         |  | $                      | (3.99   | )    |  | $ | (1.90  | )
|Pro forma                                                                                                                                           |  |                        | (4.14   | )    |  |   | (2.01  | )



|   |            
|-- | -----------
|3. | Inventories

|                                      |  |                        |        |              |  |   |        | 
|------------------------------------- |  | ---------------------- | ------ | ------------ |  | - | ------ | 
|                                      |  | March 31,              |        | December 31,
|                                      |  | 2004                   |        | 2003        
|                                      |  |                        |        |             
|                                      |  |                       
|                                      |  | (Dollars in thousands)
|Finished products                     |  | $                      | 37,505 |              |  | $ | 37,944 | 
|Raw materials                         |  |                        | 13,531 |              |  |   | 16,480 | 
|Inventories under exchange agreements |  |                        | 9,898  |              |  |   | 1,325  | 
|Stores and supplies                   |  |                        | 5,821  |              |  |   | 5,834  | 
|                                      |  |                        |        |              |  |   |        | 
|                                      |  | $                      | 66,755 |              |  | $ | 61,583 | 
|                                      |  |                        |        |              |  |   |        | 

7



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |               
|-- | --------------
|4. | Long-Term Debt

Pursuant to the Plan of Reorganization, on
December 19, 2002, we issued $94.3 million in
principal amount of Secured Notes to the holders of Predecessor
Sterlings 12 3/8% Notes. The Secured Notes are
senior secured obligations and rank equally in right of payment
with all of our other existing and future senior indebtedness,
and senior in right of payment to all of our existing and future
subordinated indebtedness. The Secured Notes are guaranteed by
Sterling Chemicals Energy, Inc. (Sterling Energy),
one of our wholly owned subsidiaries. Sterling Energys
guaranty ranks equally in right of payment with all of its
existing and future senior indebtedness, and senior in right of
payment to all of its existing and future subordinated
indebtedness. The Secured Notes and Sterling Energys
guaranty are secured by a first priority lien on all of our
production facilities and related assets.

The Secured Notes bear interest at an annual rate
of 10%, payable semi-annually on June 15 and
December 15 of each year. Under certain circumstances, for
any interest period ending on or before December 19, 2004,
we may elect to pay interest on the Secured Notes through the
issuance of additional Secured Notes rather than the payment of
cash. However, if we pay interest through the issuance of
additional Secured Notes rather than the payment of cash, the
interest rate for the relevant period is increased to
13 3/8%. Subject to compliance with the terms of the
Revolver, we may redeem the Secured Notes at any time at a
redemption price of 100% of the outstanding principal amount
thereof plus accrued and unpaid interest. In addition, in the
event of a specified change of control or the sale of our
facility in Texas City, Texas, we are required to offer to
repurchase the Secured Notes at 101% of the outstanding
principal amount thereof plus accrued and unpaid interest. We
are also required to offer to repurchase the Secured Notes at
100% of the outstanding principal amount thereof plus accrued
and unpaid interest in the event of certain other sales of
assets.

The indenture governing the Secured Notes
contains numerous covenants and conditions, including, but not
limited to, restrictions on our ability to incur indebtedness,
create liens, sell assets, make investments, make capital
expenditures, engage in mergers and acquisitions and pay
dividends. The indenture also includes various circumstances and
conditions that would, upon their occurrence and subject in
certain cases to notice and grace periods, create an event of
default thereunder. However, the indenture does not require us
to satisfy any financial ratios or maintenance tests.

On December 19, 2002, we established our
Revolver with The CIT Group/ Business Credit, Inc., as
administrative agent and a lender, and certain other lenders,
which provides up to $100 million in revolving credit
loans. The Revolver has an initial term ending on
September 19, 2007. Under the Revolver, Reorganized
Sterling and Sterling Energy are co-borrowers and are jointly
and severally liable for any indebtedness thereunder. The
Revolver is secured by first priority liens on all of our
accounts receivable, inventory and other specified assets, as
well as all of the issued and outstanding capital stock of
Sterling Energy.

Borrowings under the Revolver bear interest, at
our option, at an annual rate of either the Alternate Base Rate
plus 0.75% or the LIBO Rate (as defined in the
Revolver) plus 2.75%. The Alternate Base Rate is
equal to the greater of the Base Rate as announced
from time to time by JPMorgan Chase Bank in New York,
New York or 0.50% per annum above the latest
Federal Funds Rate (as defined in the Revolver).
Under the Revolver, we are also required to pay an aggregate
commitment fee of 0.50% per year (payable monthly) on any
unused portion of the Revolver. Available credit under the
Revolver is subject to a monthly borrowing base of 85% of
eligible accounts receivable plus the lesser of $50 million
and 65% of eligible inventory. In addition, the borrowing base
for the Revolver must exceed outstanding borrowings thereunder
by $8 million at all times. As of March 31, 2004,
total credit available under the Revolver was limited to
$70 million due to these borrowing base limitations. As of
March 31, 2004, we had not borrowed any money under the
Revolver, although we had $1 million in letters of credit
outstanding, leaving unused borrowing capacity under the
Revolver of $69 million.

8



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Revolver contains numerous covenants and
conditions, including, but not limited to, restrictions on our
ability to incur indebtedness, create liens, sell assets, make
investments, make capital expenditures, engage in mergers and
acquisitions and pay dividends. The Revolver also contains a
covenant that requires us to earn a specified amount of earnings
before interest, income taxes, depreciation and amortization on
a monthly basis if, for 15 consecutive days, unused
availability under the Revolver plus cash on hand is less than
$20 million. The Revolver includes various circumstances
and conditions that would, upon their occurrence and subject in
certain cases to notice and grace periods, create an event of
default thereunder.



|   |                              
|-- | -----------------------------
|5. | Commitments and Contingencies



| |                   
| | ------------------
| | Product Contracts:

We have certain long-term agreements that provide
for the dedication of 100% of our production of acetic acid,
plasticizers, sodium cyanide and disodium iminodiacetic acid, or
DSIDA, each to one customer. We also have various sales and
conversion agreements that dedicate significant portions of our
production of styrene and acrylonitrile to certain customers.
Some of these agreements provide for cost recovery plus an
agreed profit margin based upon market prices.



| |                           
| | --------------------------
| | Environmental Regulations:

Our operations involve the handling, production,
transportation, treatment and disposal of materials that are
classified as hazardous or toxic waste and that are extensively
regulated by environmental and health and safety laws,
regulations and permit requirements. Environmental permits
required for our operations are subject to periodic renewal and
can be revoked or modified for cause or when new or revised
environmental requirements are implemented. Changing and
increasingly strict environmental requirements can affect the
manufacture, handling, processing, distribution and use of our
chemical products and, if so affected, our business and
operations may be materially and adversely affected. In
addition, changes in environmental requirements can cause us to
incur substantial costs in upgrading or redesigning our
facilities and processes, including our waste treatment,
storage, disposal and other waste handling practices and
equipment.

We conduct environmental management programs
designed to maintain compliance with applicable environmental
requirements at all of our facilities. We routinely conduct
inspection and surveillance programs designed to detect and
respond to leaks or spills of regulated hazardous substances and
to correct identified regulatory deficiencies. We believe that
our procedures for waste handling are consistent with industry
standards and applicable requirements. In addition, we believe
that our operations are consistent with good industry practice.
We continue to participate in the Responsible Care®
initiatives as a part of our membership in several trade groups,
which are partner associations in the American Chemistry Council
in the United States. Notwithstanding our efforts and beliefs, a
business risk inherent in chemical operations is the potential
for personal injury and property damage claims from employees,
contractors and their employees and nearby landowners and
occupants. While we believe our business operations and
facilities generally are operated in compliance with all
applicable environmental and health and safety requirements in
all material respects, we cannot be sure that past practices or
future operations will not result in material claims or
regulatory action, require material environmental expenditures
or result in exposure or injury claims by employees, contractors
and their employees and the public. Some risk of environmental
costs and liabilities is inherent in our operations and
products, as it is with other companies engaged in similar
businesses.

In light of our historical expenditures and
expected future results of operations and sources of liquidity,
we believe we will have adequate resources to conduct our
operations in compliance with applicable environmental and
health and safety requirements. Nevertheless, we may be required
to make significant site and operational modifications that are
not currently contemplated in order to comply with

9



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

changing facility permitting requirements and
regulatory standards. Additionally, we have incurred, and may
continue to incur, liability for investigation and cleanup of
waste or contamination at our own facilities or at facilities
operated by third parties where we have disposed of waste. We
continually review all estimates of potential environmental
liabilities but can give no assurances that all potential
liabilities arising out of our past or present operations have
been identified or fully assessed, or that the amount necessary
to investigate and remediate such conditions will not be
significant to us. It is our policy to make safety,
environmental and replacement capital expenditures a priority in
order to ensure adequate safety and compliance at all times. In
the event we should not have available to us, at any time,
liquidity sources sufficient to fund any of these expenditures,
prudent business practice might require that we cease operations
at the affected facility to avoid exposing our employees and
contract workers, the surrounding community or environment to
potential harm.

On December 13, 2002, the Texas Commission
for Environmental Quality adopted a revised State Implementation
Plan (SIP) for compliance with the ozone provisions
of the Clean Air Act. The SIP is currently being reviewed by the
Environmental Protection Agency, which is expected to make
further revisions to these rules. Under the current SIP, we
would be required to reduce emissions of nitrogen oxide at our
Texas City facility by approximately 80% by the end of 2007. The
current rule also requires monitoring of emissions of highly
reactive volatile organic carbons (HRVOCs), such as
ethylene and propylene, by the end of 2005, and imposes a
site-wide cap on emissions of HRVOCs in 2006. We believe that we
will need to make between $20 million and $25 million
in capital improvements in order to comply with all of these new
regulations. We anticipate that the majority of these capital
expenditures and other expenses will be incurred over a
four-year period that began on January 1, 2004. Under
certain of our production agreements, we should be able to
recover a small portion of these costs from the other parties to
these agreements. We are currently evaluating several
alternative methods of reducing nitrogen oxide emissions at our
Texas City facility that would either require less capital
expenditures or result in energy savings that would, over a
period of years, substantially offset the initial capital
expenditures. However, we cannot give any assurances that any
alternative methods will be available to us or that, even if
available, these alternative methods would reduce the net amount
of capital expenditures required to be made by a meaningful
amount.



| |                   
| | ------------------
| | Legal Proceedings:

As previously discussed, the Debtors filed
voluntary petitions for reorganization under Chapter 11 of
the Bankruptcy Code on July 16, 2001. As a result of the
commencement of the Chapter 11 cases, an automatic stay was
imposed against the commencement or continuation of legal
proceedings against the Debtors outside of the Bankruptcy Court.
Claimants with alleged claims against the Debtors were required
to assert their claims in the Chapter 11 cases by timely
filing a proof of claim, to which the Debtors were allowed to
file an objection and seek a determination from the Bankruptcy
Court as to whether such claims were allowable. Claimants who
desired to liquidate their claims in legal proceedings outside
of the Bankruptcy Court were required to obtain relief from the
automatic stay by order of the Bankruptcy Court before doing so.
If such relief was granted, the automatic stay remained in
effect with respect to the collection of liquidated claim
amounts. As a general rule, all claims against the Debtors that
sought a recovery from assets of the Debtors estates have
been addressed in the Chapter 11 cases and have been or
will be paid only pursuant to the terms of the Plan of
Reorganization or negotiated settlements.

A few issues remain outstanding before the
Bankruptcy Court related to the allowability and classification
of certain claims. We do not believe that the outcome of any of
these issues will have a material adverse effect on our
business, financial position, results of operations or cash
flows, although we cannot give any assurances to that effect.

10



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Ethylbenzene
Release.A description of this release
can be found under Legal Proceedings in Note 9
of the Notes to Consolidated Financial Statements included in
our Annual Report. The lawsuit listed below, which involves only
one plaintiff, was the only remaining lawsuit related to this
release. This lawsuit sought damages for personal injury:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | Olivia Ellis v. Sterling Chemicals, Inc;Case No. JC5000305; In Justice
    Court No. 5 of Galveston County, Texas.

We have settled the Olivia Elliscase and
have obtained approval of the settlement from the Bankruptcy
Court. This settlement did not have a material impact on our
financial statements. A Motion to Dismiss was filed on behalf of
the one remaining plaintiff and was approved by the judge in
that case.

Other Claims.We are
subject to various other claims and legal actions that arise in
the ordinary course of our business. Claims and legal actions
against the Debtors that existed as of the Chapter 11
filing date are subject to the discharge injunction provided for
in the Plan of Reorganization, and recoveries sought thereon
from assets of the Debtors are subject to the terms of the Plan
of Reorganization.



|   |                                                    
|-- | ---------------------------------------------------
|6. | Pension Plans and Other Postretirement
    Benefits

Effective December 31, 2003, we adopted
SFAS No. 132 (which was revised in 2003),
Employers Disclosures about Pensions and Other
Postretirement Benefits. This standard requires the
disclosure of the components of net periodic benefit cost
recognized during interim periods.

Net periodic pension costs consisted of the
following components:

|                               |  |                        |        |      |  |   |        |  
|------------------------------ |  | ---------------------- | ------ | ---- |  | - | ------ | -
|                               |  |                       
|                               |  | Three Months Ended    
|                               |  | March 31,             
|                               |  |                       
|                               |  | 2004                   |        | 2003
|                               |  |                        |        |     
|                               |  |                       
|                               |  | (Dollars in thousands)
|Service cost                   |  | $                      | 828    |      |  | $ | 828    |  
|Interest cost                  |  |                        | 1,909  |      |  |   | 1,909  |  
|Expected return on plan assets |  |                        | (1,301 | )    |  |   | (1,301 | )
|                               |  |                        |        |      |  |   |        |  
|Net pension costs              |  | $                      | 1,436  |      |  | $ | 1,436  |  
|                               |  |                        |        |      |  |   |        |  

Other postretirement benefits costs consisted of
the following components:

|                               |  |                        |      |      |  |   |      |  
|------------------------------ |  | ---------------------- | ---- | ---- |  | - | ---- | -
|                               |  |                       
|                               |  | Three Months Ended    
|                               |  | March 31,             
|                               |  |                       
|                               |  | 2004                   |      | 2003
|                               |  |                        |      |     
|                               |  |                       
|                               |  | (Dollars in thousands)
|Service cost                   |  | $                      | 111  |      |  | $ | 115  |  
|Interest cost                  |  |                        | 563  |      |  |   | 584  |  
|Amortization of plan amendment |  |                        | (119 | )    |  |   | (119 | )
|                               |  |                        |      |      |  |   |      |  
|Net plan costs                 |  | $                      | 555  |      |  | $ | 580  |  
|                               |  |                        |      |      |  |   |      |  



|   |                         
|-- | ------------------------
|7. | New Accounting Standards

In December 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
Number (FIN) 46-R, Consolidation of Variable
Interest Entities. FIN 46-R, which modifies certain
provisions and effective dates of FIN 46, sets forth
criteria to be used in determining whether an

11



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

investment in a variable interest entity should
be consolidated. These provisions are based on the general
premise that if a company controls another entity through
interests other than voting interests, that company should
consolidate the controlled entity. We have evaluated whether the
provisions of FIN 46-R are applicable to our investments,
certain of which are currently accounted for by the equity
method, as well as other arrangements, which may meet the
criteria of the interpretation, and believe that there are
currently no arrangements that meet the definition of a variable
interest entity which would require consolidation.

In December 2003, the FASB revised
SFAS No. 132, Employers Disclosures about
Pensions and other Postretirement Benefits. The revised
statement retains the disclosures required by the original
SFAS No. 132 and requires additional disclosures
describing the types of plan assets, investment strategy,
measurement date, plan obligations, cash flows and components of
net periodic benefit cost recognized during interim periods. The
revised statement is effective for financial statements with
fiscal years ending after December 15, 2003. The disclosure
requirements of SFAS No. 132 have been applied in the
accompanying condensed consolidated financial statements.

In January 2004, the FASB issued FASB Staff
Position No. FAS 106-1, Accounting and
Disclosure Requirements Related to the Medicare Prescription
Drug Improvement and Modernization Act of 2003, which is
effective for interim or annual financial statements of fiscal
years ending after December 7, 2003 and permits a one-time
election to defer accounting for the effects of the Act. In
accordance with the FAS 106-1, we have elected to defer
accounting for the effects of the Act and, as such, any measures
of the postretirement benefit obligation or net periodic
postretirement benefit cost in the financial statements or
accompanying notes do not reflect the effects of the Act.
Specific authoritative guidance on the accounting for the
federal subsidy is pending and that guidance, when issued, could
require us to change previously reported information. However,
we do not believe that the effect of the Act will be material to
our condensed consolidated financial statements.

12



---



##### Table of Contents



INDEPENDENT ACCOUNTANTS REPORT

To the Board of Directors and Stockholders of
Sterling Chemicals, Inc.:

We have reviewed the accompanying condensed
consolidated balance sheet of Sterling Chemicals, Inc. and
subsidiaries (the Company) as of March 31,
2004, and the related condensed consolidated statements of
operations and cash flows for the three-month periods ended
March 31, 2004 and March 31, 2003, respectively. These
financial statements are the responsibility of the
Companys management.

We conducted our review in accordance with
standards established by the American Institute of Certified
Public Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with auditing
standards generally accepted in the United States of America,
the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

Based on our review, we are not aware of any
material modifications that should be made to such condensed
consolidated financial statements for them to be in conformity
with accounting principles generally accepted in the United
States of America.

We have previously audited, in accordance with
auditing standards generally accepted in the United States of
America, the consolidated balance sheets of the Company as of
December 31, 2003, and the related consolidated statements
of operations, stockholders equity, and cash flows for the
year then ended (not presented herein); and in our report dated
March 19, 2004, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2003 is fairly stated, in
all material respects, in relation to the consolidated balance
sheet from which it has been derived.



| |                      
| | ---------------------
| | DELOITTE & TOUCHE LLP

Houston, Texas

May 12, 2004


13



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with our condensed consolidated financial statements
(including the Notes thereto) included in Item 1,
Part I of this report.

Recent Developments

On April 2, 2004, we entered into a Purchase
and Sale Agreement with Sigma Investment Holdings, L.L.C.
(Sigma) that governs the possible sale of our idled
methanol plant. If the sale is consummated, the purchaser has
informed us that they will dismantle the methanol plant and
reassemble it in Asia. Under our Methanol Production Agreement
with BP Amoco Chemical Co. (BP Chemicals),
BP Chemicals is entitled to a portion of the net proceeds
from any sale of our methanol plant. After taking into account
sales commissions and various costs and expenses we will incur
in connection with preparing the methanol plant for dismantling,
as well as the distribution to BP Chemicals, we expect to retain
approximately $3 million from any sale of our methanol
plant to Sigma. Under the Purchase and Sale Agreement, the sale
of our methanol plant is anticipated to occur during the second
quarter of 2004.

We have approximately 180 hourly employees
at our Texas City facility, all of whom are represented by The
Texas City Metal Trades Council, AFL-CIO, of Galveston County,
Texas (the Union). Our collective bargaining
agreement with the Union expired on May 1, 2004 and, on
May 3, 2004, the Union ordered its members to walk off the
job after rejecting our final and concluding offer. However, on
May 7, 2004, the Unions membership voted to end the
strike and return to work. We expect to complete the process of
reassimilating our work force over the next few days although a
new collective bargaining agreement has not been ratified by the
Union. We and the Union have, however, agreed that a new strike
or a lockout may not be called on less than 48 hours
notice. We will be resuming negotiations with the Union over the
next few weeks and hope to enter into a new collective
bargaining agreement with our hourly workforce in the near
future, although no assurances can be given to that effect.
During the strike, we have been able to operate our facilities
and supply our customers without interruption.

Business Overview

We manufacture a variety of petrochemicals.
However, our financial performance is largely dependent on the
performance of our styrene and acrylonitrile operations, with
our styrene operations having the most influence on our results.
Styrene and acrylonitrile are commodities and exhibit wide
swings in prices and profit margins based upon current and
anticipated levels of supply and demand. Our other products,
while also commodities, tend to produce fairly consistent
results over time. Since our inception, our business strategy
has centered on an effort to take advantage of the high margins
that can be realized during the peaks in the market
cycles to generate significant amounts of net income, which we
believe will provide us greater average returns over time.
Consequently, a large portion of our styrene capacity is
uncommitted and available for sale in the spot markets. While
having available uncommitted capacity can lead to dramatically
improved financial performance during periods when the balance
of supply and demand favors producers, it also causes negative
market conditions to affect us more severely than most of our
competitors in terms of sales volumes and margins.

The financial performance of each of our products
is primarily a function of sales prices, the cost of raw
materials and energy and sales volumes. While changes in the
prices for our products may be tracked through a variety of
sources, a change in price does not necessarily result in a
corresponding change in our financial performance. When the
prices of our products increase or decrease, our overall
financial performance may improve, decline or stay roughly the
same depending upon the extent and direction of changes in our
costs for raw materials and energy and our production rates. For
most of our products, the combined cost of raw materials and
energy resources is far greater than all other costs of
production combined. We use significant amounts of natural gas
as fuel in the production of our products, and the producers of
most of our raw materials use significant amounts of natural gas
in their production. As a result, our production and raw
materials costs are significantly influenced by changes in the
price for natural gas.

14



---



##### Table of Contents



Sales volumes influence our overall financial
performance in a variety of ways. As a general rule, increases
in sales volumes will result in an increase in overall revenues
and vice versa, although this is not necessarily the case since
the prices for some of our products can change dramatically from
month-to-month. More importantly, changes in production rates
impact the average cost per pound of the products produced. If
more pounds are produced, our fixed costs are spread over a
greater number of pounds resulting in a lower average cost to
produce each pound. In addition, our production rates influence
the overall efficiency of our manufacturing unit and affect our
raw materials conversion yields.

During the first quarter of 2004, we performed
maintenance turnarounds on our styrene and acrylonitrile
production facilities. Our styrene facility was shut down for
four weeks in connection with the turnaround of that facility,
while our acrylonitrile facility was shut down for seven weeks.
As a result, our ability to produce styrene and acrylonitrile
was limited during the quarter. Styrene prices during the first
quarter of 2004 were fairly high from an historical perspective,
and demand for styrene currently appears to be strong on a
global basis. However, despite these relatively high prices and
strong demand, United States styrene producers have not as yet
realized sizable margins on their styrene sales due to high
energy costs and raw materials prices. As previously mentioned,
the combined cost of raw materials and energy resources is far
greater than all other costs of production combined, with the
cost of benzene having more effect on our overall styrene
manufacturing costs than any other raw material. Costs for both
benzene and ethylene increased during the first quarter of 2004
from those paid during 2003, primarily due to the high cost for
crude oil and several planned and unplanned outages at benzene
and ethylene manufacturing facilities. These high regional costs
for energy and raw materials severely limited our ability to
sell styrene to the export markets during the first quarter of
2004 and resulted in our operating at reduced rates. While
somewhat lower than the current quarter, we also experienced
high raw materials prices and lower operating rates during the
first quarter of 2003. However, the high raw materials prices in
the first calendar quarter of 2003 were driven by concerns over
the possible war with Iraq (the so called war
premium on crude oil and its derivatives), rather than the
balance of supply and demand for benzene and ethylene. In early
April, benzene costs escalated further to historical highs for
both spot and contract volumes. While spot benzene prices have
moderated somewhat in the last few weeks, we expect the prices
we pay for benzene during the second quarter of 2004 to be at
record high levels.

Results of Operations



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Three Months Ended March 31, 2004
    Compared to Three Months Ended March 31, 2003



| |                                              
| | ---------------------------------------------
| | Revenues, Cost of Goods Sold and Net
    Loss

Our revenues were $148 million for the first
quarter of 2004, compared to the $122 million in revenues
recorded in the first quarter of 2003. This increase in revenues
was primarily due to the restart in the second and third
quarters of 2003 of our acrylonitrile facility. We recorded a
net loss attributable to common stockholders of $11 million
for the first quarter of 2004, compared to the net loss
attributable to common stockholders of $5 million that we
recorded for the first quarter of 2003. This increase in net
loss was primarily due to the performance of maintenance
turnarounds on our styrene and acrylonitrile production
facilities during the first quarter of 2004. As a part of normal
recurring operations, each of our manufacturing units is
completely shut down from time to time, for a period typically
lasting two to four weeks, to replace catalysts and perform
major maintenance work required to sustain long-term production.
These periods are commonly referred to as
turnarounds or shutdowns. While actual
timing is subject to a number of variables, turnarounds of our
styrene unit typically occur every two to three years and
turnarounds of our acrylonitrile unit typically occur every 18
to 24 months. We expense the costs of turnarounds as the
associated expenses are incurred. As expenses for turnarounds,
especially for our styrene and acrylonitrile units, can be
significant, the impact of turnarounds can be material for
financial reporting periods during which the turnarounds
actually occur. During the first quarter of 2004, we performed
turnarounds of both our styrene and acrylonitrile units and our
operating income for the quarter was reduced by $14 million
due to the maintenance costs associated with these turnarounds.

15



---



##### Table of Contents



Revenues from our styrene operations were
$94 million for the first quarter of 2004, an increase of
4% from the $91 million in revenues recorded from these
operations for the first quarter of 2003. This increase in
revenues from our styrene operations resulted primarily from
increased sales of ethylbenzene, an intermediate product we
produce from ethylene and benzene and then typically convert
into styrene. Increased revenues associated with these
ethylbenzene sales were partially offset by the impact of the
scheduled maintenance turnaround of our styrene facility on
sales volumes during the first quarter of 2004. Our total sales
volumes of styrene for the first quarter of 2004 decreased 26%
from those realized during the first quarter of 2003, primarily
due to the decrease in production during the first quarter of
2004 that occurred as a result of the performance of the
maintenance turnaround. Direct sales prices for styrene during
the first quarter of 2004 increased 7% over those realized
during the first quarter of 2003. During the first quarter of
2004, the prices we paid for benzene and ethylene, the two
primary raw materials required for styrene, increased 4% and 11%
respectively, from the prices we paid for these products during
the same period in 2003. However, the average price we paid for
natural gas for the first quarter of 2004 decreased 18% compared
to the average price we paid for natural gas during the first
quarter of 2003. The costs related to the maintenance turnaround
of our styrene facility during the first quarter of 2004,
together with the higher prices we paid for benzene and
ethylene, more than offset the increase in direct sales prices
and caused the margins on our styrene sales for the first
quarter of 2004 to decrease from those realized during the first
quarter of 2003.

Revenues from our acrylonitrile operations were
$25 million in the first quarter of 2004 compared to the
$1 million in revenues recorded from these operations in
the first quarter of 2003 before our acrylonitrile unit and
related derivative units were restarted. However, gross margins
during the first quarter of 2004 were approximately the same as
2003 because of the turnaround costs we incurred during the
first quarter of 2004. On January 17, 2004, we shut down
our acrylonitrile plant (unrelated to our planned styrene
turnaround taken at the same time) due to a propylene shortage
and took the opportunity to perform maintenance work to correct
plant problems that were causing excessive propylene and ammonia
use. Adequate propylene supply was secured in early March to
restart the plant. The propylene market is expected to come into
balance in the second quarter of 2004, resulting in adequate
propylene availability for the remainder of 2004. During the
first quarter of 2003, gross margin was negatively impacted by
the continued shutdown of the acrylonitrile unit.

Revenues from our other petrochemicals
operations, primarily acetic acid, plasticizers and methanol,
were $28 million for the first quarter of 2004, a decrease
of 9% from the $31 million in revenues received from these
operations during the first quarter of 2003. This decrease in
revenues resulted primarily from the absence of payments under
our methanol production agreement with Methanex Corporation,
which expired on December 31, 2003.



| |                                                          
| | ---------------------------------------------------------
| | Selling, General and Administrative
    (SG&A) Expenses

Our SG&A expenses for the first quarter of
2004 were $3 million compared to the $5 million in
SG&A expenses we recorded for the first quarter of 2003.
This decrease was largely due to the absence of costs that were
incurred in the first quarter of 2003 for bankruptcy related
professional fees and ongoing matters related to our emergence
from bankruptcy on December 19, 2002.

Liquidity and Capital Resources

On July 16, 2001, Sterling Chemicals
Holdings, Inc., Sterling Chemicals, Inc. and most of their
U.S. subsidiaries (collectively, the Debtors)
filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code (the
Bankruptcy Code) in the U.S. Bankruptcy Court
for the Southern District of Texas (the Bankruptcy
Court). The Debtors filed a plan of reorganization with
the Bankruptcy Court on May 14, 2002 which, after several
amendments, was confirmed on November 20, 2002 (as
confirmed, the Plan of Reorganization). On
December 19, 2002, the Plan of Reorganization became
effective and the Debtors emerged from bankruptcy pursuant to
the terms of the Plan of Reorganization. During the period from
July 16, 2001 through December 19, 2002, the Debtors
operated their respective businesses as debtors-in-possession
pursuant to the Bankruptcy Code. Due to the Debtors

16



---



##### Table of Contents



emergence from bankruptcy and the implementation
of fresh-start accounting, we refer to ourselves as
Predecessor Sterling for periods on or before
December 19, 2002 and Reorganized Sterling for
periods after December 19, 2002.


Pursuant to the Plan of Reorganization, on
December 19, 2002, we issued $94.3 million in
principal amount of 10% Senior Secured Notes due 2007 (our
Secured Notes) to the holders of Predecessor
Sterlings 12 3/8% Senior Secured Notes. The
Secured Notes are senior secured obligations and rank equally in
right of payment with all of our other existing and future
senior indebtedness, and senior in right of payment to all of
our existing and future subordinated indebtedness. The Secured
Notes are guaranteed by Sterling Chemicals Energy, Inc.
(Sterling Energy), one of our wholly owned
subsidiaries. Sterling Energys guaranty ranks equally in
right of payment with all of its existing and future senior
indebtedness, and senior in right of payment to all of its
existing and future subordinated indebtedness. The Secured Notes
and Sterling Energys guaranty are secured by a first
priority lien on all of our production facilities and related
assets.

The Secured Notes bear interest at an annual rate
of 10%, payable semi-annually on June 15 and
December 15 of each year. Under certain circumstances, for
any interest period ending on or before December 19, 2004,
we may elect to pay interest on the Secured Notes through the
issuance of additional Secured Notes rather than the payment of
cash. However, if we pay interest through the issuance of
additional Secured Notes rather than the payment of cash, the
interest rate for the relevant period is increased to
13 3/8%. The June 15, 2004 interest payment will be
paid in cash. Subject to compliance with the terms of the
Revolver, we may redeem the Secured Notes at any time at a
redemption price of 100% of the outstanding principal amount
thereof plus accrued and unpaid interest. In addition, in the
event of a specified change of control or the sale of our
facility in Texas City, Texas, we are required to offer to
repurchase the Secured Notes at 101% of the outstanding
principal amount thereof plus accrued and unpaid interest. We
are also required to offer to repurchase the Secured Notes at
100% of the outstanding principal amount thereof plus accrued
and unpaid interest in the event of certain other sales of
assets.

The indenture governing the Secured Notes
contains numerous covenants and conditions, including, but not
limited to, restrictions on our ability to incur indebtedness,
create liens, sell assets, make investments, make capital
expenditures, engage in mergers and acquisitions and pay
dividends. The indenture also includes various circumstances and
conditions that would, upon their occurrence and subject in
certain cases to notice and grace periods, create an event of
default thereunder. However, the indenture does not require us
to satisfy any financial ratios or maintenance tests.

On December 19, 2002, we established our
revolving credit facility (the Revolver) with The
CIT Group/ Business Credit, Inc., as administrative agent and a
lender, and certain other lenders, which provides up to
$100 million in revolving credit loans. The Revolver has an
initial term ending on September 19, 2007. Under the
Revolver, Reorganized Sterling and Sterling Energy are
co-borrowers and are jointly and severally liable for any
indebtedness thereunder. The Revolver is secured by first
priority liens on all of our accounts receivable, inventory and
other specified assets, as well as all of the issued and
outstanding capital stock of Sterling Energy.

Borrowings under the Revolver bear interest, at
our option, at an annual rate of either the Alternate Base Rate
plus 0.75% or the LIBO Rate (as defined in the
Revolver) plus 2.75%. The Alternate Base Rate is
equal to the greater of the Base Rate as announced
from time to time by JPMorgan Chase Bank in New York,
New York or 0.50% per annum above the latest
Federal Funds Rate (as defined in the Revolver).
Under the Revolver, we are also required to pay an aggregate
commitment fee of 0.50% per year (payable monthly) on any
unused portion of the Revolver. Available credit under the
Revolver is subject to a monthly borrowing base of 85% of
eligible accounts receivable plus the lesser of $50 million
and 65% of eligible inventory. In addition, the borrowing base
for the Revolver must exceed outstanding borrowings thereunder
by $8 million at all times. As of March 31, 2004,
total credit available under the Revolver was limited to
$70 million due to these borrowing base limitations. As of
March 31, 2004, we had not borrowed any money under the
Revolver, although we had $1 million in letters of credit
outstanding, leaving unused borrowing capacity under the
Revolver of $69 million.

17



---



##### Table of Contents



Our liquidity (i.e., cash and cash
equivalents plus total credit available under the Revolver,
subject to the conditions to borrowings under the Revolver) was
$99 million at March 31, 2004, a decrease of
$17 million compared to our liquidity at December 31,
2003. This decrease was primarily due to the completion of
maintenance turnarounds of our styrene and acrylonitrile units
during the first quarter of 2004. The total cost of these
turnarounds, including maintenance expense, catalyst
installation and capital projects, was $21 million.

The Revolver contains numerous covenants and
conditions, including, but not limited to, restrictions on our
ability to incur indebtedness, create liens, sell assets, make
investments, make capital expenditures, engage in mergers and
acquisitions and pay dividends. The Revolver also contains a
covenant that requires us to earn a specified amount of earnings
before interest, income taxes, depreciation and amortization on
a monthly basis if, for 15 consecutive days, unused
availability under the Revolver plus cash on hand is less than
$20 million. The Revolver includes various circumstances
and conditions that would, upon their occurrence and subject in
certain cases to notice and grace periods, create an event of
default thereunder.

We believe that our cash on hand, together with
credit available under the Revolver and internally generated
funds, will be sufficient to meet our liquidity needs for the
reasonably foreseeable future, although we cannot give any
assurances to that effect.



| |                
| | ---------------
| | Working Capital

Our working capital at March 31, 2004 was
$106 million, a decrease of $12 million from our
working capital of $118 million on December 31, 2003.
This decrease in working capital was primarily due to negative
cash flows from operations, which were influenced by costs
related to the maintenance turnarounds described above and
capital expenditures.



| |          
| | ---------
| | Cash Flow

Net cash used in our operations was
$9 million during the first quarter of 2004, whereas net
cash used in our operations during the first quarter of 2003 was
$23 million. During the first quarter of 2004, we
experienced a significant decrease in accounts receivable, which
was offset by an increase in accounts payable. In the first
quarter of 2003, however, we experienced a large increase in
accounts receivable while accounts payable remained constant.
The reduction in accounts receivable during the first quarter of
2004 was primarily due to the reduced sales of styrene and
acrylontrile resulting from the turnarounds of these units. Net
cash flow used in our investing activities, which was for
capital expenditures, was $3 million during the first
quarter of 2004 compared to the $2 million of net cash flow
we used in our investing activities during the first quarter of
2003. We did not record any cash provided by or used in
financing activities during the first quarters of 2004 or 2003.



| |                     
| | --------------------
| | Capital Expenditures

Our capital expenditures were $3 million
during the first quarter of 2004 and $2 million during the
first quarter of 2003. During the remainder of 2004, capital
expenditures are anticipated to be approximately
$20 million to $25 million, primarily for routine
safety, environmental and equipment replacement matters.

Critical Accounting Policies, Use of Estimates
and Assumptions

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the condensed consolidated
financial statements and related notes. Actual results could
differ from those estimates. On an ongoing basis, management
reviews its estimates, including those related to the allowance
for doubtful accounts, recoverability of long-lived assets,
deferred tax asset valuation allowance, litigation,
environmental liabilities, pension and post-retirement benefits
and various other operating allowances and accruals, based on
currently available information. Changes in facts and
circumstances may alter such estimates and affect our results of
operations and financial position in future periods.

18



---



##### Table of Contents



New Accounting Standards

In December 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
Number (FIN) 46-R, Consolidation of
Variable Interest Entities. FIN 46-R, which modifies
certain provisions and effective dates of FIN 46, sets
forth criteria to be used in determining whether an investment
in a variable interest entity should be consolidated. These
provisions are based on the general premise that if a company
controls another entity through interests other than voting
interests, that company should consolidate the controlled
entity. We have evaluated whether the provisions of
FIN 46-R are applicable to our investments, certain of
which are currently accounted for by the equity method, as well
as other arrangements, which may meet the criteria of the
interpretation, and believe that there are currently no
arrangements that meet the definition of a variable interest
entity which would require consolidation.

In December 2003, the FASB revised
SFAS No. 132, Employers Disclosures about
Pensions and other Postretirement Benefits. The revised
statement retains the disclosures required by the original
SFAS No. 132 and requires additional disclosures
describing the types of plan assets, investment strategy,
measurement date, plan obligations, cash flows and components of
net periodic benefit cost recognized during interim periods. The
revised statement is effective for financial statements with
fiscal years ending after December 15, 2003. The disclosure
requirements of SFAS No. 132 have been applied in the
accompanying condensed consolidated financial statements.

In January 2004, the FASB issued FASB Staff
Position No. FAS 106-1, Accounting and
Disclosure Requirements Related to the Medicare Prescription
Drug Improvement and Modernization Act of 2003, which is
effective for interim or annual financial statements of fiscal
years ending after December 7, 2003 and permits a one-time
election to defer accounting for the effects of the Act. In
accordance with the FAS 106-1, we have elected to defer
accounting for the effects of the Act and, as such, any measures
of the postretirement benefit obligation or net periodic
postretirement benefit cost in the financial statements or
accompanying notes do not reflect the effects of the Act.
Specific authoritative guidance on the accounting for the
federal subsidy is pending and that guidance, when issued, could
require us to change previously reported information. However,
we do not believe that the effect of the Act will be material to
our condensed consolidated financial statements.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

Our financial results can be affected by volatile
changes in raw materials, natural gas and finished product sales
prices. We do not currently have exposure to changing
U.S. interest rates, as there are no draws outstanding
under our Revolver. However, the fair value of the Secured Notes
may vary in response to changing interest rates. The Secured
Notes bear interest at an annual rate of 10%, payable
semi-annually on June 15 and December 15 of each year.
Under certain circumstances, for any interest period ending on
or before December 19, 2004, we may elect to pay interest
on the Secured Notes through the issuance of additional Secured
Notes rather than the payment of cash. However, if we pay
interest through the issuance of additional Secured Notes rather
than the payment of cash, the interest rate for the relevant
period is increased to 13 3/8%.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission, and
that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Management necessarily applied
its judgment in assessing the costs and benefits of such
controls and procedures which, by their nature, can provide only
reasonable assurance regarding managements control
objectives.

19



---



##### Table of Contents



We carried out an evaluation, under the
supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial
Officer, on the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15, as of the end of the fiscal period covered by
this report on Form 10-Q. Based upon that evaluation, our
Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures are
effective in timely alerting them to material information
relating to us (including our consolidated subsidiaries)
required to be disclosed in our Exchange Act reports. In
connection with our evaluation, no change was identified in our
internal control over financial reporting that occurred during
the first quarter of 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.

20



---



##### Table of Contents






PART II.

OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

The information under Legal
Proceedings and Other Claims in Note 5 to
the consolidated financial statements included in Item 1 of
Part I of this report is hereby incorporated by reference.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

On January 26, 2004, the holders of 100% of
our Series A Convertible Preferred Stock acted by written
consent to approve an amendment and restatement of the
Certificate of Designations, Preferences, Rights and Limitations
of Series A Convertible Preferred Stock. The amendment to
the existing Certificate of Designations, Preferences, Rights
and Limitations of Series A Convertible Stock cured an
ambiguity in the prior document in a manner that did not
materially limit or qualify the rights of the holders of our
common stock. Only the holders of our Series A Convertible
Preferred Stock were entitled to vote on this amendment and
restatement. The disinterested members of our Board of Directors
unanimously approved the amendment and restatement at a
telephonic Board meeting held on January 27, 2004. The
Restated Certificate of Designations, Preferences, Rights and
Limitations of Series A Convertible Preferred Stock is
attached to our Form 10-K for the fiscal year ended
December 31, 2003 as Exhibit 3.2.






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits: The following exhibits
are filed or furnished as part of this Form 10-Q:

|        |        |  |  |                        |  |                                                                                                                                                                                                                                                                                          
|------- | ------ |  |  | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |  |                       
|Number  |        |  |  | Description of Exhibit
|        |        |  |  |                       
|        | 2.1    |  |  |                       |  | Certificate of Ownership and Merger merging
    Sterling Chemicals Holdings, Inc. into Sterling Chemicals, Inc.
    (incorporated by reference from Exhibit 2.1 to our Annual
    Report on Form 10-K for the fiscal year ended
    September 30, 2002).                                 
|        | 2.2    |  |  |                       |  | Joint Plan of Reorganization of Sterling
    Chemicals Holdings, Inc., et al., dated October 14,
    2002 (incorporated by reference from Exhibit 2.1 to our
    Form 8-K filed on November 26, 2002).                                                                                   
|        | 2.3    |  |  |                       |  | First Modification to Joint Plan of
    Reorganization of Sterling Chemicals Holdings, Inc.,
    et al., dated November 18, 2002 (incorporated by
    reference from Exhibit 2.2 to our Form 8-K filed on
    November 26, 2002).                                                        
|        | 3.1    |  |  |                       |  | Amended and Restated Certificate of Incorporation
    of Sterling Chemicals, Inc. (incorporated by reference from
    Exhibit 3.1 to our Annual Report on Form 10-K for the
    fiscal year ended September 30, 2002).                                                                   
|        | 3.2    |  |  |                       |  | Restated Certificate of Designations,
    Preferences, Rights and Limitations of Series A Convertible
    Preferred Stock of Sterling Chemicals, Inc. (incorporated by
    reference from Exhibit 3.2 to our Annual Report on
    Form 10-K for the fiscal year ended December 31, 2003).
|        | 3.3    |  |  |                       |  | Restated Bylaws of Sterling Chemicals, Inc.
    (conformed copy) (incorporated by reference from
    Exhibit 3.3 to our Quarterly Report on Form 10-Q for
    the fiscal quarter ended June 30, 2003).                                                                                   
|        | **10.1 |  |  |                       |  | Fourth Amended and Restated Key Employee
    Protection Plan.                                                                                                                                                                                                                            
|        | **15.1 |  |  |                       |  | Letter of Deloitte & Touche LLP
    regarding unaudited interim financial information.                                                                                                                                                                                                   
|        | **31.1 |  |  |                       |  | Rule 13a-14(a) Certification of the Chief
    Executive Officer                                                                                                                                                                                                                          
|        | **31.2 |  |  |                       |  | Rule 13a-14(a) Certification of the Chief
    Financial Officer                                                                                                                                                                                                                          
|        | **32.1 |  |  |                       |  | Section 1350 Certification of the Chief
    Executive Officer                                                                                                                                                                                                                            
|        | **32.2 |  |  |                       |  | Section 1350 Certification of the Chief
    Financial Officer                                                                                                                                                                                                                            



---



|   |                            
|-- | ---------------------------
|** | Filed or furnished herewith

(b) Reports on Form 8-K.



| |      
| | -----
| | None.

21



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.



| |                         
| | ------------------------
| | STERLING CHEMICALS, INC.
| | (Registrant)            



| |    |                     
| | -- | --------------------
| | By | /s/ RICHARD K. CRUMP

| |                                          
| | -----------------------------------------
| |                                          
| | Richard K. Crump                         
| | President and Chief Executive
    Officer

Date: May 12, 2004



| |    |                        
| | -- | -----------------------
| | By | /s/ PAUL G. VANDERHOVEN

| |                                    
| | -----------------------------------
| |                                    
| | Paul G. Vanderhoven                
| | Senior Vice President 
    Finance
| | and Chief Financial Officer        
| | (Principal Financial Officer)      

Date: May 12, 2004

22



---



##### Table of Contents



EXHIBIT INDEX

|        |        |  |  |                        |  |                                                                                                                                                                                                                                                                                          
|------- | ------ |  |  | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |  |                       
|Number  |        |  |  | Description of Exhibit
|        |        |  |  |                       
|        | 2.1    |  |  |                       |  | Certificate of Ownership and Merger merging
    Sterling Chemicals Holdings, Inc. into Sterling Chemicals, Inc.
    (incorporated by reference from Exhibit 2.1 to our Annual
    Report on Form 10-K for the fiscal year ended
    September 30, 2002).                                 
|        | 2.2    |  |  |                       |  | Joint Plan of Reorganization of Sterling
    Chemicals Holdings, Inc., et al., dated October 14,
    2002 (incorporated by reference from Exhibit 2.1 to our
    Form 8-K filed on November 26, 2002).                                                                                   
|        | 2.3    |  |  |                       |  | First Modification to Joint Plan of
    Reorganization of Sterling Chemicals Holdings, Inc.,
    et al., dated November 18, 2002 (incorporated by
    reference from Exhibit 2.2 to our Form 8-K filed on
    November 26, 2002).                                                        
|        | 3.1    |  |  |                       |  | Amended and Restated Certificate of Incorporation
    of Sterling Chemicals, Inc. (incorporated by reference from
    Exhibit 3.1 to our Annual Report on Form 10-K for the
    fiscal year ended September 30, 2002).                                                                   
|        | 3.2    |  |  |                       |  | Restated Certificate of Designations,
    Preferences, Rights and Limitations of Series A Convertible
    Preferred Stock of Sterling Chemicals, Inc. (incorporated by
    reference from Exhibit 3.2 to our Annual Report on
    Form 10-K for the fiscal year ended December 31, 2003).
|        | 3.3    |  |  |                       |  | Restated Bylaws of Sterling Chemicals, Inc.
    (conformed copy) (incorporated by reference from
    Exhibit 3.3 to our Quarterly Report on Form 10-Q for
    the fiscal quarter ended June 30, 2003).                                                                                   
|        | **10.1 |  |  |                       |  | Fourth Amended and Restated Key Employee
    Protection Plan.                                                                                                                                                                                                                            
|        | **15.1 |  |  |                       |  | Letter of Deloitte & Touche LLP
    regarding unaudited interim financial information.                                                                                                                                                                                                   
|        | **31.1 |  |  |                       |  | Rule 13a-14(a) Certification of the Chief
    Executive Officer                                                                                                                                                                                                                          
|        | **31.2 |  |  |                       |  | Rule 13a-14(a) Certification of the Chief
    Financial Officer                                                                                                                                                                                                                          
|        | **32.1 |  |  |                       |  | Section 1350 Certification of the Chief
    Executive Officer                                                                                                                                                                                                                            
|        | **32.2 |  |  |                       |  | Section 1350 Certification of the Chief
    Financial Officer                                                                                                                                                                                                                            



---



|   |                            
|-- | ---------------------------
|** | Filed or furnished herewith