Royal Dutch/Shell Group discusses here its profit margins in the Chemical unit.

. . . earnings in 2003 were $185 million lower.

Sales volumes, including traded products, increased by 19% from a year ago benefiting from capacity additions and volumes from new units. However, there was a decline in overall Chemicals unit margins (defined as proceeds less cost of feedstock energy and distribution per tonne of product sold). This was due to high and volatile feedstock and energy costs and surplus capacity, particularly in the USA. Fixed costs were higher, reflecting planned increases in capacity and higher than normal asset maintenance activity, project expenses, increased costs for benefits including pensions, as well as the adverse impact of the weaker US dollar.

Discussion points
1 What was the main cause of the fall in contribution margin?
2 What are the variable costs and the fixed costs described in the extract?