SAO PAULO--Comgas, as natural-gas distributor Cia. de Gas de Sao Paulo (CGAS5.BR) is known, said Wednesday it expects volumes sold to industry to rebound with the broader economy next year after posting the first decline since the 2008 crisis.

Natural-gas volumes sold to industries are expected to end 2012 about 2% below 2011 volumes as Brazil struggles with declining global demand, Chief Financial Officer Roberto Lage told reporters. The petrochemical industry has been especially hard hit as cost of production in Brazil climbs, leading companies to shift production to other countries, he said.

Except for a downturn in volume during the 2008 crisis, "this will be the first time in 12 years that industrial volume sees a retraction," he said. "For 2013 our expectations are very much that there will be a marginal improvement in industrial output, accompanying GDP growth."

Economists expect Brazil's economy to grow 4% next year, after ending 2012 with an expansion of just 1.5%. Industrial output, meanwhile, is expected to expand 4.2%, after shrinking 2.1% this year, according to the weekly central bank survey of economists published Monday.

While volumes to industrial clients improved in the third quarter from the second quarter, that is a seasonal expansion that happens every year, according to Comgas executives.

"There hasn't been a real recovery in demand," said Sergio Luiz da Silva, head of planning and supply. "Everyone is going through difficult times."

The company's strategy of focusing on residential clients has paid off, with 90,000 new households added to the company's customer list since the start of this year, or growth of 10% on the year, Mr. Lage said. Residential clients still account for a small share of volume--just 3.9% of volume is sold to residential clients, compared with 75% for industrial clients--but Comgas expects to keep growing residential client base at double-digits every year in the medium term. That is because residential clients provide attractive margins for the company: despite the small volume of sales, residential customers provide one-fourth of Comgas's operating margins.

Comgas passes on higher prices to consumers, but recent spikes in prices have eaten into the company's cash position because it must foot the higher bill until it can pass on the costs during annual rate adjustments that happen every May, Mr. Lage said. To help remedy that problem as the company goes forward with investment of more than BRL400 million a year, Comgas has contracted BRL1.1 billion in loans from national development bank BNDES.

Mr. Lage said Comgas, control of which will be passed to Brazil sugar and ethanol producers Cosan SA (CSAN3.BR) from BG Group (BG.LN), also plans to raise more than BRL500 million before 2014 through multilateral bank loans, debt sales, or even the issue of infrastructure bonds, on which investors are exempt from paying taxes.

Write to Paulo Winterstein at paulo.winterstein@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Cosan Limiited (NYSE:CZZ)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Cosan Limiited Charts.
Cosan Limiited (NYSE:CZZ)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Cosan Limiited Charts.