Raw-material bull market fading as supply expands

Cotton Surplus

Investors may also profit by betting on declines. Cotton will average 76 cents a pound in the quarter, or 14% less than now, according to seven predictions. Supply will outpace demand by 1.73 million tons in the 12 months starting Aug. 1, 51% more than previously estimated, Cotlook Ltd., the Birkenhead, England-based research company, said March 25.

Gluts are building in other commodities as well. Copper stockpiles tracked by bourses in London, New York and Shanghai are at the highest in more than nine years, data compiled by Bloomberg show. Increased mine output means supply will outpace demand for the first time in four years in 2013, Deutsche Bank AG estimates. Barclays is predicting excess production in copper, zinc, lead, aluminum and nickel this year.

Corn and wheat will return to surpluses as U.S. production recovers after last year’s drought and higher prices spur farmers to boost acreage, Rabobank estimates. Supplies of soybeans, coffee, sugar and palm oil will also outpace consumption, the bank says. The S&P GSCI Agriculture Index of eight commodities retreated 21% since July.

WTI Record

Oil demand will expand by about 900,000 barrels a day this year as output gains 2.1 million barrels a day, Stockholm-based Nordea Bank AB predicts. Supply lagged behind consumption by the smallest amount in five years in 2012, the International Energy Agency estimates. West Texas Intermediate, the U.S. benchmark, is trading 35% below the record $147.27 set in 2008.

WTI will average $94 in the second quarter, or 2.4% less than now, the median of 35 estimates shows. U.S. natural gas is expected to average $3.45 per million British thermal units, from $3.964 now, based on 20 predictions.

“It’s really hard to be excited to see what’s going to drive the market up from here,” said Lejonvarn of Hermes. “Commodities will be roughly flat for the year. We’re still waiting for that growth phase to take off. You’re at a point when you’re waiting for recovery to be demand-led.”

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