Today's topic is commodities.

And I'm here with Neil Gregson, who's the manager of JPMorgan's natural resources fund.

It's been a dismal time for commodities over the past twelve months.

2015, was one of the worst years on record for commodity performance.

But we've seen a great uptick this year, and I'm here to discuss the reasons why with Neil.

Neil, we're out of the super cycle.

What was one of the moment are we at for the commodities outlook would you say at the moment?

I think we're getting through the worst, I think we're through the denial phase now.

So you mentioned 2015 as being a bad year, well we've had an unprecedented five years down in the mining sector.

Albeit after a super cycle, interrupted briefly by the global financial crisis.

But we're seeing all the behavior that we've seen in past down cycles that is fairly typical at the bottom.

So I'm not surprised to see an increased interest in the sector over recent months.

So a good uptake.

Now let's look at some of the reasons why we saw the super cycle in the first place,

and see what some of the data is telling us about where the industry is.

The first thing to talk about, if we're going to look at the first chart is capex,

capital expenditure by mining companies over the period.

We saw a massive rise, and now we've seen a steep fall off.

What's that telling us about where we're gonna be, Neil?

It's telling us that there's going to be less supply in the future.

So just as that chart shows the reaction to high prices and more and more supply,

the industry reacting to lower prices, which means less supply in the future,

so the markets will balance again.

They always have to balance.

Yeah, to a large extent it's been a supply story, hasn't it?

And I think we need to look at the next chart to see where the supply story is heading forward 2016.

This is a chart that shows small rises, very small rises for a few commodities.

But generally, supply growth trending downwards.

So we're gonna see restricted supply this year, particularly for some of the base metals.

Is that gonna be enough really to change the outlook fundamentally here?

Well, I think it will be even with the modest uptake in demand.

What we're seeing is many of these commodities that were deep into the cost curves.

So lots of mines are losing money.

Some mines are getting old and closing, such as Century Zinc,

one of the world's biggest zinc mines is now closed.

And other areas like in copper and zinc,

we've had lots of announcements from companies like Glencore about cutting production.

And in Iron ore, the high cost Chinese production is also falling.

So the industry reacting, industries will fall and this perception of this bat against commodities forever

will start to change as the markets balance out.

So you only need a modest improvement in demand to help prices move upwards.

So the next obvious question then is, are we gonna see that modest increase in demand?

What's your forecast for where we're going there?

Well, I think we are seeing reasonable demand.

Obviously China has been very very weak for a number of years.

But that's pretty much a consensus trade.

So there were still some infrastructures bending clearly consumptions okay,

you know, US seems to be performing okay as well.

So we are seeing modest improvements in demand, but nothing stellar.

But again with the supply cuts that we've seen and the announcements that we've seen about future supply cuts,

that's gonna help a lot.

So I think we are through the worst.

Through the worst, Neil Gregson, thank you very much for joining us this morning.

Thank you.