China has bounced back faster than expected from the COVID-19 lockdown while commodity prices have proved remarkably resilient in the face of weak demand during the second quarter of 2020.

This is due in part to a greater than expected disruption to supplies of commodities such as iron ore and uranium due to pandemic restrictions.

UBS says that a V-shaped recovery appears to be underway in China as consumers flock back to showrooms for property, automobiles and household goods, though it warned that the re-emergence of COVID-19 posed the greatest risk.

The recent outbreak of infections in Beijing has raised concerns that a second wave might be starting. Though China has acted quickly, locking down high-risk neighbourhoods and testing millions of residents in the space of a week.

UBS says it favours base metals over precious and bulk commodities – particularly iron ore – while noting that coal is seen as being at the bottom of its trading range.

It questioned how long coal could stay at current levels and pointed to the emergence of economies like India from lockdown as being key to the commodity’s recovery.

The multinational bank says that it sees base metals as being positively leveraged to the post COVID-19 recovery as the lifting of mobility restrictions drives increased demand.

On the copper front, UBS believes that growing demand for electricity grids, electric vehicles and appliances will widen deficits in the market.

Additionally, supply risks remain for copper with the potential for production outages in Chile and Peru where transmission rates for the virus remain high relative to countries such as Australia.

Likewise, it maintains a bullish view on electric vehicles due to a raft of European and Chinese stimulus being pumped into the sector.

This will drive nickel demand due to its increasing use in lithium-ion batteries.

As a result, UBS has upgraded its copper and nickel price forecasts for 2020 by 10-20 per cent to reflect the better than expected second quarter and its expectation that prices will lift further from current levels through the second half of the year.

It expects copper to trade at about $US2.59 ($3.77) per pound and nickel at $US5.89 per pound.