Orocobre views current market conditions as a short-term correction which has led much of the market to overlook strong long-term demand fundamentals driven by growth in the electric vehicle (EV) and energy storage system (ESS) segments. Accordingly, Orocobre maintains long-term demand forecasts in line with the consensus of other major producers in the range of 18% to 20% CAGR between 2018 and 2025.

During Q3 FY19, the spread of pricing in the seaborne market widened to reflect an increasingly complex market environment as factors, including strategic partnering, product qualification periods, broad product specification ranges, contract length and time at which the contract price was negotiated, resulted in a greater range of pricing outcomes. Seaborne prices and market balance were unaffected by widespread rainfall across South America having a lower-than-anticipated impact of ~5 kt LCE based on supplier guidance. Nonetheless, there may be potential for a delayed impact later in the year as the downstream battery chain enters the peak production period and should the Chinese market and economy improve.

Following the conclusion of China's New Year holiday period, independent Chinese conversion plants demonstrated little appetite to build inventory despite widespread announcements of lower spodumene prices in 2019. Similarly, Chinese lithium chemical customers were resistant to establishing long-term agreements instead preferring to negotiate on a shipment-by-shipment basis, as communicated by key suppliers during the most recent earnings calls. As a result, Chinese imports continued to decline as suppliers became increasingly focused on key long-term growth markets with less volatility including South Korea, Japan and Europe.

The compound effect of China's economic instability and the later-than-anticipated NEV (New Electric Vehicle) policy announcement meant there was little to drive Chinese demand. After much anticipation, the updated Chinese NEV policy was announced late in the quarter on 26 March indicating subsidies would be cut by between 47% and 60% for EV's that met the minimum range requirement. Orocobre views the progressive reduction to China's EV policy as an effective way of improving the technical standards and performance of China's battery and EV industry. Despite the current industry restructuring, China continues to record robust electric vehicle sales achieving 198% year-on-year growth in January 2019 (includes full battery EV, BEV and plug-in hybrid PHEV), while EV sales as a proportion of total sales increased to 8.1% in December 2018 compared with 3.8% a year earlier.