Demand conditions over the past quarter have been varied with the destocking cycle within the battery supply chain coming to an end, and demand showing signs of recovery. During the March quarter, EV sales in China were adversely impacted by the removal of OEM subsidies and aggressive pricing competition from Internal Combustion Engine ("ICE") vehicles, which was exacerbated by a July deadline for more stringent emissions standards for new ICE vehicles. Despite this slower than expected growth, Chinese EV retail sales during the June Quarter recovered strongly with H1 CY23 retail sales reaching 3.1m units, up 38% YoY. Global EV sales forecasts remain robust with consensus sales estimates being reaffirmed between 13-14 million units this calendar year (+30% year on year), adding support to the view that demand is expected to exhibit a strong uptick during the second half of the year.

Chinese EV sales and battery production data have shown strong improvements: June YTD EV sales have increased 44% year-on-year, whilst battery production was up 36% year-on-year. China's EV purchase tax exemption has been extended until 2027, which coupled with the implementation of more stringent transport emission standards in July 2023, provides further support in the short to medium term demand outlook for EV sales. Demand outside China also rose during the quarter: EU and US EV sales were up 23% and 48% year-on-year respectively May YTD. The Inflation Reduction Act and ICE phase-outs in Europe represent key enablers encouraging demand.

The lithium chemical market is expected to be tightly balanced during the year, particularly given the complexity and risks involved in bringing qualified product to market. ESG frameworks, permitting, and part shortages including crystallizers, have impacted the industry and may cause further delays in increasing refining capacity.

Mineral concentrate markets are expected to be fairly balanced in the near term, reflecting the number of projects (mainly China, Australia and Africa based) that have announced start of production within the 2023 calendar year. Risks of curtailment or delays are ever present. We note Chinese supply curtailment during the March quarter reflected the price sensitivity of this incremental supply. In addition, production from new jurisdictions carries higher risks in relation to quality, volume and government restrictions.