The lithium market continued on a path of recovery during the December quarter, confirming a bottom had been reached in the preceding months. The Chinese lithium carbonate market demonstrated particular strength with spot prices rising ~50% between September 2020 and December 2020 as domestic supply became increasingly tight as demand from the electric vehicle (EV) sector accelerated.

Underlying fundamentals for electric vehicles continue to improve with an increasing number of commitments to EVs by national governments such as those announced by the United Kingdom in late 2020 which will ban petrol and diesel vehicle sales by 2030. The success of government mandated EV initiatives can be seen in the Norwegian market with EVs accounting for ~80% of new car sales in October 2020. All new car sales in Norway are expected to be EVs by 2025.

There are multiple other growth catalysts that are driving lithium demand including a change of government in the US and proposed US$2 trillion renewables stimulus, European carbon emissions penalties on automakers, and the growing range and affordability of popular EV brands in China.

Chinese EV demand continued to outperform expectations with the leading industry body, the Chinese Association of Automobile Manufacturers (CAAM) revising the 2020 New Energy Vehicle (NEV) forecast from 1.1 million units mid-year to 1.3 million units outperforming 2018 and 2019 levels. December 2020 marked the sixth consecutive month of growth in NEV sales in China, with a high proportion of pure battery electric vehicles (BEV's) at 70-80% versus plug-in hybrid (PHEV) resulting in higher lithium consumption with the larger battery size of a BEV relative to a PHEV. China's demand for lithium carbonate remained higher than the rest-of-world due to a resurgence of LFP battery formats and continued use of mid nickel NMC cathodes by Chinese battery makers producing adequate range for the majority of China's EV buyers.

As Chinese brine producing regions became prohibitively cold, production declined and inventories were quickly reduced, limiting availability of industrial carbonate to upgrading converters as well as cathode manufacturers who seek to maximise the use of lower cost material. This supply dynamic throughout the quarter decreased the premium, battery grade carbonate typically achieves over industrial carbonate. Supply discipline by spodumene producers and earlier mine closures meant converter stock levels also declined. As a result, China's demand for South American lithium chemical supply grew over the quarter absorbing increased supply from Chile which had previously played a large part in driving Chinese prices down.

Continued tightening in the lithium market is expected during the March quarter as Chinese brine remains restricted by weather conditions and Chinese spodumene converter output is bound by feedstock availability. Rest of world supply increases will also be limited given most South American producers have delayed 2021 expansion plans to 2022 and greenfield projects have been pushed back by lack of funding and/or high cost of capital.