Lithium market conditions remained difficult for most of the December quarter, however encouraging demand indicators and further supply curtailments emerged in late CY19/early CY20 and are expected to progressively improve market balance in CY20. The Company expects to see a weak market for the first half of CY20 with a potential market balance improvement becoming evident in the second half of CY20. In the short-term, higher than normal inventory levels in some parts of the supply chain are expected to temper price recovery concealing underlying improvements in demand.

During the December quarter, the lithium market remained challenged by the same set of demand fundamentals as recent quarters, including slower Chinese electric vehicle (EV) market growth, a sluggish Chinese economy, United States (US)/China trade war and lackluster Energy Storage System (ESS) demand. While there was no demand catalyst to alleviate lithium price pressure, several positive demand signals emerged late in the December quarter/early CY20 relating to both the China and Ex-China EV market.

In November 2019, Tesla successfully opened the Shanghai Gigafactory, increasing production to ~1000 EVs per week and ~5% share of the China market by year end. Tesla later announced a reduction in the starting price of its China-built Model 3 sedans by 9% in January 2020 to help close the gap with local manufacturers. The company also announced plans to release a China-centric EV suited to local preferences with a competitive price of US$25K. As sentiment showed early signs of turning in January 2020, the US and Chinese governments announced phase 1 of a trade deal defusing an 18-month period of uncertainty which commenced at approximately the same time the lithium market showed the first signs of softening.

Outside of China, Europe showed the most encouraging signs during the quarter including higher EV sales year-on-year, continued expansion commitments for cathode and battery capacity within Europe and a further 3.2 billion Euro (US$3.55 billion) commitment from the European Commission to the local battery supply chain. Building on these 2019 achievements, the phase-in of the CO2 emissions penalties during 2020 in preparation for full implementation in 2021 is anticipated to support momentum in the European EV market.

During the December quarter, seaborne carbonate prices Ex-China remained under pressure with persisting supply from Chinese producers exacerbated by soft domestic demand. Despite this pressure, Ex-China prices failed to reach the price lows recorded by Chinese carbonate imports late in the quarter as Chinese customers' preference for spot shipments facilitated continued price declines throughout the quarter.

Chinese imports of lithium chemicals grew at the expense of new, independent supply of spodumene concentrate. Growing pressure on non-integrated Australian hard rock suppliers became increasingly apparent resulting in one mine going into care and maintenance. Meanwhile, others announced a shift from continuous to campaign-based production driven by customer orders rather than the previous approach of maximizing operational output. It is anticipated that supply curtailments will continue in CY20 for those operations most sensitive to price pressure. South American brine producers continue to participate in the market due to their lower cost base.