The rechargeable battery market continued to forge ahead, generating strong lithium demand despite the holiday season. While many large cathode customers reportedly attempted to build lithium inventories in the December quarter, stocks were quickly run down as the Chinese government clarified the EV policy regarding "New Energy Vehicles" (NEV). This resulted in many customers returning to the market earlier than lithium suppliers expected at a time when lithium producers volumes were fully-committed. Uncommitted supply from smaller Chinese brine and lepidolite/spodumene conversion plants that intermittently sell into the spot market during the year was also limited as operations were impacted by the Chinese New Year and Spring Festival holidays.

The differential between China domestic market price and the rest of the world market price continued to close QoQ. Major Chinese producers Tianqi and Ganfeng prices were reportedly stable at H2 levels with no un-committed volume available as both experienced an imbalance between spodumene concentrate supply and lithium salt production due to longer than expected maintenance or completion and commissioning of expansion volume. Tianqi"s Jiangsu conversion plant (17.5ktpa LCE nameplate capacity) was shut down for an extended period during April for maintenance resulting in a significant backlog of undelivered volume while production from Ganfeng"s expanded capacity (~10ktpa hydroxide expansion) was delayed in commissioning (Asian Metals). Similarly, another significant conversion plant, Yahua, also conceded it had temporarily ceased production to improve plant equipment to support more effective conversion of its multi-source feedstock (Benchmark Minerals, April 2018). Meanwhile, Shandong Ruifu"s product line, installed to convert direct shipping ore (DSO), was scheduled to finish commissioning during the quarter, however no information could be sourced to confirm this had occurred or indicate the DSO had been converted to lithium carbonate equivalent product.

Further investment is required in downstream conversion capacity to address the existing bottleneck for spodumene conversion. In response, many of the existing conversion plant operators announced expansions of varying scales and timeframes. Historically, actual effective conversion capacity has been significantly less than claimed nameplate capacity. Therefore, the actual conversion capacity realised in the short to medium term will lie somewhere between the existing capacity and claimed new nameplate capacity.

The consensus amongst suppliers is for market demand to be at a level of 14% CAGR or above. In the short term, demand will be driven by electric vehicle uptake and increasingly car manufacturers are announcing higher sales targets, new EV models and greater investment, upgrading advice from as recent as the December 2017 quarter. In addition to the mandatory EV sales requirements and credit system clarified during the quarter, China most recently announced it would remove foreign ownership caps for companies making fully electric and plug-in hybrid vehicles in 2018, for makers of commercial vehicles in 2020, and the wider car market by 2022. These ownership restrictions were imposed in 1994, limiting foreign carmakers to owning no more than a 50 percent share of any local venture and forcing foreign carmakers to work with Chinese firms.

In addition to demand from electric vehicles, the energy storage sector began to gather pace on a global scale. A number of key developments occurred during the quarter supporting the view that lithium demand from ESS may materialise earlier than most forecasts:

Robust demand from the electric vehicle and energy storage sectors compared to realistic forecast growth in both brine and hard rock supply, lead the company to conclude that the market will remain tight until at least 2020.