The lithium market remained under pressure during FY20 with oversupply and aggressive pricing being compounded by the outbreak of the COVID-19 pandemic. Lithium prices in the China domestic and seaborne markets were comparable at the start of FY20 reflecting growing Chinese exports during the latter part of FY19, pressuring seaborne prices down. After being somewhat displaced from supplying ex-China customers, certain South American producers recommenced lithium carbonate exports to China competing directly with Australian spodumene producers for sales to conversion plants. This increased competition resulted in some initial reductions in exports of independent Australian spodumene to China and further declines in the China lithium carbonate spot price.

Seaborne prices on the other hand, were supported by an acceleration in European electric vehicle (EV) sales reflecting the European Union's earlier confirmation that the carbon emissions threshold would be dropped from 120g/km to 95g/km per vehicle effective in 2020. From September 2019 through to February 2020, the European EV market rallied achieving consistent month-on-month growth. As a result, there was notable destocking during this time as supply chains of car manufacturers experienced strong growth in Europe, specifically Tesla, VW Group, Renault, and BMW. Positive signals of an improvement in Chinese demand also began to emerge in late CY2019. Tesla opened the Shanghai Gigafactory in November 2019, and later announced a China-centric EV model. The United States and Chinese Governments also announced a Phase 1 trade deal, defusing an 18-month period of tensions between the two countries. In January 2020, the Chinese Government also decided to extend the EV subsidy program to 2022.

However, the outbreak and spread of COVID-19 in China dampened any chance of improved demand. During the early stages, the pandemic largely appeared contained to China. Shipments to ex-China customers continued at this time although uncontracted volumes were often sold at lower prices reflecting Chinese customers absence and a need for suppliers to manage building inventory. As the pandemic breached the borders of China, the supply chain ground to a standstill. Car manufacturers in Europe and the US were the first to shut down operations or switch to producing necessary medical devices and masks, resulting in a wave of closures, or reduced operating rates upstream at battery and cathode manufacturers elsewhere. The pace at which downstream operations re-commenced and ramped up battery and EV production varied throughout the industry depending on inventory levels, customer order backlogs, and logistical contracts.

By the June 2020 quarter, it became apparent that any destocking which had occurred late CY2019 had been offset by COVID-19 related impacts. Weak global demand and build of product inventory saw increasingly aggressive sales behaviour by some spodumene and lithium chemical producers seeking to maintain cash flow, minimise unit costs and/or grow market share at the expense of price. Supply from some South American brine producers to the Chinese market accelerated forcing further reductions in exports of certain Australian hard rock producers.

Throughout FY20, widespread delays to lithium expansion projects were announced reflecting market conditions, limitations on project workforce availability and lower plant and equipment availability. The prolonged, subdued market conditions have resulted in project delays which will support the potential medium to long-term improvements on industry pricing and structure. This will be further reinforced by the extended development times of new brine production and hard rock conversion capacity.

From a demand perspective, near-term improvements rest heavily on the European EV market. It has become increasingly apparent that the European Union and member states will use 'green' industries like EV's as a platform for economic recovery post-COVID-19. The 'Green Recovery Plan' allocates 20 billion Euros to projects that would provide some form of environmental benefit such as lowered carbon emissions. Additionally, four of the largest car markets in Europe namely Germany, France, Italy and Spain, have increased EV subsidies by up to 50% from July 2020.

On a global basis the lithium market has suffered a setback due to COVID-19, however the medium to long term outlook remains exceedingly positive and continues to be further reinforced with increasing government regulation and funding.