These three places in South America support the world's lithium battery demand

Lithium, the stuff of "white oil", is driving all the products of the modern world, with more than half the world's lithium hidden in salt fields in Chile, Argentina and Bolivia.

Argentina is home to vast stretches of fertile grassland that yield a valuable commodity in addition to soybeans and livestock. As demand continues to grow, so does the price of the commodity, attracting waves of foreign investors to Argentina.

In the modern world, most things are driven by lithium, a material called "white oil". Lithium is a small but irreplaceable component in rechargeable battery products. At present, lithium battery has been widely used in mobile phones, electric cars and other products, and even in medicine and other fields. More than half of the lithium resources discovered so far lie in the "lithium triangle" of South America. It is a stunning landscape of high-altitude lakes and bright white salt marshes spanning Chile, Argentina and Bolivia.

Until recently, the zone was out of investors' sight. Argentina and Bolivia lack friendly, stable business environments, while Chile tightly controls lithium production. But that is about to change.

In recent days, Chile has made changes to the way it manages its resources while selling off a stockpile of lithium. Chile's move has certainly piqued the interest of outside investors, including early mining companies and electric car makers led by Tesla. Argentina is already the world's third-largest producer of lithium resources, after Chile and Bolivia, and investors are hoping that the government of MauricioMacri, who took office in December, will bring them a brighter future.

Business-minded macri is reforming the country in hopes of returning Argentina to an economy-centric approach. By removing onerous capital controls, Mr Macri has signalled that his decade-long system of trade protection has been abolished and that Argentina will open up to business again. "For the last 10 to 12 years, Argentina has been seen as a bad place to invest. But now there is a u-turn in the country's attitude to business. Lithium is lithium, "said TomHodgson, chief executive of WesternLithium. Western lithium has invested in a project in Argentina and plans to begin production next year. Speaking to Reuters at a mining conference in Toronto earlier this month, hodgson said Argentina was likely to start building a lithium export industry.

Western lithium has partnered with South Korea's POSCO, whose chairman traveled to Argentina and macri last month to meet. Posco has begun construction of a new lithium plant in the area, which is scheduled to start production this year. Orocobre, an exploration and mining company, has also invested in a project in Argentina. But the biggest beneficiary of the lithium revolution in Argentina has undoubtedly been a us company called FMC, which specialises in agriculture and chemistry.

FMC is already producing lithium at the umbremuerto salt farm in northern Argentina. While the lithium-powered segment currently accounts for a small fraction of FMC's revenue, it is growing rapidly and is expected to reach $250 million this year. "Now that the Argentine government has started to make policy changes, we believe that the local business environment will become more predictable and investment and operating costs will be significantly reduced." "We believe that the overall size of the lithium industry will grow significantly annually from 2016 onwards and will continue until 2023," said TomSchneberger, vice President of FMC's lithium subsidiary. It is estimated that demand for lithium resources will exceed supply until 2023, with the largest demand coming from lithium battery products.

Chile has the perfect climate

Exploration shows that Bolivia has the world's largest reserves of lithium, but JonHykawy, President of Stormcrow, a consultancy, does not think the country's lithium resources will be the first choice for commercial use. Bolivia faces a number of challenges: in addition to its rainy season, the country's lithium resources are generally mixed with other chemicals, and the investment environment is not friendly.

BrianJaskula, a minerals and commodities expert at the U.S. geological survey, said Chile's popularity among investors was due not only to its free-market environment but also to its dry desert climate, which is ideal for lithium production. Chile's main producer of lithium is in the vast atacama salt marsh, where SQM, a local lithium company, and Rockwood, a foreign lithium company, have both invested. SQM was privatised in the 1980s, when Chile was run by general AugustoPinochet, and the dictator's son-in-law assumed absolute control. But relations between the company and the Chilean government are much worse now that the leftist government is in power. In the past two years, SQM has fought with local authorities over market manipulation, disputed tax invoices and even a lawsuit with the local production promotion institute (Corfo) over licensing fees.

Albemarle, the us specialty chemicals company, is now taking over SQM's territory. Last year, the company bought Rockwood for $6 billion and signed a deal with the local production promotion association to make sure it could produce lithium in Chile at three times the usual rate. The government believes the public-private partnership model is the right way to promote the country's development, and says Chile will conduct more bidding activities in the future. Meanwhile, Chile's government denies that it has taken special care of companies. "The government of Chile is interested in working with all companies that are willing to explore and develop lithium resources if they meet Chilean requirements and standards." Chile's mining minister, AuroraWilliams, told Reuters.

But EduardoBitran, the chairman of the association for the promotion of production, insists that all lithium investments, which are carried out by private companies, must be in the interests of the Chilean people as well as being sustainable. Albemarle and SQM declined to be interviewed for this story, but at an investor conference earlier this month, SQM said it was interested in increasing its lithium production in Chile while also looking to the world for new opportunities.

Supply and demand of lithium resources

Industry insiders have warned that production growth, however friendly the government may be, is a complex process. As a result, end-users, led by battery makers, are largely dependent on major lithium suppliers.

In addition to tesla, traditional carmakers such as Nissan and BMW have entered the fast-growing electric car industry, with Daimler, the German carmaker, recently announcing plans for a lithium-ion battery plant. Companies such as Samsung and Foxconn are also major users of lithium batteries.

With the soaring price of lithium materials, all users of lithium resources are eager to lock up the deal. In 2011, the price of a kilogram of lithium carbonate was just $5,180. Tesla and other carmakers have also come to Chile to see whether the supply of lithium can meet future demand, said IgnacioMoreno, Chile's deputy minister of mines.

Tesla declined to comment, saying only that it has signed agreements with three exploration companies operating outside of Chile that will also supply lithium to tesla.

"Battery manufacturers are also scouring the world for all the places where they can set up joint ventures, even if they don't care how risky they are inherently." Gaskula said.

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