Risky bailout or smart geopolitics? Nyrstar smelter rescue divides opinion

Welcome to the frontline of global politics: Hobart and Port Pirie.

The two cities — with a combined population of less than Geelong — don't necessarily have much in common.

But the fact they are both home to smelters run by multi-metals company Nyrstar mean they are now enmeshed in what has become a global arm-wrestle with China over critical minerals and trade policy.

"This is the world arriving on Australia's doorstop," said Edward Cavanough, CEO of progressive think tank, The McKell Institute.

The reality Mr Cavanough is referring to is a "sophisticated, geo-economic attempt" by China to consolidate critical minerals production within its own country.

These are minerals that are pivotal to manufacturing things like solar panels, wind turbines and weapons.

China is subsidising its companies to purchase Australian raw materials at prices Australian smelters cannot afford, according to South Australia's peak body for resources.

The country then subsidises the processing of those materials into metals while also placing export controls over the finished product.

The result is China now dominates the global market for raw minerals both as an extractor and refiner, while companies like Nyrstar say they are losing tens of millions of dollars a month.

It was in that context that the federal, South Australian and Tasmanian governments on Tuesday announced a $135 million bailout for Nyrstar's Port Pirie lead smelter and Hobart zinc refinery.

It's the second major industrial intervention the South Australian government has made this year; in February, it placed the Whyalla steelworks into administration and combined with the federal government on a $2.4 billion rescue package.

A bi-partisan intervention

Mr Cavanough said it was notable that the Nyrstar intervention was backed by both a Labor government in SA and a Liberal government in Tasmania.

He said the country has entered "almost a post-ideological era of intervention" that was no longer characterised by party politics, ideological purity or free-market adherence.

"And I think we're going to see more of that from all types of governments all around the world, including here at home."

Mr Cavanough said other countries have responded to China's critical minerals moves with hands-on industrial policies.

This includes, he said, the Trump administration's effort earlier this year to take a stake in a US steel manufacturer that was acquired by Japan's Nippon Steel, and the Biden administration's Inflation Reduction Act, which was "basically the largest industrial policy intervention for generations in that economy".

"We are seeing around the world a new era of industrial policy and it is largely responding to this phenomenal subsidisation policy we're seeing in the Chinese market," he said.

"More close to home, countries like Indonesia, in South Asia, all over Africa, there's more government intervention [and] government control of these industries."

An 'unacceptable risk'

Confronting China's critical minerals policy was front and centre as the state and federal governments announced the Nyrstar bailout.

Speaking to reporters outside the Port Pirie lead smelter on Tuesday, both federal Industry Minister Tim Ayres and SA Premier Peter Malinauskas brandished a small piece of antimony — a metal used in military weapons and electronics — like it was a Medicare Card during a federal election campaign.

China currently dominates global production of antimony, but part of the $135 million Nyrstar package will go towards building an antimony production plant in Port Pirie.

The SA Premier pointed to this in his attempt to justify the level of public money going towards Nyrstar's operations.

"That's an unacceptable risk, particularly in the current geo-strategic environment."

Grattan Institute energy and climate change program director Alison Reeve, who has previously warned about the risks of bailing out Nyrstar, said it was positive that the public money would go towards new critical minerals production.

"We're certainly not the only country that is concerned about the Chinese hold on particular parts of these supply chains," she said.

"I think ... what is good here is we aren't just focusing on propping up the current operations but also about expanding into areas that are potentially going to be growth areas in the future."

Will Nyrstar's smelters survive long-term?

Now that Nyrstar has got the public help it's been lobbying for, will it stay competitive in the long run?

Mining analyst Tim Treadgold was very sceptical.

Asked if the company will survive, he said: "In the short-term, yes, in the long-term, no."

"Because it can't compete, because China will continue to produce raw materials cheaper than anything Nyrstar can do," he said.

Mr Treadgold said Australian companies were dealing with a "toxic cocktail" of high energy costs and competition with China.

"The real point is that China is more competitive, it's got cheaper energy costs than Australia, it's got a bigger manufacturing base," he said.

"[China] can knock Australian companies off their perch because it's bigger, faster, better and cheaper."

Not only is it unclear whether this bailout will succeed, there is also the question of how many more will be needed.

Mining company Glencore has approached the federal government for help over the future of its Mount Isa copper smelter and Townsville copper refinery.

Rio Tinto has reportedly done the same due to problems at its Tomago aluminium smelter in New South Wales.

In the "new industrial era", taxpayer help might not be far away.