Pennies & Copper

At recent coin shows, we’ve had people searching for pennies – not so much for their numismatic value, but more for their copper content. But why? Well, the cost of the metal has increased significantly.

No, you cannot melt pennies. The following summary rule made by the Treasury Department in 2007 states the prohibition. The details can be found at the Government Printing Office.

31 CFR Part 82

Prohibition on the Exportation, Melting, or Treatment of 5-Cent and One-Cent Coins

AGENCY: United States Mint, Treasury
ACTION: Final Rule

To protect the coinage of the United States, the United States Mint is adopting a final rule that prohibits the exportation, melting, and treatment of 5-cent and one-cent coins. This rule is issued pursuant to 31 U.S.C. 5111(d), which authorizes the Secretary of the Treasury to prohibit or limit the
exportation, melting, or treatment of United States coins when the Secretary decides the prohibition or limitation is necessary to protect the coinage of the United States. This rule’s purpose is to ensure that sufficient quantities of 5-cent and one-cent coins remain in circulation to meet the needs of the United States.

DATES: Effective Date: This final rule is effective April 16, 2007.

But, why was this rule even necessary? It’s simple, really. Our one-cent coins, even though their copper content is much less than their zinc content, cost more than a penny to produce.

Take a look at the costs for fiscal years 2000 through 2010.

Cost of making a penny

The bars represent the costs incurred by the US Mint for the circulating penny. (This does not include proof, uncirculated and numismatic versions of the cent.) The red line shows where the costs go over one cent. But, since they do not include marketing expenses in their cost basis, it could be the cost bars do not fully reflect the true cost of the production of the penny.

When you look at the US Mint’s distribution of the penny, as the costs went up their production and distribution went down. Makes sense – the penny is a losing enterprise.

Cost of the penny with distribution in millions

The numbers on the right represent millions of pennies. In 2000, they distributed roughly 13.7 billion cents. But in 2009, they did 3.2 billion and 3.5 billion in 2010 (fiscal years).

In the US Mint’s 2010 annual report, they explained:

“In FY 2010, market prices for copper, nickel and zinc climbed from five-year lows of FY 2009 to levels almost as high as those experienced in FY 2007.”

“The average daily spot price for copper and zinc increased 56.9 percent and 52.4 percent, respectively, from FY 2009 to FY 2010.”

Their 2010 fiscal year ended on September 30. The following commentary in the annual report sets the stage for the legislation enacted in December:

“Base metal expenses continue to make up the largest portion of circulating production cost, eroding seigniorage derived from circulating operations. Toward the end of FY 2009, market prices for copper, nickel and zinc all started to increase to FY 2007 levels. Changing the composition of coins to less expensive alternative materials could generate significant cost savings and mitigate further reductions in seigniorage should metal market prices escalate. The Secretary of the Treasury currently has authority to select the composition of the $1 coin, as well as alter the percentage of copper and zinc in the one-cent coin. The compositions of five-cent, dime, quarter-dollar and half-dollar coins are codified by statute. Any authority to change the composition of these denominations requires a statutory amendment.”

The legislation, PUBLIC LAW 111–302 approved on December 14, provides the research and development authority for alternative coinage materials to the Secretary of the Treasury, increase congressional oversight over coin production, and ensure the continuity of certain numismatic items.

As we noted in an earlier post, the Mint solicited input from the public, but the responses are due by April 4 (that’s next Monday).

It’s just not good business to make products at a loss. On the other hand, it does make you wonder about the value of copper in relation to the other metals. Today, for the most part, it’s not considered a “precious metal” like gold, silver and platinum. But, with the Mint having to review their metals due to losses and with nefarious characters stealing copper wherever they can to sell, it makes one take a second look at copper’s value.