Rising zinc price to doom the penny?

The cent is mostly zinc with a very small percent being the more expensive metal, copper. Cents weigh 2.5 g, so there are 454/2.5 = 182 of them in a pound. Zinc is currently a bit more than 100 cents per pound. So, a penny has about 100/182 = .55 cents worth of zinc in it. Actually the total metal value is a bit more because of the slight copper content. So most of the 1.7 cent cost of making a cent is due to factors other than metal cost.

There is some margin before melting cents will be profitable. Zinc price did hit 200 cents per pound very briefly in late 2006 but plummeted quickly and stabilized in 2010 at about its present level. Looking long term, the price was about 50 cents per pound for the decade before the spike started in 2005. Since the spike, it's been twice that. Lately the zinc price trend is steadily upward.

Even if zinc ore reserves stay constant or increase, the costs of mining, refining and transport will rise with inflation. The major uses of zinc in alloys and corrosion protection are not likely to decrease. Eventually, the price will be stable at more than 182 cents per pound. At that point, it will not be viable to manufacture zinc cents at the current weight as they would be melted upon release. Inflation has averaged 2% in the U.S. over the last 10 years. At that rate, it will be 30 years before a zinc cent contains $0.01 worth of zinc. However, worldwide inflation, which might be more appropriate for zinc, has been about 3% the last ten years. At that rate, it will take 20 years before melting zinc cents becomes profitable.

Either the cent will have to shrink in size or a different material will be used or the cent will cease to exist as a coin. Aluminum, some steels, and lead are cheaper metals than zinc. Aluminum is not that much cheaper, and cheap steels have problems like die wear, rusting, and magnetism. Lead is obviously unsuitable for coinage. Plastic would be cheap but might not last long in circulation. It would be possible to make coins from tough ceramics. The raw materials would be cheap, but the manufacturing costs would be high.

Unless there is a monetary revaluation (unlikely), zinc cents as we know them will disappear in 20-30 years. Use of plated or coated steel for pennies is questionable, but can't be ruled out at this point.

Cal

Refs: cent composition and weight: 2015 Redbook; penny manufacturing cost: wsj.com; metal prices: infomine.com and quandl.com; U.S. inflation: usinflationcalculator.com; world inflation: worldbank.org.

 

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Copper-coated zinc cents are the worst idea ever to hit US coinage. They're scientifically designed not to last; with the more reactive metal on the inside, the least scratch or pinprick causes them to rot away, spewing rather toxic zinc salts into the environment. If not for the zinc industry's effective lobbying, nobody would ever have taken the idea seriously.

We didn't need a one-mill (one-tenth cent) coin when we started making our own coins, and we don't need a one-cent coin today. The buying power of a 2016 cent is much lower than the buying power of a tenth of a cent in 1797.

 

Eventually we will get rid of the cent for circulation, when that will be who knows since it is not exactly at the top of peoples worry list or something that will gain votes in an election.

If the metal prices do rise though and you start seeing much greater losses making it the elimination process could speed up but I won't be holding my breath

 

I agree that inflation has pretty much disappeared the cent. At this point, it's mostly sentimental value and resistance to change (no pun) that keeps it in production.

As far as zinc industry push for it goes, I'm sure zinc companies that want to supply the mint with it do lobbying. For the industry as a whole, maybe not so much. By my calculations, production of 7 billion cents in 2013 required about 17,500 metric tons of zinc, which is only about 2% of U.S. production. In terms of world production, it was only 0.15%. However, that much zinc was worth $38 million, which is more than the change in the average pocket and could buy a vote or two!

Cal

 

they'll keep stamping them by the billions, even if they lose money on them the seniorage on other denominations more than makes up for it. we're talking about bureaucrats here.

 

Once the value of the metal content exceeds face value, it's game over. They'd be melted as soon as they came out the door of the mint. There'd be no way to keep up or pay for it regardless of how much "profit" was made from other activities. Even minting trillions wouldn't put cents into circulation. Every time a billion came out the door, they'd be melted for profit, and the zinc sold back to the mint to make the next billion. If melt value exceeded face by 10%, then for every cycle of a billion cents, the mint would pay $11 million for zinc that they could "sell" for only $10 million. And that's just the metal, not the even more expensive manufacturing costs. It would be the ultimate, no-limit government handout! All you would need to get it would be an iron pot and a hot fire.

Cal

 

No.

Energy costs money, collecting and delivering the cents costs money, separating the zinc from the copper costs money. And that's not even counting the minor detail that it's against the law.

More to the point, the metal value of cents already exceeded their face value, as far back as 2006, and there wasn't mass melting.

There's a big difference between "value of component metals exceeds face value" and "profitable to melt".

 

Being against the law has never stopped melting of coins if it was profitable to do so. Happened on a massive scale with silver in the 1960's. That's one reason silver was discontinued in circulating coinage then.

There is only about 0.55 cents worth of zinc in a cent at present.

Cal

 

Did you follow the links I posted? Zinc has been higher in the past, high enough for cents to be "worth" more than face value, including as far back as 2006.

Melting silver coins was against the law only between 1967 and 1969. The Treasury was authorized to make it illegal by the Coinage Act of 1965, but they didn't invoke that authority until 1967, and they revoked the ban in March 1969.

 

Yes, I'm quite aware of the zinc price run-up starting in 2005, and very briefly it reached the point in 2006 where it would be profitable to melt pennies (i.e. more than $1.82 per pound). However, it was too brief for significant melting to get underway. It had never been close to that point before nor has it been since, but will be eventually. You can go to infomine.com to see historical prices of zinc and other metals.

Zinc melts at less than 800 F, far below silver, gold or iron. Everyone with an iron pot and propane burner will be able to recycle pennies into zinc ingots at a profit when zinc gets to and stays at about $2 per pound. However, I'm sure that fact it will be illegal means it won't happen.

Cal

 

It was above that price for two months in November and December 2006. We can quibble about the meaning or duration of "stays", but IMO the combination of illegality and impracticality will keep people from melting cents until zinc goes much higher than that.

Impracticality: Go from bank to bank until you've got $150 worth of cents. (Remember, if "everyone with an iron pot and propane burner" can profit, they'll be hard to get!) Burn through enough propane to melt that 100 pounds of metal. Strain and pour it without injuring yourself. Find someone willing to assay the resulting pigs and pay you actual market value, minus whatever discount they maintain to guarantee some profit for themselves. Congratulations; you've earned several tens of dollars.

Then again, I've seen videos of people buying sand from big-box retailers to pan it for gold, so I'm sure some people will do this. It just won't be very sensible.

 

The metal value has to exceed the face value plus the cost of melting and refining, and it has to stay at that level for awhile. Once it exceeds the face value people may hoard but they won't get melted. And yes the melting point is low enough that people could melt them down into ingots at home, but what are they going to do with these unmarked mixed alloy ingots? A metal recycler presented with them is going to buy them at a steep discount due to the uncertain alloy and the refining costs. They would probably pay better for unmelted cents (if melting them was legal).

The zinc cent has been a money loser for the government since 2005. It should have been out long ago. (With it's low purchasing power it should have been scrapped back in 1982 instead of ever producing the Zincolns. and they are only worth about a third now of what they were then.)

Lately the price of making the cent has been declining, it is only 1.4 cents now compared to the 2.4 cent it was in 2006. The manufacturing and distribution cost was .7 cents apiece last year So anytime zinc is over 55 cents a pound they will cost more than the face value to make. (assuming manufacturing cost don't rise.)

 

Any coin that someone drops and is unwilling to pick-up....or someone else is unwilling to pick-up, should be REMOVED and no longer produced.

 

When I was biking to work a couple of years ago, I noticed that cents on the road were actually outnumbered by nickels and dimes, with more than a few quarters.

When people don't even bother handling them enough to DROP them any more, you know it's time to stop producing them.

 

Throw me in the ring to end the series....

 

Then the cent should not be removed - I pick them all up that I see. When I walk into the local markets one of the first thing I do is look at the floor to pick up pennies people just dropped.

Kind of funny - my nephews get change jars from me and my brother each Christmas. Every time I catch one of them saying - "Its only a penny" - or nickel, dime or quarter. I tell them that's cool - I will remove them from your change jar so and put them in the others so you won't be bothered by it. The response has always been - never mind Uncle Mark.

 

I pick up EVERY coin I see too...but we're in the minority.

Funny story - A couple of weeks ago I stopped to grab a breakfast sandwich. Opened my door and right at my feet was 47 cents (quarter, 2 dimes, 2 cents). I bought my sandwich for $2.48, snagged a penny from the "leave one" dish so my breakfast was an even $2.

Obviously, someone dropped that 47 cents and didn't bother to pick it up. Neither did the people that surely saw it before I pulled in (busy place).

 

I too pick up cents so long as they are not filthy. Even with filthy ones I will try to read the date before passing.

I know pennies are pretty much worthless but I don't understand people who just dump them. I've seen people dump their car ashtray full of pennies in the parking lot.

 

we have had all the same discussion based on the cost of production. Rising zink cost is only one part of the equation. Its time has come. but neither political party wants to be know as the ones who got rid of it. Neither party wants the public opinion that they did that to the economy.
I collect them, but really its time to let go. R.I.P penny.
We had a large cent
We've had the small cent
now its nonsense
time for the no cents

 

Why not simply stop minting them. If they are effectively useless, there must be plenty already to go around (is anyone short of them?) and as a bonus for collectors they could make some minimal number, say, 100,000 or even 10,000 in each succeeding year for people to hunt down. They could continue to issue them in mint sets and proofs as Britain does with silver pennies and 2, 3 and 4 penny coins in Maundy sets.

There should be no need for any legislation, they would still be minting them, just not so many, and if anyone asks, they just say why make stuff you don't need?

As the number in circulation declines (and what happens to them, by the way?) over the years their value will also decline till no-one misses them.