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TheStreet Open House

Pennies Under Threat As Copper Price Surges

By Shihoko Goto — Exclusive to Copper Investing News

Pennies Under Threat as Copper Price Surges

A penny simply is not worth what it used to be. With the rise of the value of copper over th past few years, one US cent is costing the government more to produce than it is actually worth, and the  W hite House is looking for ways to lower costs.

Of course, pennies are not solid copper. Instead, they have been merely copper-plated since 1982, with zinc making up 97.5 percent of the coin's mass. In fact, despite its silver sheen, the five-cent nickel has a higher copper content than the penny; three quarters of the coin is made up of copper, while the remaining quarter consists of nickel.

Metal prices impact penny cost

As a result, it cost 2.4 cents to make a penny in 2011, and 11.2 cents to make a nickel. “This contributes to volatile and negative margins on both the penny and nickel,” the White House stated.

Through its proposed 2013 budget, under the section entitled “Increased Flexibility for the US  Mint in Coinage,” the Obama administration has asked Congress to allow the metal content in the coins to change, even though the US Mint has not yet identified what a more cost-effective mixture would be.

What is clear, though, is that the continued rise of industrial metal prices in recent years is having a direct impact on the coin industry, and with the persisting volatility in the copper market in particular, the current recipe for pennies may well benefit from using less of the red metal, according to some metal analysts. Moreover, it would not be the first time that the government has lowered the content of metals in its coins as a result of higher raw materials costs. The decision to change the penny formula in 1982 was precisely in reflection of higher commodities prices, while during World War II, there was brief period when pennies were made from zinc-coated steel in order to keep costs down.

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