Wednesday, April 26, 2006

It only costs a penny and two fifths 

(That title should catch the Fraters' attention...)

Over the last six months, the cost of producing a penny and the material costs of the metal contained therein (97.6% zinc, the rest is the copper coating) has risen to a total cost of $.014, including production and record-high metal costs but not transportation. It's worth remembering that in 1943 the U.S. Mint, facing a shortage of copper and zinc from munitions demand, switched to a zinc-covered steel penny. People hated them -- they corrode when exposed to enough moisture -- but you still find collectors of them. If prices on zinc and copper continue to climb, you can expect some change in the composition of the penny.

Pennies used to be profitable -- according to an old Minneapolis Fed article, the Treasury netted seigniorage revenues of $42.4 million from producing pennies in 1989. But now it appears you and I can make money from melting down pre-1982 pennies (when the ratio of copper and zinc in the penny was reversed).

When that last article was written, a pre-1982 penny was worth $.0154, a 54% premium over the face value based on a $2.42/# price for copper and a $1.31/# price for zinc. Today those prices are $3.24 and $1.52. If I ran a local smelter, I'd head on down to Keegan's tomorrow night -- you'll find some bloggers there who will be looking to cash in to cover their bar tabs.

Another point to make about this is that it's part of the same story that transfixes us about gas and oil. Steel producer stocks are up 50% this year. Most metals are up quite a bit:

The increase in metals isn't quite as strong as the increase in energy prices, but still very significant for the price of a penny or anything else made of metal. Can you say, China?