September 1, 2007


If you think price and market volatility play havoc on your fast-moving metals business, consider the crunch faced by the slow-moving U.S. Bureau of the Mint as it has toiled to produce the lowly nickel. During the past year, the nickel has priced itself out of its own monopoly. The value of the metal in the coin—nickel and copper—peaked at 10 cents for each 5-cent piece. Even last month, with the market price of nickel plummeting, the 5-cent coin was worth slightly more than 6 cents melted. (The mint actually pegged the value higher, at 7.78 cents as of mid-August).

Most of the value is in the nickel content. The price of the alloying metal, which is used in stainless steel and other metal products, has almost doubled in the past two years, to a recent price of about $12 per pound, down from a peak of nearly $25 in May. So the 25% nickel content of each coin— at 1.25 grams—is now worth more than 3 cents, compared with less than 2 cents in 2005.

About 75% of each coin is copper, which also jumped in value to $3.60 a pound in August, more than double the $1.70 level of August 2005. So the coin’s copper content is now worth about 3 cents.

Last year, the mint warned Congress that metals price increases—largely a result of stainless steel's high global production and demand— were dramatically raising production costs for all coins. This year, the nickel price soared to a high of $24.58 in May before falling back to about half that level in August. That’s still double the $6.50 per pound price of August 2005.

What’s the mint to do? A House subcommittee in August introduced a bill authorizing the Treasury Department to use less expensive metals in U.S. coins. The bill, H.R. 3330, “Coinage Materials Modernization Act of 2007,’ was introduced by Rep. Luis Gutierrez (D-Illinois), chairman of the Subcommittee on Domestic and International Monetary Policy, Trade and Technology; and Rep. Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee. Sponsors say the bill stands to save the government more than $500 million a year. Changes to the penny and nickel would account for $100 million a year, and changes to the half-dollar, quarter and dime would save an additional $400 million annually.

Source: Coinflation.com

Of course, with the price of nickel and other metals so volatile, the potential for savings could diminish and the bill could be relegated to the back burner.

But when metals prices swing up, as they have done over the past several years, and the intrinsic value is worth more than the face value, the problem becomes more urgent. Speculators often try to profit by melting the coins and exporting them. The mint already has taken precautionary steps with a rule made final in April to prevent exporting or melting of large quantities of pennies or nickels for profit.