Rising zinc price to doom the penny?

Disagree about the zinc instantly being melted down.
Are you going to buy $10,000 worth of pennies, in order to make a $30 profit?
Besides the time spent, the gas money, etc, the smelter still has to make a profit and charge ( 5,6,7% whatever). It won't be profitable to melt zinc, probably in our lifetime.
I do agree that the penny should be discontinued. There are probably a trillion cents in circulation ( someone will do a count I am sure) and that is enough to last many years before we need to round up or down to the nearest nickel.

 

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Well, $10K face value of pennies is 2.5 metric tons = 2.75 US tons =5,500 lbs of zinc. Breakeven is $1.82/lb. Let's say the price rises about 10% above breakeven to $2/lb. Gross value would be $11K for a "profit" of $1K. If price gets to $2.2/lb, gross value would be $12.1K for a "profit" of $2.1K. There would be costs like haulage and energy for melting. These things are difficult to assess because energy used to melt zinc can be from a source being used for something else, like a kiln. And the energy can be recaptured for a another purpose, like space heating, water heating, cooking, etc.

Where would the pennies come from? Mostly from small businesses that have commercial bank accounts. Instead of ordering ten rolls per day, up it to a few hundred or more. Local bank branches won't care; they'll just order more from the Fed. Folks who are into roll searching seem to get their hands on lots of coins.

Cal

 

The Mint makes them because the Fed requests them. The Fed requests them because the banks ask for them. The banks ask for the because the businesses ask for them. The businesses ask for them because the people don't use but instead toss them into change jars at a faster rate than the jars go back tot he banks.

As long as they are an authorized coin and requests keep coming in the mint pretty much has to keep making them. I don't believe they have the authority to unilaterally decide they aren't going to make them any more.

And contrary to what some people believe if they stop making them having a trillion of them out there is NOT going to keep them circulating. I still firmly believe that if they stopped making cents tomorrow, within a year, two at the most, they will NOT be a circulating coin and everyone will be rounding. Any that do show up then will go back to the banks, then to the Fed, and not come back. Why because by then the businesses are used to or committed to rounding. They no longer need the cents, they no longer ask for them at the bank.

 

NOTHING will doom that stupid Lincoln Cent because our Government knows exactly how ignorant we are and the confusion that such as action would cause among the typical consumer!

Why, rioting would occur since ole bumbly would think the countries economy was in the crapper!

 

You mean there is someone out there that DOESN'T think it's in the crapper? Should we be afraid of a one man riot?

 

So, what should the smallest U.S. coin be? We've probably come too far with inflation for a viable 2-cent coin. Costs almost that much to make a penny. 5-cent would probably be about right, and it could be physically smaller than the nickel we have now to save a bit on manufacturing cost. Getting rid of the cent is a tough sell to some folks though.

Cal

 

The reality is that coins are *intended* to stay in circulation. What is seigniorage on a coin, 3500%? Whatever the number, I'm sure it's at least 1000%, so until a cent costs over 9.999-cents to produce, it would still behoove the government, in theory to produce them. That number already accounts for coins that are unnaturally removed from circulation by hoarders, I mean numismatists.

 

Let's see...

Post-1982 (discounting the pennies in 1982 that are ZnCu) pennies are 97.5% Zn and 2.5% Cu. Copper has a melting point of 1085C, more than double that of Zinc's 419.5C. So, effectively, you'd need to either file or cut all 1mm of your pennies. If you attempted to melt the coins without removing the shell of copper, you might have exploding pennies...

2.375 metric tons of Zn at a specific heat of 388 J/kgK
0.125 metric tons of Cu at a specific heat of 385 J/kgK

2375 kg * 398.5 K * 388 J/kgK = 217,750 J
125 kg * 398.5 K * 385 J/kgK = 19,177,812.5 J

So, you'd need to generate roughly 386.5mm Joules of energy or 364.6mm BTUs. At $25 per mmBTU, that's $9115 for energy costs.

Then you'd need a way to sort out the Cu from the molten Zn, without breathing in any of the toxic gases. Let's assume that's another $1000 in refining costs.

Then you'd need to transport the sorted Zn and Cu to a metal assayer. Let's figure that Cu is enough to give you a net assay fee of $500.

Transportation costs on a payload of 2500kg across, say 50km total... 125 MTkm? I guess that's approximately 182.5 Tmi. At 37-cents per Tmi, 34.7mi would be... $2343.12.

Energy Cost: $9115
Transportation cost for 34.7mi: $2343.12
Assumed refining & assay costs: $1500
Total related costs: $12,958.12

That's just to prepare the Zn for sale. You'd still need to find a buyer for the Zn, which would likely be at 87% of spot, since you couldn't make delivery on a full order.

 

The Mint makes them because the Fed requests them. The Fed requests them because the banks ask for them. The banks ask for the because the businesses ask for them. The businesses ask for them because the people don't use but instead toss them into change jars at a faster rate than the jars go back tot he banks.

That sounds reasonable, if mad. OK, abolish the people instead. Simple.

It might be cheaper for the mint to subsidise a program for the banks to offer a dollar for 90 cent coins. The hoarders would flock in with their jars and the businesses could have those coins.

I can see there might be certain technical drawbacks to this plan.

 

There are other factors in play besides just the melt value.
If cents did become marginally profitable, the vast numbers of them out there, being turned in for melt value, would quickly lower the price, thus making it unprofitable. Not to mention, eliminate a big source of demand at the mint.
I saw this with silver back in the 60's. Once the frenzy died down, silver was low for a long time, and still is relatively. PM value is a long term game.
There are those who hoard copper cents. Fine, but don't expect a profit until your grandkids sell, or their kids.
Wheaties slowly appreciated, now copper cents are doing so, and eventually, so will those zinc abominations. Mostly because the zincs deteriorate so easily and rapidly.
Look in any coin magazine and see all the ads for common date coins. One day, lowly cents, nickels and cupro-nickel coins will be selling over face in those ads, but not anytime soon.

 

I can see there would be abuses to the plan too.
Back in the day, I do remember banks giving (silver) halves for 49 cents in cents. A 2 percent profit. Ten per cent would attract exploiters. And of course, we would thoroughly discuss it here.

 

I am on the fence about picking up cents, mostly because of my metal detecting experience. Its no fun going to the trouble of digging up a corroded zinc cent. A good detector can tell the difference, but air tests are not the same as real world finds. This resentment tends to carry over to found cents just laying on the ground, although most of the time, I do pick them up.
Its true that many just throw their change on the ground now. I do keep a change jar, and last time I cashed it in, it was well over $200. Some of that was found money.

 

Pennies are thrown to the ground by a gluttonous society. The same ones who will find it pauper's work to melt them down. The ones who refuse to pick up a penny are the same ones who pay a guy to push their lawnmower while they themselves are at the local gym for exercise.

 

If a coin costs more to produce than its face value, there is $0.00 in seigniorage friend.

Seigniorage is the difference between production costs and face value. If anything at all, the Lincoln Cent and Jefferson nickels "reduce" the current seigniorage.

 

No exploding cents. As the zinc gets close to its melting point it starts dissolving the copper shell from the inside. For that reason your zincolns will melt completely at less than 450C

This has been tried in the past and it doesn't work. Back during the cent shortage of 1974 premiums offered for turning in cents reached 25 cents per hundred and it still get the coins being turned back in. If they wouldn't do it for the 25% they aren't going to do it for 10%. (And the 25% premium back then would have had a LOT more purchasing power than a 25% premium would today let alone a 10% premium.) Your offered premium idea might work, but it would probably have to be over 50% and at that point there is no real advantage since making them right now is a 40% premium.

 

Question: Is there an adequate supply of cents for the monetary system? And, if so, why doesn't the Mint suspend production until the need arises for more?

 

First, let's dispose of the exploding pennies theory. The thin layer of copper on the outside is not going not going to contain the expanding zinc. And yes, zinc does have a greater coefficient of thermal expansion than copper. The copper will just bubble and crack, not explode. And then it dissolves in the melting zinc. Disagree? Well, look at the pic. It's the remains of five zinc cents that had a propane torch briefly applied and was then stirred with a screw driver before it solidified again. Copper all gone. Actually, it's still there as part of a very low-grade brass. The gray/purple slag on top should be mostly zinc oxide and copper oxide. There are ways to minimize slag production, not used here though.

Recyclers won't care. They'll be delighted to pay zinc prices for copper, mixed-in with zinc or not. So, from this point on, I'm going to ignore the copper and consider the cents as pure zinc.

Scrap buyers are very good at determining the approximate composition of metal without expensive assays. And we're talking about zinc, the cheapest metal except for cheap steels and lead. All you need to distinguish among these three is a magnet and pocket knife. However, scrap buyers can do it with a quick glance. If they make a mistake and the scrap turns out to be a more valuable metal, so much the better for them.

Now, let's do some economics, and we'll ball-park it at first so as to stay in the realms of reality.

Zinc ingots go for about $1/lb these days, and chances are that includes some profit for mines or recyclers. So any financial calculations that produce a price far above that, even for small scale operations, should be a red flag. So, our $10K face of pennies weighs 5500 lbs and supposedly will cost $13K to recycle. That's $2.36 per lb; flags are flying.

Before I mention energy, let's look at transportation. $2343 to haul it 35 miles? Yee-ha! Tell me who's paying that to haul 5500 lbs 35 miles, and I'll be there with my truck and trailer. We routinely haul that much weight with my 1977 F250 and stock trailer and maybe get 7-10 miles to a gallon of gas. Sign me up!

OK, now for energy for melting. Ingots of zinc don't spring fully formed from the ground or recycling plants. The zinc was melted, probably more than once, for those ingots to go out the door. So, the energy cost for a single melt has to be less than $1/lb, probably a lot less in view of the other costs of production.

I'll do the calculation using propane, although there are cheaper sources of energy (e.g. coal and natural gas) available in some areas. We have 2500 kg (5500 lbs) of zinc to melt. Specific heat of zinc is 0.39 Joule/gC or 390 J/kgC; i.e. we have to pump 390 Joules of energy into 1 kg of zinc to raise its temp by 1 degree C. Zinc melts at 420 C, and we'll assume we start at 20 C , so there's 400 C to raise. Needed energy is 2500 x 390 x 400 = 390,000,000 J which is 390 MJ (megaJoules).

A gallon of LP (liquid propane) has a combustion energy of 91,330 BTU per gallon (engineeringtoolbox.com), and one BTU is 0.001056 MJ (unitjuggler.com). So,

0.001056 MJ/BTU x 91,330 BTU/gal = 96.4 MJ per gallon of LP. We need 390 MJ to melt our zinc, so that's 390 MJ / 96.4 MJ per gal = 4 gallons of LP. I'm paying about $2.20/gal for LP right now, so that's $9 of LP to melt the zinc.

I doubt it was a nickel's worth of propane to melt the 5 pennies and that was done very inefficiently. Most of the heat went into heating air and the brick upon which they sat.

2500 kg (5500 lbs) of zinc has a pretty small volume (density of zinc is 7.1 kg/L); it's 12.3 cu ft or 0.46 cu yard. There's a galvanizing plant near me with a 800 cu ft tank of molten zinc. It would take 65 lots of 5500 lbs to fill it. If each lot took $9K of energy to melt, that would be 65 x $9K = $585K to melt it all. No way could they stay in business at that rate.

Even on a small scale, it's possible to use excess energy from other processes to melt zinc and to re-capture energy used to melt zinc. An artist friend of mine has a small gas-fired kiln, but it's big enough to crawl into. Most of the energy is used to heat the kiln structure. Setting a pot of pennies in it with the artworks would take very little extra gas. Another example: If you have two melting ovens for zinc, you fire one until the zinc melts. Then you start the other and draw combustion air for the second through the first. Cools the first more quickly, and heats the second more quickly and efficiently. Just keep alternating. Countercurrent systems are used for large furnaces. Incoming combustion air is heated by exhaust gases.

Will we get to the point that melting pennies is profitable? I'd guess the government will discontinue cents in their present form before then.

Cal

 

Are you sure on the above? I would assume that the only people looking for refined Zn would be seeking it for things like Zinc tablets... not sure having even 5% copper in that mixture would be advisable. But, anyhow, even if we assume you're able to melt down the scrap for free, that still doesn't address the issue of toxicity. Zinc oxide is HIGHLY toxic.

Oh, and I figured out my mistake (and it's admittedly a huge one) on the BTU cost. I just took it off an energy bill. And, maybe you're right on the transportation costs. How will you load your 5500 pounds of zinc? Were my actual calculations faulty? I know the number seemed absurd... maybe the information I used was misinterpreted. It said 0.37-cents, but the graph showed a little over a third of a dollar in the bar chart, so I assumed they meant 37-cents. Maybe the chart was incorrect, so it really was 0.37-cents. If you divide my number by 100, does it sound more in line? $23.43 for transportation. That actually sounds really low, to me. I can't imagine it being that low. Maybe that's actual cost to the shipper, not including labor and markup. Anyway, let's use $23.43 and assume you have a shipping company.

Let's say we used the cheapest form of energy and assumed 100% efficiency. That would be coal at 56-cents per mmBTU.
364.6mmBTU at 56-cents = $204.18

You said there'd be no reason to have the zinc verified for purity, which I disagree with, since you wouldn't even have to go through this process, if that were true, but let's take your assumption as true.

Energy: $204.18
Transportation: $23.43
Cost $10227.61

$2257.50 per ton
2.75 tons
Net value (assuming refiner will buy 95% zinc as 100%): $6208.13

Net profit: -$4019.49

 

You're right. For some reason, I was thinking M2.

 

I don't remember the 25% profit, but I know there are those now who hoard copper cents in the hundreds of thousands, hoping to capitalize on the melt value, vs face value, at far less than a 10% differential.
Given that the copper cents are already
worth more than face in metal value, they do represent a profit potential, but probably not until long after they stop making cents, and the market settles.











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