What price for a penny?
TAVIA GRANT
Thursday, May 11, 2006
TORONTO — With copper and nickel prices soaring to record highs daily, does it cost more than a penny to produce a penny?
It sure does south of the border, where the United States Mint estimates it now costs 1.23 cents (U.S.) to make a 1-cent coin and 5.73-cents to produce a nickel.
It's a different story in Canada, however, where the penny is still economical at 8/10ths of a Canadian cent to make, while nickels costs a mere 1 cent. Those costs haven't budged in a decade, despite soaring commodity prices, because the Royal Canadian Mint's process uses just a dollop of copper or nickel coating over a steel base.
That lower-cost, patented production, in place since 1996, also means countries from Thailand to the Dominic Republic are opting to have their coins produced in Winnipeg.
“We're seeing an increase in interest” from foreign countries, said Pam AungThin, spokeswoman for the Mint. The plating technology the Mint uses keeps costs down and, in a time of rising metal prices, “it's definitely a competitive advantage.”
Indeed, the Mint's revenue from foreign circulation nearly doubled last year to $43.8-million.
This year, the Ottawa-based Mint has signed business for 12 foreign currencies, with coin production for Thailand, Dominican Republic, Papua New Guinea and New Zealand all under way. In the past quarter century, the Mint has produced more than 52 billion coins for 62 different countries.
Demand is expected to be so robust in the years ahead that the Mint itself is outsourcing. Last month, it signed an agreement with Jarden Zinc Products Inc., based in Tennessee, which will produce plated coin blanks for the Mint's potential customers in the Americas. (Blanks are metal disks that still need to be struck).
In the past year, the Mint has also expanded the foreign coin sales team in four market regions – Asia and the Pacific, the Middle East, Europe and Latin America.
Another way the 98-year-old Mint keeps costs in check has been through hedging. It secured all of its nickel and copper supply for this year back in December. Ms. AungThin wouldn't speculate how this year's commodities gains might affect hedging.
While the Canadian penny's design hasn't changed since 1937, its ingredients have. Today's one-cent coin is 94-per-cent steel, 1.5-per-cent nickel and 4.5-per-cent copper.
With today's red-hot copper prices, pennies prior to 1997 have become a whole lot more valuable. Before '97, pennies were 98-per-cent copper, 1.75-per-cent zinc and 0.25-per-cent other metals.
The nickel, once made of silver, is now nickel plated while the loonie is bronze plate on nickel. The Mint won't say how much it costs to produce its other coins, citing “competitive reasons.”
On the domestic front, a booming economy has boosted demand for coins.
“This growth, along with the inflation that accompanies economic growth, tends to stimulate demand for coins,” the Mint said in its 2005 annual report.
Still, with inflation and new loonies and toonies jangling in Canadians pockets, does it really still make sense for the Mint to make pennies?
“It's so low-cost to produce, I don't think it will become uneconomical,” Ms. AungThin said. “Right now it is economical, but we make our coins based on demand. And I don't foresee changes to that demand.”
Besides, it would be the Canadian government, not the Mint, that would decide to do away with the penny.
