The base metals market woke up this morning trumpeting record high futures prices for copper, nickel, and aluminum on the London Metals Exchange (LME) and COMEX Metals Exchange (New York). Analysts credit this rise in price to low supplies and higher demand, specifically in China.

[Most Recent Quotes from]Copper closed at $4.5135 per pound in New York and $9,878 per metric ton in London on Monday, January 31, 2011.

For numismatists watching production at the U.S. Mint, this means that the material costs to produce U.S. coins will increase. With the exception of the cent, the predominant metal used in the manufacture of U.S. coins being copper—the Lincoln cent is 97.5-percent zinc with a coating using a 2.5-percent copper coating. Since most coins are composed of an average 88-percent copper and the nickel containing 75-percent copper, the rise in the cost of materials will reduce the seigniorage (profit) collected by the U.S. Mint.

Second most used metal used in U.S. coinage is nickel. While nickel has been up for the last six month and approaching its one-year high, it is down from its previous high reached in 2007 when it the U.S. Mint said the cost of manufacturing the nickel was nearly double its face value. If we use the average production costs from the last three years of 21-percent of face value (as reported in the U.S. Mint Annual Reports), it costs approximately 8.16-cents per coin to manufacture (metals cost 7.06-cents and approximately 1.1 cents to manufacture).

As for the Lincoln Cent, it has fared better in its materials cost. The price of Zinc has also dropped from its five-year high and is trading around $1.09 per pound. Zinc is also in ample supply to meet market demands meaning that the price should not be that volatile. This means that the materials cost to make the Lincoln Cent is 0.644-cents. Using the average cost to manufacture the cent at 35-percent of face value (as reported in the U.S. Mint Annual Reports), the overall cost to manufacture the cent should be on par with its face value.

However, the FY2009 U.S. Mint Annual Report showed a marked rise in manufacturing costs (I have not analyzed the FY2010 Annual Report as of this post) wondering if the production costs estimates are too low. However, if copper continues to rise, then the costs to manufacture all U.S. coins will rise and reduce the profit collected by the U.S. Mint.

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