Keep those new pennies too!

Discussion in 'Financial Cents' started by E.L., Jun 1, 2006.

  1. E.L.

    E.L. Moderator of Lead Moderator Emeritus Founding Member

    The fight against the penny
    While China's industrial growth makes pennies more expensive, Rep. Kolbe wants to do away with the coin altogether.
    By Christian Zappone, staff writer
    June 1, 2006: 4:06 PM EDT

    NEW YORK ( - As the soaring price of zinc going into pennies pushes the cost of production above the coin's value, one congressman is rekindling plans to eliminate it. Representative Jim Kolbe, R-Arizona, told he plans to reintroduce legislation to eliminate the penny in the coming weeks.

    "Most people still think the penny has no purpose and we should get rid of it," said Rep. Kolbe, who introduced legislation in Congress in 2001 that required the rounding of cash transactions to the nearest 5 cents.

    Although the Legal Tender Modernization Act did not pass, getting rid of the penny has taken on urgency for Rep. Kolbe, as the average price for zinc has shot up from 35 cents a pound in 2002 to 63 cents a pound in 2005 -- driven in large part by increased demand from China.

    The issue "used to be an oddball thing that Kolbe had an obsession about," the congressman said of himself. "Now it will become a necessity. We'll be compelled to change."

    Over half of the U.S. Mint's coin production comes in the form of pennies, which are made of 97.5 percent zinc. Since the Mint doesn't stockpile its inventory of materials, it is sensitive to fluctuations in zinc's price.

    The cost of producing the coin has risen from .97 cent per penny in 2005 to 1.4 cent per penny. At that rate, the Mint would spend some $44 million producing pennies this year, nearly $14 million more than in 2005.

    "When the price goes to 1.5 cents per cent then everybody will figure it out," said Kolbe. "Then everyone will horde their pennies because the metal will be worth more than the coin." Kolbe, who is set to retire from Congress after this term, joked he should go into the business of buying people's pennies to sell them for their value.

    Not everyone shares Kolbe's view, however.

    "Kolbe is a good member of Congress but wrong on this issue," said Mark Weller, Executive Director of the pro-penny organization, Americans for Common Cents. "When he did this in 2001, he received no support. Not one co-sponsor. I think we'll see a similar response this time."

    "Americans overwhelmingly want the penny," said Weller. "They also hate rounding."

    Kolbe's 2001 legislation proposed that cash transactions ending in 1, 2, 6, or 7 cents should be rounded down to the nearest 5 cents, while transactions ending in 3, 4, 8, or 9 cents would round up. Credit and debit card transactions could still be valued to the nearest cent.

    Americans for Common Cents (ACC) is an interest group that counts among its supporters coin and numismatic hobby groups, charitable organizations - and companies involved in zinc production.

    The organization was formed in 1990 to counter earlier "rounding" legislation in Washington, it briefly went dormant afterwards and re-opened when Congress held hearings on the future of money in the age of electronic banking in the mid-1990s.

    If Weller is dismissive of Kolbe's initiative, it should be noted ACC itself has been talking to Congress "about the dramatic increase in metals prices." Weller concedes lawmakers are aware of metals pricing in currency and concedes that if prices remain high for 18 months there could be more discussion of changing the make up of coins.

    Although ACC has ties to zinc companies, Kolbe represents Arizona, the largest copper producing state in the nation. Copper is the main material of the nickel coin which, after the elimination of the penny, would benefit by becoming the lowest denomination of currency in circulation.

    Is it even possible to eliminate the penny?
    There is, however, some evidence that eliminating the smallest denomination of a nation's currency can be done without too much upheaval.

    Australia eliminated its one and two cent pieces in 1992 after a surge in the country's consumer price index twenty years before eliminated their usefulness.

    The change affected only cash transactions -- interest is earned and bills are paid to the cent.

    At the time of the transition, according to Michael Skully, Professor of Banking at Monash University in Melbourne, the Australian government kept a close watch for profiteering associated with the elimination of the penny, while the nation's major retailers rounded totals down. The elimination of 1 and 2 cent pieces did not "disproportionately hurt the poor" as ACC asserts it would if rounding was imposed in the United States.

    "I certainly don't recall any riots in the street when it happened," said Skully.

    What's next?
    Due in part to China's growing demand, according to George Vary, executive director of the American Zinc Association, the cost of zinc has doubled on the London Metal's Exchange in the past year.

    "Until several years ago, China was a net exporter of zinc," said Vary. In 2001, that country exported a net total of 522,000 metric tons. In 2003, as China's demand for materials surged with its emergence as a global manufacturing giant, it imported a net total of 388,000 tons.

    Industry analysts predict zinc prices could ease in 2007 based on improved supply and smelting capacity worldwide. As for China, Lloyd Giles at London-based metals analysis group CRU Group thinks the country could soon be a net exporter again, once its improved smelting capacity allows it to process more zinc supplied both domestically and internationally.

    As for the chances for Kolbe's legislation to pass, Josh Kurtz, politics editor at Washington, DC-based Roll Call said, "It's a noble effort, doomed to defeat. Congress is pretty reluctant to tinker with the nation's monetary system."

    And in terms of cost savings, why should they? After all, the national debt stands at $8.3 trillion. The prospect of reaping $13 million in saving in pennies seems like mere pocket change.

    But if the cost of zinc does keep rising, the change could really add up.

  2. ghrit

    ghrit Bad company Administrator Founding Member

    Well and a day. Why not eliminate coinage altogether? We can print banknotes in any denomination we like, down to and including that damn 9/10ths cent tacked on gasoline. What fun, a Texas bank roll will become a 100 dollar bill on the outside of a roll of 10 centers. Cool.
  3. melbo

    melbo Hunter Gatherer Administrator Founding Member

    Worldwide Zinc Crisis: How to Play it
    by Tom Dyson
    Contributor, Daily Wealth
    May 31, 2006

    The world is out of zinc...

    I’m not joking. All industrial metals are scarce right now, but none are as scarce as zinc. There simply isn’t any available.

    I learned this yesterday on the golf course. Chris Hancock specializes in Asia. He is the author of a publication called the Asia Strategy Report. We were paired together in a corporate golf outing. While contemplating my approach shot to the sixteenth green, Chris started talking about zinc…

    Kohler Inc. is a huge manufacturing conglomerate, best known for making bathroom fittings like sinks, latrines and faucets. They coat their products with zinc to stop corrosion.

    “I was just in Hong Kong,” Chris told me, “and while I was there, I met up with a friend of mine who’s the manager of several Kohler plants in China. He told me they’re having trouble with zinc… they can’t find it anywhere.”

    Chris continued: “At first I didn’t pay much attention. But then at dinner that night, I sat next to a guy from my MBA class. He’s an investment banker with UBS Warburg. He says all the traders at Warburg are buying zinc like crazy and that the zinc price is about to run. But get this...

    On the plane back from Shanghai, we start chatting to the lady in the seat next to us. It turns out she manages a plant in Chicago for one of the large office supply retailers. She said she’d been in China visiting factories. We told her we had been doing the same thing. We asked her how her trip went - if she’d had any problems sourcing materials for her plant – and she told us she did. She couldn’t get hold of any zinc!”

    Last week I was at Merrill Lynch’s annual mining and metal conference, listening to CEOs pitch their companies to a room full of big money investors. I saw presentations by more than fifty companies. One company stood way out above the competition: Teck Cominco [Toronto: TEK.MVA]

    Teck Cominco just happens to be the largest producer of zinc in the world!

    Every cent the zinc price rises, Teck earns an extra ten million dollars in after-tax annual earnings. Right now zinc sells for $1.50/lb. So if zinc reaches $2.00/lb, that’s an extra $500 million for Teck’s shareholders each year.

    There’s another reason to own Teck Cominco. They also mine coal, gold, lead, molybdenum and copper. They produce crude oil from their operation in the Alberta tar sands and hydroelectric power from a dam in British Columbia. They may soon be a major producer of nickel too if their bid for Inco is successful. Said another way:

    Teck Cominco is a great way to play the bull market in general commodities.

    Of course, Teck Cominco isn’t the only diversified resource stock you can choose from. The thing is - as the CEO showed in his presentation - Teck Cominco trades at roughly a 40% discount to the other giant diversified mining companies like BHP Billiton, Rio Tinto, and Anglo American when you compare EBITDA against enterprise value.

    So not only is Teck Cominco a cheap way to buy a basket of commodities, there’s a worldwide zinc crisis and Teck Cominco is the largest producer on the planet.

    DailyWealth’s advice: Buy Teck Cominco now. Hold it for 10 years. We’ll talk then...

    Good Investing,

    Tom Dyson

    © 2006 Tom Dyson
  4. Bear

    Bear Monkey+++ Founding Member Iron Monkey

    So I should keep these?????? [raspberry]

  5. ghrit

    ghrit Bad company Administrator Founding Member

    And they will be investigated for windfall profits and overpaid executives that had the good sense to be in the right business at the right time. And the shareholders will sell off and die rich. And the jury is out on the employees retirement funds, if any. I'm sick.

    M, save your coins if you want, no one will tell you otherwise. Just remember that the price of gas to get them to market might just overcome the gain in metal value (barring something truely dramatic.) (Yeah, I'm reactionary that way.) [boozingbuddies]
  6. melbo

    melbo Hunter Gatherer Administrator Founding Member

    I'm going to bet metals over paper.
    I'm looking at metals over paper for wealth preservation.
    Base metals may be in scarser supply, :dunno: , but the price of PM is not really going up.
    Our paper is going down.

    Here's a thought:
    How can a neverending supply of printed money sustain an economy forever?
    methinks it can't and that the cracks in the machine are starting to show.

    The 'hoarding' of pennies and nickels today was 1964s 'hoarding' of silver coinage... I bet that some back then heard a buddy say: "Why you saving all those quarters? THey're only worth 26 cents right now... Save your quarters if you want, no one will tell you otherwise. Just remember that the price of gas to get them to market might just overcome the gain in metal value...

    I'm going to bet metals for now [boozingbuddies]
  7. Ardent Listener

    Ardent Listener Monkey+++

    Years ago it was "Your pennies for overseas please." Now China wants are last cent and Con-gress is happy to send it!
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