A nickel’s not worth a dime. It’s worth much more than that. At least if commodity prices remain where they have been this week.
On Tuesday, the cost implied by the three-month futures contract for the hitherto unprecious metal hit $100,000 per tonne.
While the price is unlikely to stay quite that high, we thought it would be fun to try to work out what the cost to the US Mint, monopoly producer of the nickel, might be.
The burden is not as bad quite as the name of America’s 5 cent coin suggests. A nickel is not entirely made of nickel — in fact, it’s not even mostly nickel. Only a quarter of it is. That 25 per cent alone, however, is enough to mean America’s official coinmaker takes a big hit for each 5 cent bit it ships to the regional Federal Reserves.
The coins weigh 5 grammes, of which 1.25 grammes is nickel. Meaning the nickel in a nickel alone would, at Tuesday’s high, have set you back 12.5 cents. What makes matters for the Mint worse is that the other 75 per cent is made up of copper — the price of which has also surged over the past few years.
Is there a trade to be done here? Could we all become nickel extractors and make a fast buck out of a few nickels? Not really. It turns out it is illegal to export, melt or treat either a five-cent or one cent coin.
It’s also far from the first time the mints of the world have found themselves caught out by commodity price surges. Indeed it’s been pretty common throughout history for low denomination coins to cost more than they’re worth to produce.
Including the 5 cent piece.
According to the US Mint’s 2021 annual report, the cost of making a nickel rose by 14.8 per cent to 8.52 cents for the latest fiscal year — making it the 16th year in a row that the face value of the coin was worth less than the metal in it. In total, the losses on all of the nickels produced that year came to $61mn. And that was when the nickel was trading at $17,503 per tonne — less than a fifth of the peak it hit Tuesday.
It’s not just a case of high prices. Given Russia’s role as a producer of the metal, US industry may also be about to experience shortages. The US Mint might want to resort to some currency debasement, replacing nickel with copper, not only to save on seigniorage, but for the sake of the nation itself.