Pennies in Circulation

[cunick]

I have been sorting pennies since late last year, but a question has always been in the back of my mind about what the effect on the copper market would be if/when the melt ban is lifted. For those that want the bottom line, I believe their would be a short but possibly significant effect on the scrap market, but long term hoarding copper is a good investment.

The two key factors I tried to estimate are the number of copper pennies in circulation, and the annual use of copper within the U. S.

Figures for the number of pennies in circulation are rough estimates at best. I have seen figures from 140 billion to 200 billion. Using the 200 billion figure, (to overestimate the supply and hence the impact of lifting the melt ban) would mean there are about 650 pennies in circulation per capita in the U. S., which sounds reasonable. Not counting Realcent members!

Using the common ratio of 20% copper and 80% zinc pennies in circulation would mean about 40 billion copper pennies in circulation. That figure seems reasonable, because it is about 26% of the total penny production from 1959 to 1982. I made no allowance for wheat pennies, because their totals would be within my range of error, and my wheat percentage in searching is very low.

So, if you are with me up to here, I figure about 40 billion copper pennies are in circulation which would be about 130,000 tons. (using 147 copper pennies per pound).

The USGS estimates that 1,190,000 tons of copper was mined in the U. S. in 2009, and. U. S. mining represented less than 10% of worldwide production of 15,800,000 tons.

Also according to the USGS, 160,000 tons of copper was recovered from old scrap, in the U. S. in 2009.

Using the above facts and “guesstimates’, it appears to me that the tonnage of copper in pre 1982 pennies is fairly small, compared to the annual production in the U. S., particularly when you consider that all of the copper pennies would be salvaged over a period of at least a few years. Copper pennies are almost insignificant compared to worldwide copper production.

My concern is that if the melt ban is lifted, and all the copper pennies went to salvage over a period of two or three years, they would represent a significant part of the annual supply of old scrap in the U. S., maybe increasing the amount of old scrap available by 10% per year or so. It seems that could effect the price of scrap within the U. S..

My conclusion, based on all the above, is that hoarding copper in the form of pre-1982 pennies is worthwhile for the long term, but if/when the melt ban is lifted, the extra amount of scrap created may adversely effect the price of scrap copper for 3 to 5 years. Therefore, don't expect to sell your entire hoard immediately, and it might be good to wait 3-5 years for the market to adjust.

Is my assessment reasonable, or did I miss something critical?

[Joogaler]

I completely agree with you, I think that when the melt ban is lifted, that copper spot, or 95% copper buying prices will plunge for a while. That much metal going into the market has to have some effect on everything.

[JadeDragon]

Interesting calculations, but an influx of copper pennies into the scrap market is not going to change the prices by much because scrap does not drive the price of copper - copper drives the price of scrap. Also, copper is a commodity that is priced on a global basis. Using the numbers presented:

All copper pennies in circulation - 130,000 tons (including many tons held by realcent members)
All Copper mined in a year - 15,800,000 tons
Assuming that all copper pennies were harvested in 1 year (absurdly unlikely) percentage of increased copper supply: 8/10s of 1%.
Effect on worldwide copper market of copper penny harvesting - statistically insignificant. Maybe similar to a new mine coming on stream for a few years and then shutting down again. Demand is going to drive copper price - demand for infrastructure and housing mainly.

[HoardCopperByTheTon]

I think there would be no effect whatsoever on the real copper market, pehaps a small temporary dip in scrap prices based on scrap metal dealers trying to take advantage of a short term supply imbalance, but a virtually instantaneous and devastating effect on the availability of copper pennies at the banks for those of us that like to do a little copper mining of our own.

Some of the more seasoned members here will rememember a time a couple of years ago when members from all across the country were simultaneously reporting circulated skunk boxes. Imagine the disappointment of getting an entire order of 24 boxes where all the coppers had been sucked out.. and the zincs weren't even shiny. Talk about depressing.. it took a bit of the fun out of copper sorting. Some of us theorize that this was caused by just one company, Jackson Metals, who had a special arrangement with Brinks to sort the copper out and ship them multiple semi truck trailers on a daily basis. Eventually their pocket congressman could not push through the legistlation they desired, and this arrangement stopped. If the melt ban were actually lifted, how long do you think it would be before the switch was flipped and we started experiencing this again? How many new industrial players would ramp up for the few months it would take to clean out the penny supply? Sure, the price of our current small hoards would increase.. but is your hoard big enough yet? I have a great scale, but I can tell you from experience that it is no fun bringing home an entire shipment of pennies, sliding them across the scale without even opening them, and stacking them up in the outgoing pile for zinc returns.. without ever firing up a single Ryedale or rolling machine.

Better sort faster.. the clock is ticking!

[Copper Catcher]

A great discussion...However looking back at one of the articles about Jackson Metals and the amount of copper he said he could harvest with his industrial equipment there was still a huge time period before the copper would or could be taken out of the system....

.....Before starting his company last year, Luhrman said he checked with the Mint to make sure it wasn't illegal to melt down pennies. He operated for about five months before the government ban was ordered.

He bought pennies from banks and used special equipment to cull the copper-heavy ones minted before 1982. He estimated he could process 5 billion coins annually, separating out 1.2 billion copper pennies.

Luhrman planned to ship the post-1982 ``worthless'' pennies, which are 95 percent zinc, to areas of the country with penny shortages. He estimated he could save the government $5.25 million in the first 90 days by shuttling his surplus to markets with shortages, instead of having the Mint stamp new ones.

The businessman said he had hired 16 people for his operation. He signed contracts with currency-handling companies such as Brink's Co. in Richmond, Virginia, and Coinstar Inc. in Bellevue, Washington, to get intelligence on the location of penny surpluses and deficits. And he hired a trucking service to ship the pennies.

Supposedly he operated this gig only 5 months which I honestly doubt.... and could process 5 billion coins annually.... back in 2007 the mint made 6.6 billion new pennies!

[68Camaro]

I've only been following this for 3 months and I've seen some variant of this discusion 4-5 times; I even contributed to one where I came up with somewhat similar numbers. Assuming there is not a SHTF scenario (in which case pennies may be more valuable as coinage than as melt scrap) and we're just talking about copper hoarding accumulation during moderate inflationary times, I predicted 3-5 years before copper pennies were too rare to be cost-effective to separate from zinc pennies in bulk. I suggested that if you were into sorting big-time, that you'd best capitalize now and get them while you could so you could amoratize the cost of your equipment effectively, and suggested that if you got into it too late that you would be at risk of wasting your capital. Several didn't want to hear this...

The most viable end options are are 1) copper pennies going to melt scrap, 2) copper pennies becoming a new low-end currency with greater than face value (the new "nickel", for a time?), or 3) some combination of 1 & 2.

Something could change this to an immediate thing that takes place in less than a year. Other events could slow and stretch this out into 8-10 years. But the point is (at least for this thread) that eventually there will be no 1 cent copper pennies circulating to easily process. They will either be gone to scrap or hoarding piles for eventual scrap, or reserved for coinage use at a TBD higher-than-face value.

[VWBEAMER]

Nickels and pennies will end up like 90% junk silver. Millions of dollars worth trade hands every year with out melting, and it's not used as currency on a large scale.

So I don't think they need be used as currency and I do not think the melt band needs to be lifted for the price to skyrocket. All that needs to happen for them to become hard to find in circulation. The easy availability of the coins in circulation is suppressing the price.

People I work with often tell me that I can't melt my nickels and how am I going to get my 7 cents worth of metal. Fact is, like 90% junk silver, this stuff doesn't need to melt to trade above face value. look at the copper pennies on eBay.

Once the pennies are gone, the nickels will be next.

[Corsair]

I love these kinds of discussions. It makes me feel like I have a hot brand sticking me right in the rear end, meaning that I should get up and sort some more!

I have a question of my own on this topic. Let's say the melt ban is lifted, and recycling centers are paying, oh, 75% of spot value for copper coins. By that time, copper may be around $5 or $6/lb, making a cent worth about four cents each, meaning those scrap centers would instantly triple your investment, assuming you sorted from the bank. So my question is, once you know that the incoming supply of copper cents is either dead or dying, and you are sitting on virtually all the copper cents you'll ever have, when do you sell? How do you know when to give them up? Is it right away, during the presumed rush to the smelter, like there was back in the 80's when silver was so high? Or do you wait? How long do you wait? When you finally do sell, do you sell in major percentages, or just minor percentages? And most importantly, if the price of copper is high, and you can get some serious cash for your pennies, but you want to wait for higher prices, how do you not sell? What do you tell yourself to keep from grabbing a quick ton and taking it to the scrap shop?

[winchester333]

Your formula should also consider the significant number of pennies lost, destroyed or taken overseas by tourists, etc. I find at least two or three a day on the street or in a parking lot. Add this up over the entire nation and it's a huge number. Many people just toss pennies on the street, especially younger folks

Copper markets would not be affected by pennies entering the market for melting. Crack heads in my city are wheeling shopping carts full of stolen copper down the streets all summer long. Tons of copper end up in the neighborhood bone yard each year just where I live. Can't see pennies coming close to scrap copper wire and plumbing fixtures.

[beauanderos]

I love these kinds of discussions. It makes me feel like I have a hot brand sticking me right in the rear end, meaning that I should get up and sort some more!

I have a question of my own on this topic. Let's say the melt ban is lifted, and recycling centers are paying, oh, 75% of spot value for copper coins. By that time, copper may be around $5 or $6/lb, making a cent worth about four cents each, meaning those scrap centers would instantly triple your investment, assuming you sorted from the bank. So my question is, once you know that the incoming supply of copper cents is either dead or dying, and you are sitting on virtually all the copper cents you'll ever have, when do you sell? How do you know when to give them up? Is it right away, during the presumed rush to the smelter, like there was back in the 80's when silver was so high? Or do you wait? How long do you wait? When you finally do sell, do you sell in major percentages, or just minor percentages? And most importantly, if the price of copper is high, and you can get some serious cash for your pennies, but you want to wait for higher prices, how do you not sell? What do you tell yourself to keep from grabbing a quick ton and taking it to the scrap shop?

David, you raise some interesting points. I would offer that you do the same thing they suggest in the stock market. Most analysts will recommend (for instance, using penny stocks... haha pun not intended) that if you have a stock that has risen rapidly in value (at least doubled) that you pull a portion of profits off the table (maybe your initial investment) and let the rest ride. So you could sell 50% after the first double, if it doubles again sell another 50% (25% remaining of original hoard), if it doubles again sell another 50% (12.5% remaining of original hoard) and so on. Like any other investment, you should have an exit strategy. These threads point out my current strategy with silver. I feel silver will soon rapidly outpace the gains you could see in gold.. because silver is facing resource depletion. Every day, junk silver is being sent to the smelter... it IS disappearing, not just changing hands. On a much, much slower basis the same is happening with 95% copper cents. Put it this way (as far as copper goes)... would you keep searching for that same copper if your percentage finds were the same as they are now for finding wheaties? And, that raises a question... will we see the day (in 2028 - 46 years, as in after 90% silver stopped being minted) when you are getting 20X face for the remaining coppers? Will people be salivating over a few solid CWR's that old people turn into the bank unwittingly... like they do now with silver? Time will tell. Finally, what's to keep you from selling? Do you have a wiser investment in mind at that time than the percentage gains you were sitting on and the expectations that they would continue? How much will you need the cash? Is this before or after a hyperinflation (is the fiat stable enough for long enough to find... if you can, suitable replacements with other PM's)??

[cunick]

After all the interesting comments, I have revised my thinking on this subject a bit.

I still believe having copper is a good thing to hold in the long run, but the window of opportunity to gather copper from pennies in circulation may not be as long as I originally believed. The story of Jackson Metals makes me wonder how quickly the supply of copper in circulation will be depleted if the melt ban is lifted. The time to sort certainly seems to be sooner rather than later.

The similarity of sorting copper to operating a mine is interesting. You start in a rich vein and work it successfully for a while until the concentration becomes so weak that it is not worth the time and effort to continue. I guess I better get to work while we are still harvesting the mother lode!

Thanks to all for the great input.

[HoardCopperByTheTon]

There will never be a better time to sort than right now. Focus on copper capture right now while the ore is rich. You can always do the refining later when the mine goes dry.

Jackson Metals is just one company.. one which could quickly and easily be cloned if the melt ban were lifted. They only have a certain amount of equipment and can only process/harvest so fast.. just as each of us have limitions based on capital, equipment, labor and time. What concerned me was not so much what they could process on their own.. but the glimpse into the future when members all across the country started reporting skunk boxes simultaneously. Whether that sudden and rapid disappearance was caused by a special deal Jackson Metals had with Brinks, some other unknown industrial player, or the US mint contracting Brinks for an ARP like Canada.. it clearly showed to me that the infrastructure is already in place.. and the time horizon is much shorter than many of us anticipated.. the gravy train could jump the tracks at any time.

[Delawhere Jack]

Keep in mind that we will never get the spot price for copper for our pennies as scrap. To get the highest price for copper in the scrap market, you need 40,000 lbs plus, and it needs to be #1 grade, ie "pure" copper, like stripped electrical wire. Pennies, being an alloy, are considered #2 copper, and demand about 30-40% less than #1 copper. Even #1 will not get full spot price, as the dealer needs to make a percentage. I doubt that any of us... with the possible exception of HCBTT, or Cessna have 40k lbs of cents.

The coinflation number for the metal content value of copper cents is a good reference, but don't expect that you'll ever get that full amount. If you could legally scrap copper cents today, I expect you'd get somewhere between 1.8 and 2.0 cents ea.

OTOH, the dollar will only get weaker, so keep hoarding copper cents and nickels!

[HoardCopperByTheTon]

46,000 pounds is a standard truckload.. and yes, they would be considered #2 copper.. I had a deal working for 2 tons with our local metals guy right before the ban.

[Pennybug]

I think the best consideration on how a melt ban lift will affect the value of our pennies is to consider how the silver ban lift affected the price of pre 64 silvers.

IMHO... I think it could drive the price of these pennies up. Simply because now they will have a dual value to them. They can be used as money and also be used as melted copper. However, given what the current scrap value of a penny is vs. what they are selling for to collectors now, it's likely that their going price wouldn't change at all. I agree that saving them for a few years past the initial ban lift would be the best bet though.

[VWBEAMER]

Just setting here reading the comments, all good.

It occurred to me by the time the copper pennies are worth 5 or 6 cents, will be wanting the zinc ones, because they will be worth more than a penny also.

[PennyBoy]

I doubt that any of us... with the possible exception of HCBTT, or Cessna have 40k lbs of cents.

highroller4321 might have both those guys beat.

[PennyBoy]

Just setting here reading the comments, all good.

It occurred to me by the time the copper pennies are worth 5 or 6 cents, will be wanting the zinc ones, because they will be worth more than a penny also.

I wonder this myself. I'm a very small time hand sorter so I don't have tons of zincs. With that being said, I'm hesitant to dump them for this very reason. Does anybody else hang on to any of their zincs, just in case?

[HoardCopperByTheTon]

I might have a few extra zincs I could sell you at a really reasonable price.

[WileE]

The melting of coins will raise the numismatic value of the remaining ones. A Memorial cent could eventually be more scarce than the wheat variety. Keep a special pile for the nice ones you sort today!