The Penny's Demise: How Base Metal Markets Are Shifting and What Investors Should Do

The global phase-out of pennies and low-denomination coins—driven by rising production costs, environmental concerns, and the rise of digital payments—is reshaping demand for base metals like copper and zinc. As countries from Canada to Sweden eliminate small coins, investors must assess how these shifts will impact commodity markets and identify opportunities in mining equities or ETFs. Here's what to watch.

Supply-Demand Dynamics: A Shift in Metal Demand

The production of coins, particularly pennies, has long been a niche driver of demand for copper and zinc. For example, the U.S. penny is composed of 97.5% zinc with a copper coating, while coins in Europe often use copper alloys. However, the phase-out of small denominations is reducing this demand. The U.S. alone produced 6.6 billion pennies in 2023, but plans to halt production in 2026 will eliminate roughly 10,000 metric tons of zinc demand annually. Similarly, European countries ceasing 1- and 2-cent coins have already cut copper demand by an estimated 1,500 metric tons yearly.

Visualizing the Impact:

Copper prices have fluctuated between $7,000 and $10,000/ton over the past five years, driven by EV adoption and infrastructure spending. While coin production accounts for <1% of global copper demand, the reduction highlights a structural shift toward metals used in industries like renewable energy and electronics.

Cost Pressures: Why Coins Are No Longer Viable

The economics of coin production are bleak. In 2023, the U.S. Mint reported that each penny cost 3.7 cents to produce, with zinc accounting for roughly 30% of that cost. For smaller coins like the Euro's 1-cent piece, the production cost exceeds its face value by 50–100%, making them financially unsustainable. This cost pressure has accelerated demonetization, but it also creates a paradox: reducing coin production could ease supply constraints in base metals, potentially lowering prices for other applications.

Investment Opportunities: Navigating the Metals Landscape

While the phase-out reduces demand for copper and zinc, other sectors—such as EV batteries, solar panels, and construction—are driving growth. Investors should focus on diversified plays that benefit from broader industrial trends rather than relying solely on coin-related demand.

1. Copper: A Long-Term Bull Case

Copper's role in renewable energy and electrification remains dominant. ETFs like the iPath Copper ETN (JJBC) track the metal's price, while miners like Freeport-McMoRan (FCX) and Southern Copper (SCCO) offer equity exposure. Despite reduced coin demand, global copper demand is expected to grow by 2.5% annually through 2030, driven by EV adoption.

2. Zinc: A Short-Term Caution, Long-Term Play

Zinc faces a more nuanced outlook. While coin production cuts will reduce demand, 40% of zinc is used in galvanizing steel for construction, a sector rebounding in developing economies. ETFs like the Global X Zinc ETF (ZINC) or miners such as Teck Resources (TECK) could offer value if zinc prices stabilize above $3,000/ton—current levels are ~$3,200/ton.

3. Recycling and Circular Economy Plays

The phase-out creates opportunities in recycling. Companies like BHP (BHP) and Koch Minerals are expanding recycling operations to reclaim metals from discarded coins and electronics. Investors might also consider ETFs tracking the S&P Global Circular Economy Index, which includes recycling-focused firms.

Risks and Considerations

• Supply Disruptions: Geopolitical risks (e.g., the DRC's cobalt/copper exports) or labor strikes (e.g., in Chile's copper mines) could tighten supply despite reduced coin demand.
• Policy Uncertainty: The U.S. penny's fate hinges on congressional action, which could delay or alter production timelines.
• Commodity Volatility: Metals prices are sensitive to macroeconomic factors like interest rates and inflation.

Conclusion: Position for Industrial Growth

The phase-out of pennies is a symptom of broader trends reshaping base metal markets. Investors should prioritize diversification and focus on sectors with structural demand growth, such as EVs and infrastructure. While coin-related demand declines, broader industrial trends will continue to underpin copper and zinc's value. For now, ETFs and equities in diversified miners offer the best risk-adjusted exposure to these shifts.

Stay ahead of the curve—monitor base metal fundamentals and policy developments closely.