The price of zinc posted the biggest gain since 2009 in the first eight months of this year after soaring to a three-year high last week.
The metal, used in everything from sunscreen to car parts, has seen prices spike recently as exhausted mines around the world have struggled to meet global demand. However, it is most likely to be felt in our pockets as 20pc of the gold-coloured euro coin is made up of the rust-resistant metal.
The squeeze comes as the United States Mint boosts production by 14 pc to 7.5 billion pennies this year, which will require more than 18,000 metric tons of zinc. Demand for the metal is climbing as recoveries in the US economy and global manufacturing gain momentum, just as the shutdown of older mines limits new supply.
While the US Mint has taken steps to cut costs by boosting productivity, the rise in prices threatens to erode those savings, said Philip Diehl, a former mint director.
"You can make the mint more efficient, but you can only get so far, and I suspect they've gotten as close as they can on the penny," said Diehl, who served under President Bill Clinton for six years until 2000.
"Any coin denomination that goes into the red is further deteriorating the mint's profitability, and that's going to continue as the raw material goes up."
Zinc for delivery in three months has climbed 10pc this year to $2,265 a ton on the London Metal Exchange. That compares with a 5pc gain in the MSCI All-Country World Index of equities.
Demand for zinc exceeded output by 248,000 tons this year through July, compared with a 15,000-ton production surplus in the same period a year earlier, the International Lead and Zinc Study Group said. Goldman Sachs Group has now forecasted prices to advance to $2,425 a ton by the end of next year.
Since 1982 the US cent piece has been made of 97.5pc zinc and 2.5pc copper. Instead of purchasing raw materials directly from the market, the US Mint contracts with manufacturer Jarden Zinc Products in Tennessee to deliver penny blanks that the mint turns into currency by stamping with the one-cent emblems.
The amount paid for penny blanks is based on a fixed fabrication charge, along with the prior month's average spot prices for zinc in London and copper on New York's Comex exchange.
The cost of making a penny is down to about 1.6 cents this year, from 2.4 cents in 2011.
The squeeze in supplies seems unlikely to let up soon, as inventories tracked by the LME fell to the lowest since 2010 in July, and growth in new supply is slowing with closures of major mines such as Glencore Plc's Brunswick in Canada.
Patricia Mohr, a market specialist at Scotiabank Group in Toronto, said that zinc won't meet rising demand growth from 2015 through 2018. "While there is some mine development under way, it's not sufficient to meet demand growth," she said.
Sunday Indo Business