The value of non-ferrous metals that goes into the making of the coin has shot way past the currency value.
KOLKATA: As commodity prices rise, those jingling coins in your pocket are increasing the losses of the government.
The bull run in non-ferrous metals has dramatically altered the economics of coinage.
So much so, the value of the metal that goes into the making of the coin has shot way past the currency value.
Back-of-envelope calculations based on figures culled from mints across the country show that a Rs 2 coin, which weighs around 6 grams and is made of cupro-nickel alloy, has a commodity value of Rs 3.
Similarly, a Rs 5 coin weighing 9 grams with copper and nickel content in 75:25 ratio has a metal value of Rs 6.50.
All this because of skyrocketing metal prices at the London Metal Exchange (LME).
Little wonder, an unorganised sector has emerged that melts coins to extract non-ferrous metals.
This is a punishable offence but small deterrent to a flourishing business in north India.
A top official in the currency and coinage division in the ministry of finance told DNA Money that this is a new phenomenon and the ministry is aware of it.
“The matter is being looked into by the finance ministry and policing will be stepped up. But there is no problem of meeting additional requirement of coins and most of the capacity in the mints are lying unutilised,” the official said.
Here’s the big picture of the international metal trade that is coining a new story in currency. Nickel prices have risen 84% since January, riding on speculative interest of hedge funds at LME. Fuelling the bull charge is the low physical stock at LME warehouses estimated early this month at a mere 8,244 tonnes against a global demand of 1.39 million tonne.
On December1, 2005, cash price of nickel at LME closed at $12,000 per tonne, whic moved to $15,000 per tonne on January 30, 2006, $23,000 per tonne on May 30 and thereafter to an all-time high of $29,000 on June 30, 2006.
Similar is the copper story. The metal which averaged at $3,510 per tonne for January 2005 on cash basis, moved up to $4,302 per tonne in December 2005and thereafter almost doubled to $8,021 per tonne in May 2006.
All coins of lower denominations below Rs 2 and which are generally available are made of stainless steel, which has a mix of iron and chromium and not worth melting.
However, some old Re 1 coins made out of cupro-nickel, at times visible in the market, are attractive to metal extractors.
Officials in the mints feel that if metal prices are on the high, most cupro-nickel coins may disappear from the market. In fact, the mints have produced stainless steel coins in denominations of Rs 2, which the Reserve Bank of India is yet to bring into the market. Both the RBI and mints are overstocked with coins.
The mints are believed to have stocks of almost 1,500 million pieces.
Bi-metal coins coming
Meanwhile, for the first time the Centre will introduce bi-metallic coins of Rs 5 and 10. The concept of using two metals is to make it hard to counterfeit -- copying simply becomes very costly. Ferritic stainless steel and nickel bronze is likely to be used for manufacturing these coins.
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