Record commodity prices have claimed a surprising victim: The Royal Australian Mint.

The five, 10 and 20 cent pieces that line pockets, purses and piggybanks around the country are increasingly unprofitable to make. Soaring prices for the nickel and copper that constitute Australia’s small denomination coins mean that in some cases the metal is worth more than the number stamped on it.

Government coffers will bear the loss, with the projected shortfall in revenue as high as $20 million this financial year. The Mint remits to the Federal Treasury most of its seigniorage profits—an ancient word for the difference between the cost of making coins and the number stamped on them. Banks and other customers buy coins from the Mint at face value. 20 cents for a 20-cent coin.

“Certainly, in the last financial year, some of the coins were already costing us more to make than the revenue they were generating, the five-cent piece as an example,” says Leigh Gordon, chief executive of the Royal Australian Mint.

Noting the recent spike in metal prices he says: “At the moment, we’re thinking, particularly the five, 10 and 20 cent pieces could be specific coins where we are not recovering the money that it’s costing us to make them.”

Australia’s circulating ‘silver’ coins are a quarter nickel and three-quarters copper, sourced from Korea. Both metals are among the many commodities soaring as Russia’s invasion of Ukraine exacerbates existing supply shortages. Nickel made headlines on 8 March when a short-squeeze caused prices to briefly top US$100,000 a tonne and forced the 145-year-old London Metal Exchange to close trading for days. Copper markets are also hovering at record highs amid surging demand and supply constrained by years of underinvestment.

Leigh says the decision to build up inventory as war clouds gathered over Europe has insulated the Mint from the most recent price rises for now. But he expects new supply will need to be ordered in the next month or two.

The projected shortfall follows a bumper year for the mint. Seigniorage jumped 66% to $45 million in fiscal 2021 thanks to a surge in demand as people hoarded coins during the pandemic. The mint produced about 175 million new coins last financial year, says Leigh.

Revenue from the mint's line of special collector coins also surged as the numismatically inclined returned to their hobby amid lockdowns.

A dubious history

In its 2020-2021 annual report, the Mint forecast seigniorage revenue will hit $41 million this year, down from $45 million the year prior. Since October, nickel prices have risen 83% and copper 14%.

Leigh says a figure around the $20 million mark or higher is more realistic this year. Stratospheric metal prices are to blame as well as a drop in demand for coins following lockdowns in Sydney and Melbourne late last year.

Small-denomination coins have a history of dubious profitability. Metal prices exceeded face value for the five-cent coin in 2015 and 2018, according to reports. Based on Monday's spot prices and accounting for the exchange rate, the metal in a five-cent coin cost is worth 20% more than face value.

Much as people will pause in the street for a $2 coin but walk past a five-cent piece, Mint profits are dominated by larger denomination coins. Roughly a quarter of all coins sold are five-cent pieces, while half of all seigniorage revenue comes from $2 coins, says Leigh.

Made of 92% copper, the metal costs of producing the $1 and $2 coins have not risen as fast as their nickel-heavy smaller-denomination cousins.