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Solar Shines A Light On Steel Manufacturing

|About: Cleveland-Cliffs Inc. (CLF), Includes: BHP, CGEI, VALE
Summary

Solar installations have been expanding at an alarming rate year after year. Will supply meet demand?

What are manufacturers are doing in preparation of solar switching to steel?

What are miners are doing in preparation of the solar boom and switching to steel frames?

Nationally, the solar industry is expanding 30 to 40 percent annually. According to Wheatland Standard, solar manufacturers are now switching to steel over the more commonly used aluminum.

While properly alloyed aluminum can equal the yield and strength of steel, steel possesses approximately three times the modulus of elasticity of aluminum. Thus, under load, identically sized steel members deflect only a third as much as aluminum. For certain applications, including solar panels, this stiffness is important.

According to CGE Energy (MKBYD) who offers commercial solar installations through direct sales, financing or through Power Purchase Agreements (PPAs). The sun-powered renewable energy equipment is installed at CGE's customer's location nationwide for upwards of 25-years. The company has stressed the importance to be confident that the structure will hold and withstand throughout the long-term PPA contract- Their ongoing revenues and the customers power reliability count on it.

Wheatland Standard says that in comparison to steel, aluminum requires larger or more members to support the same weight and load. With steel tubing, solar installers can reduce the amount of parts required in the design, which affects labor and installation time, and ultimately saves money.

JMC Steel Group is the leading manufacturer for structural steel tube in North America who has a focus on support and framing system for solar panels. Currently, their round, square and rectangular steel tubing is used throughout the solar industry as support piers for ground-mounted structures.

JMC launched a revitalization program for its Council Avenue location in Wheatland, Pennsylvania. The company is adding new equipment, realigning the manufacturing footprint and automating many processes in the facility. Now in the middle of its two-year plan, the thirty five million dollar ($35,000,000.00) investment will create a safer, cleaner workplace, eliminate production bottlenecks, reduce work in process inventory levels, enhance production efficiencies, improve product quality and improve customer service.

At a recent meeting with Wheatland Tube employees, Barry Zekelman, Chairman and Chief Executive Officer of JMC Steel Group commented, "We know that the products this facility produces are both unique to the industry and second to none in their quality. For years we have discussed the need to update the equipment and production environment of this facility in order to continue to successfully compete at a global level. We are proud to take this step with the employees of Council Avenue and the Wheatland Tube community. We believe in the products that this facility produces and the people that produce them. The result will be a revitalized and modernized facility which will be poised to aggressively grow the standard pipe market and compete long into the future."

On the other side of the steel production cycle, iron ore miner Cliffs Natural Resources (NYSE:CLF) is collectively preparing for the demand during an iron ore price plunge. Cliff's CEO Lourenco Goncalves said the United shutdown may have a silver lining, offering a chance to start reworking the plant to produce a so-called '"superflux" taconite pellet. That new product will replace a flux pellet now made at Cliffs' Empire/Tilden operation in Michigan.

The new higher-grade pellet is expected to become the product of choice as it will reduce shipping cost and waste adding additional value to the highly concentrated ore. Any shipping cost reduction that contributes to lowering the cost of a solar install will further save the end user in their ongoing energy costs.

With other miners like BHP Biliton (NYSE: BHP) and Vale (NYSE: VALE) increasing production, it seems although there is some preparation for the boom that lies ahead in manufacturing while ore prices have plunged while also increasing nickel and copper production.

Vale SA boosted iron-ore production last quarter to the second-highest ever for the company, exceeding analysts' estimates and worsening a supply glut that saw prices of the steel making ingredient collapse.

Industry-wide iron-ore output rose 7.4 percent to 85.3 million metric tons in the quarter through June 30, compared with 79.4 million tons a year ago. The result, which excludes third-party purchases and operations at a venture with BHP Billiton Ltd., topped the 82.5 million-ton average of eight estimates compiled by Bloomberg.

The strength of the solar and steel makers seem to have a bright future together.

Disclosure: I am/we are long CLF, MKBYD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.