Pile of Scrap Ep. 10: The Aluminum Guru - Matt Kripke

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Matt Kripke and John Sacco

Transcription

Intro: The following is an original audio series from Sierra International Machinery. Pile of Scrap with your host John Sacco.

John Sacco: Well, welcome to Pile of Scrap. I'm here with Matt Kripke, the guru of aluminum.

Matt Kripke: Thank you. Glad to be here.

John Sacco: Matt, you, uh — we've known each other a few years now here ‘cause of ISRI. We're here at the — in Chicago at the ISRI Round Tables for full disclosure. And, thank you for agreeing to come on to Pile of Scrap and, you know, educate. You know, the purpose of our podcast isn't to sell our equipment. It's to — people who aren't in the industry, people are in the industry to learn a little bit something other than what they know. You know, they don't know things. They listen. I get a lot of positive feedback. And you're the one guy, you're my go-to guy for aluminum.

Matt Kripke: Great. Alright.

John Sacco: You ready for that?

Matt Kripke: I'm ready.

John Sacco: Alright. Well, Matt. Okay. Kripke Enterprises. It's not a 20 generational business though, like a lot of us in the scrap business. Tell us about Kripke Enterprises.

Matt Kripke: Uh, well, I am third generation in the scrap business, but my, uh, my grandfather, my dad and his brothers, they built up a family business, sold it out to OmniSource in 1983. My dad stayed at OmniSource until 1993 and left when he was 49 years old. Kind of, it was a, uh, “I'm — I'm either going to stay here for the rest of my life or I'm going to go out and start over and start my own business” and he started Kripke Enterprises in ’93. I came in with him at ‘94.

John Sacco: University of Michigan graduate.

Matt Kripke:  Yes. Proud.

John Sacco: Yeah, there's a lot more of you out here than I — you know, it's funny, not many ‘SC graduates, but running across more of you Michigan Wolverines than, uh, maybe I want to. But, what'd you take at the University of Michigan?

Matt Kripke: I was in the business school and my dad was in the business school and currently I have, uh, my middle child is in the business school.

John Sacco: Congratulations. Costs a lot of money. I know, I have a daughter at USC, so I get it.

Matt Kripke: It's an investment.

John Sacco: Yeah, we hope so, right?

Matt Kripke: Right.

John Sacco: Alright. So, Kripke Enterprises. Tell us about what you're doing today. What — where do you guys — what's your — what's your niche? What are you doing?

Matt Kripke: So, you referenced the “Aluminum Guru,” which was very, very nice of you. Um, I know a fair amount about aluminum and our company is, we are experts within the aluminum industry. Uh, the — we have two divisions in our company. One is the scrap division and then we also have a usable coil division called Mid South Aluminum. And, the scrap division is what you're most familiar with. And, we place — we're pretty much North American brokers. And, then we do have a processing facility in Toledo. I call it a processing facility. It's — it's a little bit more than just a warehouse, but it's, you know, it's — it's, uh…

John Sacco: Is that more industrial or are you taking other scrap processors’ aluminum there?

Matt Kripke: We are a scrap dealer’s broker, so we do not handle industrial accounts ourselves.

John Sacco: Okay. So, what is your radius? Are you buying aluminum all over the country?

Matt Kripke: All over North America, Mexico, Canada, all over the U.S.

John Sacco: So, you're brokering materials. Um. How many different mills are buying your aluminum that you're brokering?

Matt Kripke: On the scrap side of our business, we sell to roughly 40 to 50 different consumers. Um, and they range from sometimes small people, smaller diox manufacturers making like notch bar or cone or shot. And, then we also sell to secondary smelters — people making 380, 319, sometimes into the 356 market. Uh, we sell into billet makers who are making billet that goes into the extrusion market.

John Sacco: Okay.

Matt Kripke: We're selling into the sheet mill market, which are people mainly making common alloy. 3003, 5052.

John Sacco: So, who are you selling into that's making a product that the listeners would know? You sell to somebody who's making something that somebody’s using.

Matt Kripke: Um.

John Sacco: If you're willing to disclose.

Matt Kripke: Well, we set who we would sell to…

John Sacco: Okay.

Matt Kripke: Would be, you know, Kaiser Aluminum, Aleris, uh, you know, um, a number of billet makers.

John Sacco: And what are they making? Give us a product that when you see it, you know, “Hey, I brokered that material into it” in the scrap version.

Matt Kripke: Well, we sell into both Aleris, uh, well into, um, Arconic and Novelis. Both of them are responsible for supplying the F-150 aluminum that goes into making the F-150.

John Sacco: Okay, so let — I was going to ask you about it. Let's segue into that because the frame I had — my son has a F-150, okay? I have drove a F-150 — the aluminum. Who is making the form and the shapes? Tell us how we get there. How does — from scrap to the Ford F-150? Walk us through that, so people can understand that, if you’re willing to.

Matt Kripke: Okay. So, the majority of that metal is captured in a closed loop system. So, the majority of that is really not making it to — if any of your listeners are scrap dealers, the majority of that from the F-150 is not making it out into the scrap dealers. But, here's the way it's handled is: Novelis and Arconic deliver coils on trucks and then those trucks get loaded up with scrap that is collected right at the plant, taken back to their plant, dropped into a furnace and melted, recycled into making new coil and then it's return there.

John Sacco: Okay. So, you said you also handle coils. What are you — what — that's a different part of your business. Tell us a little bit about that.

Matt Kripke: So, in 2017 we acquired a company called Mid South Aluminum. It is owned, or was owned, by Alan Sallee, Alan Sallee Jr., and we had been doing business with them for over 20 years on a tolling relationship. And, a tolling relationship would be: we would take scrap, we would take it somewhere, pay that place a fee for them to convert that scrap into coil for us. And then, we would then partner with Mid South and they would sell the coil into the building and construction market.

John Sacco: So, you own that now?

Matt Kripke: Yes.

John Sacco: So, you're now selling product into the building industry?

Matt Kripke: Correct.

John Sacco: How is the building industry, the construction industry, in the U.S. right now? How’s the demand for your product?

Matt Kripke: It is good, but 2018 was great. 2019 is good. So, we've gone from, you know, the book, the famous book is Good to Great — we've gone from great to good.

John Sacco: Well at least we're good.

Matt Kripke: Right. At least it's not awful.

John Sacco: I hear that about the aluminum market. You hear people, “Oh, aluminum is awful,” “The China tariff” or “the closure that mark—” and all that. What is the reality? Is there just that much more aluminum supply — scrap aluminum than there is the consumers of it? Is it the lack of consumers? Or, is it the lack of people buying new aluminum products?

Matt Kripke: It is not the lack of people buying new aluminum product. There's more and more aluminum, you know — the auto has made this significant shift to focus on light-weighting and some of it is the CAFE standards, which are kind of under debate right now in your state, especially of California. But, um, because of the light-weighting goals of a lot of the automakers, more and more aluminum is being used in cars and more aluminum is being used in other products. Maybe we'll talk about some of those other products a little bit later. So, that is not it. What is going on, is you do have a situation where there is not as much common alloy being made in the United States as there used to be and common alloy to go back to it is 5052, 3003, 3105 — referred to as common alloy. So…

John Sacco: Used for common alloy — What —

Matt Kripke: Those are mainly like building and construction product and would also be used a lot in, um, like, RV and trailer.

John Sacco: Okay.

Matt Kripke: And in those markets and because there is less of that being produced and so, a lot of those consumers have moved their capacity over to making auto sheet, which are these new alloys for the F-150 and other cars that are moving into auto body.

John Sacco: Well, okay. Military grade, Matt, what — you can't get away from the chrome — military grade aluminum. Is that real? Is there a military grade of aluminum? Or, is it just a great marketing ploy?

Matt Kripke: I think it's a great marketing ploy because the reality is if you're talking about military grade, I guess you're referring to what is used on the outside of a HUMV and, you know, you know, that could be some of this 6,000-series that they're using in the F-150, but, most of the time when you think of military alloys, those are generally the 7,000-series. And, there's really not a lot of that being used in the F-150.

John Sacco:  Alright. So, seems to be good news that still a lot of auto makings come more towards aluminum. Okay. That's a — that's a good thing. Plastic seems to be persona, no grata anymore. Even though at ISRI, we awarded Nestle, uh, the award for design for recycling last year. And, do you see the beverage container industry going far greater into aluminum in the coming years or… How's that gonna go?

Matt Kripke: I think that aluminum being infinitely recyclable has an advantage on plastic when it comes to containers. So, uh, I think that we're seeing a little bit of these, you know, this aluminum solo cup that — that's going to be probably a stamped out of, like, a 1050 or 1070 alloy. And, then we're seeing, for instance, I just had some canned water. So I, uh, we're having a grand opening, we're moving into a new facility in a month and when we have people come to it, we don't want to put out aluminum or we don't want to put out plastic bottles. We're in the aluminum business. So, we wanted — we did some research and we found a company that makes aluminum in aluminum water bottles — aluminum water cans, I should say.

John Sacco: Okay. So, can — no sh—like a beer can.

Matt Kripke: Yup.

John Sacco: Fully recyclable in its format that it is.

Matt Kripke: Yes.

John Sacco: And, what about the beverages — the bottles made out of aluminum, but have the plastic top? Are we seeing the engineering now going, “wait a minute, we're making a mistake putting plastic tops” because it's the contaminant that's causing the issue and the recycling of it and that they're going to do an old complete aluminum top but no plastic on it. Where's that going?

Matt Kripke: I'm not all that familiar with that. I would say that, you know, there's a couple of issues. Some of these microbrews, um, you know, they have their own small canning lines and they put it in a generic can and then, instead of doing the deco like you would see in a Coke can or a regular beer can, they might have it wrapped in plastic on the outside and that makes it a little bit more difficult to recycle, but you can still recycle it.

John Sacco:  It’s still recyclable, but it’s a downgrade of the aluminum.

Matt Kripke: It's a downgrade. And, as long as it's not, for instance, if that was baled into a 40,000-pound load of UBCs and you only have 500 pounds out of the 40,000 pounds that have some sort of plastic contamination, you're just going to get a lower recovery in the furnace. Hopefully there's not enough plastic that would cause any issues.

John Sacco:  Where’s that percentage — where is — in the furnace — they want how much recovery? They want — they don't — what is it? 99 per—98 — what? What, where is the sweet spot to where the contaminants like the plastic have become problematic?

Matt Kripke: You know, I'm not all that familiar with UBC rates, but I can talk to you a little bit about painted sighting. So, when you put painted sighting — when you collect painted sighting and you put it through a shredding process and then you put it into the furnace, you're expecting to get in the neighborhood of around 85% to maybe a 90% recovery if it's really clean. And so, obviously if you have sighting with a lot of iron in it or a lot of contaminants and you go, and it's really dirty, and you put it through the shredding process, you're going to lose more. So…

John Sacco: Okay.

Matt Kripke: So, it's the same concept.

John Sacco: Okay, it's where it's dying before it hits the furnace.

Matt Kripke: Right.

John Sacco: And no recovery rates.

Matt Kripke: And if in the case of plastic, if you get plastic in your furnace, it causes it to run hotter because it's a fuel. It's oil. So, it causes it to run a little hotter, and so, therefore, your melt recovery will be a little bit lower.

John Sacco: Canada, United States, Mexico. You know, NAFTA and what we've seen, Mexico is a pretty big manufacturing country. U.S. not, you know. I don't really know much about Canada, but you seen a shift in aluminum manufacturing to Mexico, to America? Where in the North America are you seeing a shift, if any, in aluminum, fabricating… meltmaking, if you will?

Matt Kripke: Boy, there's still huge amounts of aluminum being made in Mexico. Canada is still significant. North America… There really hasn't been anything new that has come on line other than in the billet-making world.

John Sacco:  Why?

Matt Kripke:  I think you can invest and build a billet maker for a reasonable investment. I think Metalico who is owned by Triple M. They built Wardstown a few years ago and they're currently building a plant in Wisconsin as we speak. Should be open in the tail end of next year. But, to build a sheet mill or, you know, to give you an example: Aleris just retooled their Lewisport facility to make auto sheet. Well, just to retool it into expand in order to do that. That was like a $500 million investment.

John Sacco: It’s a big investment.

Matt Kripke: Right. And so, to build one from scratch, and there's a company that's talking about doing it in Kentucky called Brady Industries, and I don't think they've broken ground yet, but I think that's got to be, and I don't know the number, but it's gotta be a, you know, multi-billion-dollar project.

John Sacco: You know, that — See, I think people, you know, people ask me all the time about recycling. They think they're doing their part — “Oh, the blue bin,” and you know, I tell them about, you know, the MIRVs and you get the separation of what kind of — what they don't really understand is, “well, why are prices so bad?” I go, “well, some recycling has actually increased the volume into the marketplaces. And also, we don't have any really new consumers for plastic products, aluminum products.” Just as you said. So, to get back to the people who are so concerned about recycling in the MIRVs, in the cities and the blue bin, and they want to take the aluminums out because that seems to be the only product anymore coming out of the MIRVs. It really has a home. Paper —mixed papers: not worth anything. Plastic: you know, again. It's going out to the landfill and that's what we're trying to do to keep it out of landfill. But, it's the investment into the infrastructure or the new consumers and technologies. And, you don't see that in aluminum at all — any new technology in the making of it, it's just — it is just what it is.

Matt Kripke: I wouldn't say that. I think there's a lot of new investment, new technology that is coming on all the time. Um, it's just that to build a brand new plant and add capacity, um, whether it's a hot mill or a cold mill in the United States or North America, it's a major, major investment. And I think that is what has — that's what's prohibited that from — from happening.

John Sacco: Well, we see a lot of new steel mills that have been planned that are coming online in a couple of years. There's a lot of money ma—it costs to make new steel. These steel mills, they're not cheap to make.

Matt Kripke: I don't know. You're asking questions that are way above my pay grade.

John Sacco: Well, but, you know, it's interesting. I guess it gets more philosophical for me because you see, all these steel mills that are being planned, okay? They’re big money, big investments. Okay, how about in America? We haven't built a new refinery for gas. How many years has it been? So, it seems like there's something that's preventing people from investing into the United States and this country or North America to do this. And, it's just isn't money. Or, is it just the cost of doing it? Philosophically speaking?

Matt Kripke: I don't know if it's just the cost. I don't know the answer to that. I know that we have some disadvantages. You know, there's a company that, um, you know, there's companies that make the same alloys of aluminum over in United Arab Emirates or some of the European countries and they have located, their hot — their cold mill, where they're rolling the, uh, material to make coil. They're taking slab, rolling it out to make coil. It's located right next to in aluminum prime producers. So, they have no freight to get the prime that they need to make that and it's located right next to a significant energy supply where they can, you know, maybe there's a hydro energy right there and, therefore, it's low cost aluminum being produced that they have no freight to get it there and, uh, it allows them to be more competitive. They can still get it here even with the — even with the 10% tariff, they can get it here very competitively to what the domestic mills are charging for that same material.

John Sacco: So, they've got a better setup altogether for the infrastructure from making it, receiving it and shipping it. And, we're having to travel too far of distances to do that, to be competitive worldwide.

Matt Kripke: That is — that could be part of it. It could be part of it.

John Sacco: Okay. So, what — okay, you got a lot — you got India. You know, it's an interesting economy. You've got, you know, Vietnam is an interesting economy. You know, South America, Brazil and all this. What countries are you seeing in the world today that are really using more aluminum?

Matt Kripke: You know, we don't export. We really — I shouldn't say we don't export. We don't do a lot of export. You know, probably 95% to maybe 98% of our volume is North America that we sell to. So, I'm not — I'm not very well versed in the rest of the world. I can tell you that, um, you know, supposedly there's a lot of growth coming in — in India, Indonesia, um, you know, there's still a lot of growth coming in the far East, but you know, I can't really speak to that. That's not really what we do.

John Sacco:  The industry that uses the most aluminum in the United States is…

Matt Kripke: It's probably still, you know — the can sheet business is still gotta be gigantic, but auto is huge. Um, I remember when I first came to my first ISRI Roundtable and there was a speaker up there who was talking about, we're currently using and it was just under 200 pounds per — of aluminum per auto, and he was showing this chart and he said, “within the next 20 years, we’ll be over 400 pounds.” And, you started running the numbers in your head. I think today the average is getting, if I'm not mistaken, I think the average is, uh, close to 500 pounds of aluminum per car. So, it's still very, very significant and it's still the, you know, that is still the big thing that moves our industry.

John Sacco: All right. Let's shift gears a little bit out of aluminum to — and well, we’ll stay on aluminum, but what worries, you know, you're in YPO, Young President's Organization. I am too, okay? And uh, we've got a lot of benefit and it's a YPO question. What keeps you up at night? What worries you? So, what worries you Matt? What — what keeps you awake at night?

Matt Kripke:     Well, I'm always, you know, we've been through enough bankruptcies and bad periods where you really have to watch credit that we've become hypersensitive to that. And, that's something that we pay very close attention to. We're firm believers in credit insurance. We've always — we've had credit insurance since we started and that helps. That's something that, you know, sometimes keeps me up at night. The big thing is, what I started to allude to earlier is that there has been so much more scrap being produced in this country, but there's not necessarily more coil being produced in this country because the imports are coming here. So, when the imports come and it gets made into something, that's how scrap gets produced.

John Sacco: Right.

Matt Kripke: Well, the scrap is staying here and there's not as much demand here. So, what I'm concerned about is — are the spreads, and I know we're at an ISRI event and we're not going to talk about spreads, but our spreads theoretically gonna get so wide that people are going to stop collecting scrap. I know it's the environmentally responsible thing to do, but are we getting to the point where — kind of like with plastic at times and paper at times — where it's just not economically viable to collect it?

John Sacco: Okay, let's say we get there. Where does that and how does that change? Because nobody — look, well, I’m in California. Nobody wants — they want scrap to be part of the diversion rates. Scrap commodities. Well, we fought that and we won because we're not waste handlers. They want to reduce waste going to the landfill. We know aluminum is a commodity. It's traded on the LME, copper, Comax. Okay, so we know that. What's going to prevent an aluminum from going to the landfill?

Matt Kripke: I think that what’s going to keep it from going to the landfill is just the push that, you know, it's economically — it’s environmentally responsible and it's the right thing to do. And, we've done a good job educating the public on it, but the dollars, you know, and that's why I'm a, you know, part of why we've been a firm believer in ISRI and a strong proponent of ISRI, is that we have to have an industry that is economically viable and not just environmentally responsible. The right thing to do.

John Sacco: Well, that's well said. Alright, so we're going to wrap up here. So in concluding all of this, okay, you got a great crystal ball, I heard. I heard you're one of the best at prognos—what is the word I want? What's the word I'm looking for?

Matt Kripke: Prognosticating.

John Sacco: Prognosticating the future and pricing.

Matt Kripke: My wife likes to rub my head like this when she wants to look in the future. It’s like her crystal ball.

John Sacco: You know, you and Brian Shine have some — a lot of commonalities.

Matt Kripke: Yeah, we're about the same height too.

John Sacco: Five, ten years from now. What are we gonna see?

Matt Kripke: Five, ten years from now in the world? Five, ten years from now…

John Sacco: USA.

Matt Kripke: USA. Okay. Uh, five, ten years from now, I think the aluminum industry will continue to grow. I think there we will be using more and more aluminum in autos. I think that, you know, aluminum seems to be winning out, not just in light-weighting but also in electric vehicles. The, um, the electric vehicle, the, uh, you know, if you can picture — showing you with my hand, but if you're listening to a podcast that's not doing any help, but if you can picture the casing that a battery would go in, in an electric vehicle, it's made out of aluminum.

John Sacco: So, Tesla. Big user of aluminum.

Matt Kripke: Right. So, uh, I see that continuing to grow. As far as what we care about with scrap and what's going to happen with the supply/demand fundamentals. I think it's gonna take five to almost that five to ten years to work out the supply/demand imbalance that we have with auto scrap, which we didn't really get to in this, but that is the big overhang in the industry right now is that we've created this new class of scrap that, six years ago, our company did zero pounds of that alloy — of those alloys. And today, we do over 20 million pounds a year of just those hours.

John Sacco:  And in five years you'll be doing 40 million.

Matt Kripke: We'll be doing 40 million pounds except, you know, the law of supply and demand, we need more demand for it.

John Sacco: We need more consumption and more demand for it. Matt, listen, you know, talking to you, it's clearly evident. You know, what's going on and it'd be fun in a few years to get back together and see where — what we predicted today or what you predicted — where are we going and what challenges that we've conquered and what barriers have come up. I thank you for your time. Thank you for being of this and I appreciate your commentary.

Matt Kripke:  Alright. Do I get to say the tagline at the end?

John Sacco: Sure.

Matt Kripke: This has been Pile of Scrap.

John Sacco: Excellent. Outstanding.

Conclusion: This has been a Sierra International Machinery original audio series. Thanks for listening. Please share this podcast and make sure to subscribe.

The Pile of Scrap Podcast is available on Apple Podcasts, Spotify, and Google Play. The Podcast episode videos are available on YouTube. Be sure to Subscribe, Rate, and Review Pile of Scrap.