2008 Scrap Metals Supplement - Burning Brightly

Aluminum production is often held out as an example of industry consolidation at its most advanced. A vast share of primary aluminum production is held by a handful of global corporations.

Even while competing with global giants, the spirit of enterprise remains strong, as witnessed by the Dorfman family’s commitment to running State Metal Industries Inc., Camden, N.J.

The business started by Yale Dorfman has not just stayed in the game through this decade, but has invested in new capacity and other upgrades to remain an aluminum ingot provider and aluminum scrap destination of choice in the Northeastern United States.

Yale Dorfman was introduced to the scrap industry by a family friend in 1959. At that time, he began collecting used one-quart oil cans from gas

After the Reynolds program wound down, Yale entered the smelting side of the business with a company called State Salvage in Camden that operated two furnaces and a kettle.

As the two brothers who founded State Salvage moved toward retirement, Yale increased his involvement. In the 1970s, the company moved to a larger building at the site of its current complex near the Camden riverfront.

Re-named State Metal Industries (SMI), the company’s new location eventually included three melting furnaces plus an aluminum shredder and baler for scrap processing.

By 1984, Yale’s son Michael joined the company full time after graduating from Penn State. Three years later, Richard Kuhl—whose family had previously operated a metals distribution business in the region—joined up with SMI. Two years after that, Yale’s younger son Andrew began full-time, completing a top management team that remains in place nearly 20 years later.

SMI’s operations now include two reverberatory furnaces, one rotary furnace, a shredding plant, a baler and a laboratory for materials analysis.

Down the street from its main location, SMI maintains additional warehouse space on another four-acre parcel. That facility helps ensure adequate indoor storage space for the nonferrous scrap it obtains that will keep its furnaces fed and productive around the clock as well as providing room for ingot inventory.

The furnaces produce specification aluminum alloys for a wide range of customers. "Aluminum is our main focus," says Michael. "We produce a wide variety of alloys ranging from those with the highest purity for extruders and sheet mills as well as for various foundries and die casters."

That wide range of products has made a critical difference for SMI. "Our menu is really what has separated us from a lot of secondary smelters," Michael comments.

The variety not only allows SMI to serve many different aluminum manufacturers, but also to keep the door open with scrap dealers to handle most grades of aluminum scrap. "We do handle every grade of aluminum," says Michael, "not just those for the die casting industry."

When a family business makes a large capital investment, in a good scenario the decision turns out to have protected the business. The less pleasant scenario is one where the investment puts the company at risk by mis-allocating resources.

While there have been times when the Dorfmans have worried that the latter scenario may pan out, most of their recent investment decisions have proven to be wise ones—even if they may seem counter-intuitive to how the market is moving.

Investments in additional smelting, scrap processing and storage space in a North American market where the number of secondary smelters has been receding for decades can all be questioned—but so far all have proven sound.

"We carry large inventories, but manufacturers are beginning to understand the limitations of just-in-time (JIT) practices," says Richard. He notes in particular that with the truck freight market being as tight as it has been, operators of furnaces (both SMI and its ingot-melting customers) are seeing that adhering to a JIT model without a cushion can prove costly.

Although SMI’s officers have watched both competitors and customers disappear, that has not stopped them from managing for growth.

"We’re going to do what we have to do to grow the company," says Andrew. "My father has instilled some very good work ethics and habits—we’re not afraid to work and put in the hours."

Thus, even as Andrew acknowledges that SMI’s Camden smelter is one of the few of its kind remaining in the Northeastern U.S., he points out that in addition to having increased its warehousing abilities and renovating its offices, SMI is also researching a larger shredder, upgrading one of its furnaces and adding another ingot casting line. "We’re still a young and aggressive company that is growing every year," he states.

Although SMI is proud of its decades of history, conversations with all four officers indicate that their focus is on the future.

Even as ingot production remains central to SMI, Andrew spearheads

Whether scrap that the company has purchased is not a good fit with its ingot production or can simply yield a better margin on the open market, the trading option allows SMI to engage in a profitable activity. "We’ve taken advantage of some of our relationships with customers to buy and sell metals beyond what we consume," says Andrew. "We’ve been in business so long, we have a good reputation as far as payment and trust."

"About 80 percent of the scrap comes in to be made as ingots and about 20 percent goes out as prepared scrap for other melters," Richard estimates.

"But that can change depending on demand," notes Michael. "If a domestic or foreign consumer is aggressively seeking certain alloys in processed scrap, ingot or sow form, we can shift gears to accommodate the demand."

Ultimately, State Metal Trading provides flexibility, says Richard. "For our scrap dealer customers, we feel we can react to the marketplace quickly and get them the best value for their scrap."

"The market changes all the time," notes Michael. "We’re constantly analyzing our inventory position, our sales trends and our purchasing to see just which way the markets are going."

The spreadsheet analysis aspect of their jobs provides an incomplete picture of how the Dorfmans and Richard Kuhl manage SMI, however.

"All of us are very hands-on as managers," says Michael. "You can’t just run your business from a desk. That philosophy has helped keep us alive while other smelters have faded away."

In an era when global companies are active in its market region (Australia-based Sims Group and United Kingdom-based EMR are now major players in New Jersey), SMI can provide a key alternative, say the company’s officers. "We think we’ll be a niche player—more like a boutique operation," says Yale.

Adds Michael, "We’ve seen a lot of our competitors merge. The whole industry is becoming one with fewer players. We look at ourselves as ‘the other guy.’ A customer that doesn’t want to put all its eggs in one basket can sell to us—the other guy."

Recent positive results have been providing SMI’s leadership team with one of several good reasons to come to work. Says Michael, "Every day you come to work, and it’s always a new adventure or a new problem—depending on how you look at it."

Likewise, Yale says he continues to enjoy the lack of routine in his job. "Every day in this industry is a different challenge. I enjoy it."

The author is editor in chief of Recycling Today and can be contacted at btaylor@gie.net.