Scale wins volume, but tariffs double costs
- Reliance gained share while the metals market stayed choppy, reaching over 17% U.S. market share exiting 2025.
- Q2 2026 results showed record tons sold, up 10.8% year over year.
- The border wall contract added 5.2 percentage points to year over year volume growth in the second quarter.
- The main pressure point is trade policy, as the company doubled its 2026 LIFO expense outlook to $300 million.
- Finn's view is mixed: the business is financially strong, but the stock is not clearly cheap after the share gains story became clearer.
Share gains meet tariff noise
Reliance looks stronger as an operator than its reported margins make it look. It has kept taking share, with U.S. market share moving from 14.5% in 2023 to over 17% exiting 2025. In Q2 2026, the company delivered record quarterly tons sold, up 10.8% year over year.
The bull case is scale. Reliance can buy from mills, process metal quickly, and serve many small customer orders across many regions. That model works well when customers are unsure about prices and prefer to buy more often in smaller amounts. The up to about $3 billion of DHS border wall and Joint Strike Fighter contracts also show that its AMI Metals unit can serve large federal and defense programs. The border wall work added 30 basis points to pretax income margin in Q2 2026.
The bear case is about what happens when metal costs move too fast. The 50% Section 232 aluminum tariff imposed in June 2025 pushed aluminum prices to record levels and created large LIFO expense. This pressure forced management to double the full year 2026 LIFO expense outlook to $300 million, which masks underlying performance.
For the next year, the cleanest upside would come from three places: shipments from the DHS contract ramping into mid-2027, commercial aerospace inventories clearing, and continued demand from public infrastructure, data centers, energy, and defense. The stock still has a price question, because much of the market share story is now visible.
A metal middleman with local control
Reliance is a metal service center. That means it buys steel, aluminum, stainless steel, and other metals from mills, stores them, cuts or shapes them, and sells smaller orders to customers that do not want to buy direct from a mill.
The company makes money from product spread and service. Product spread is the difference between what it pays for metal and what it sells it for. Service income comes from processing work, fast delivery, broad inventory, and customer support. Its decentralized structure keeps decisions close to local customers.
Diversification is the safety valve. Non-residential construction and general manufacturing each account for about one third of sales. Aerospace is about 9%, and automotive toll processing is about 4% of revenue. No single end market fully drives the company.
The model breaks when metal prices, tariffs, or inventories move faster than customers can absorb. Reliance can still sell lots of metal, but reported percentage margins can look worse if costs rise too quickly or if higher-margin aerospace demand is delayed.
What Reliance sells
Carbon steel
Carbon steel includes tubing, plate, and structural products. It is tied to construction, manufacturing, energy, and public infrastructure demand.
Stainless steel
Stainless steel adds product mix and customer diversity. Pricing can be volatile, so inventory discipline matters.
Aluminum
Aluminum serves aerospace, manufacturing, and other industrial uses. Recent tariffs have made this product line more important and harder to read in reported margins.
Aerospace and defense metals
AMI Metals gives Reliance a path into large defense and government programs. The DHS border wall and Joint Strike Fighter contracts could represent up to about $3 billion of revenue.
Automotive toll processing
In toll processing, Reliance processes customer-owned metal for a fee. This is a smaller revenue stream at about 4% of revenue, but it can be less exposed to metal price swings.
Value-added processing
Cutting, shaping, and quick-turn delivery help Reliance earn more than a basic metal reseller. This service layer is central to why customers buy from a service center.
End markets, not one big bet
This mix uses the company context tied to recent filings: non-residential construction and general manufacturing are each about one third of sales, aerospace is about 9%, and automotive toll processing is about 4% of revenue. The remaining sales are spread across other industrial end markets, so this is an end-market view rather than formal operating segments.
What could go wrong
Tariffs distort margins
High impact · High oddsThe 50% Section 232 aluminum tariff imposed in June 2025 pushed aluminum prices to record levels. This forced the company to double its full year 2026 LIFO expense outlook to $300 million, which severely compresses reported percentage margins.
Metal prices fall faster than costs
High impact · Medium oddsReliance has said product pricing usually matters more to results than customer demand. If steel or stainless prices fall, revenue and gross profit dollars can drop even if tons sold stay strong.
Aerospace inventory stays stuck
Medium impact · Medium oddsCommercial aerospace is a higher-margin end market, but excess inventory has slowed demand. While early signs of improvement appeared in Q2 2026, a stalled recovery would keep mix weaker.
Federal contract ramp slips
Medium impact · Medium oddsThe DHS border wall and Joint Strike Fighter awards are a major proof point for scale. Large government work can move slowly, face funding changes, or shift schedules.
Valuation gets ahead of execution
Medium impact · Medium oddsReliance has earned credit for share gains and contract wins. That also means the stock may already reflect part of the good news. If pricing cools or margins stay below target, investors may not pay up for the story.
In one breath
What does Reliance Steel & Aluminum do?
Reliance, now named Reliance, Inc., is a metal service center. It buys metal from mills, processes it, and sells smaller, faster orders to customers in construction, manufacturing, aerospace, automotive, energy, and defense.
Why did Reliance win so much market share?
Customers have been buying more often and in smaller amounts because of price and trade policy uncertainty. That fits Reliance's model, which is built around local decision-making, broad inventory, and quick-turn processing.
Are the government contracts important for RS stock?
Yes, but they are not the whole company. The DHS border wall and Joint Strike Fighter contracts could add up to about $3 billion of revenue and show Reliance can serve critical federal work. Investors still need to watch timing, margins, and whether the contracts ramp as expected.
What is the biggest risk for Reliance right now?
Trade policy and metal price swings are the biggest near-term risks. Higher carbon and aluminum costs forced the company to double its full year LIFO expense outlook to $300 million in mid-2026.
