Metal Service Centers and Other Metal Merchant Wholesalers (U.S.)

NAICS 2022 code 423510 — an investor's primer

NAICS (North American Industry Classification System) is the standard the U.S. government uses to sort businesses into industries. Code 423510 covers the companies that sit between the metal mills and the factories: the wholesalers and "service centers" that buy steel, aluminum, and other metals in bulk, hold them in inventory, cut and process them to order, and deliver them to the manufacturers and builders who actually use them. The Census definition specifically includes custom sawing, shearing, bending, leveling, cleaning, and edging performed as part of a sale [1].

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1. Overview

Every steel beam in a warehouse, every aluminum sheet in a truck body, and every stainless bar in a food-processing line usually passes through a middle layer that few people outside industry ever notice: the metal service center. Mills make metal in giant standardized volumes; factories and builders need specific sizes, grades, and quantities, delivered on a schedule. Service centers bridge that gap. They buy from the mills, warehouse the metal, do "first-stage" processing (cutting, slitting, leveling, laser-cutting), and resell in the smaller lots customers actually order.

The business is predominantly transactional. Reliance describes its segment as operating primarily in the spot market, while Ryerson says purchase commitments generally use prevailing market prices and that it has no long-term fixed-price metal purchase contracts [2][3]. This makes purchasing discipline, inventory age, and repricing speed more important than a conventional multiyear backlog.

Why an investor cares. This is a large, real, and unusually cash-generative distribution industry — roughly $296 billion in total wholesale sales in the 2023 Annual Integrated Economic Survey [4] — that also happens to be a clean way to bet on U.S. industrial activity without taking on the capital intensity and commodity-price leverage of owning a steel mill. The catch is cyclicality: demand rises and falls with construction and manufacturing, and the dollar value of the industry swings with metal prices even when tonnage is flat.

Public vs. private ways in. A handful of large public companies dominate the visible top of the market — led by Reliance, Inc., the largest in North America — but the industry is remarkably fragmented, with thousands of privately held, family-owned, and private-equity-backed distributors. Public investors can buy the leaders directly; private investors more often buy or build regional service centers, which trade as cash-cow small businesses.

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2. What it is and how it's structured

A metal service center is a merchant wholesaler: it takes title to (owns) the metal it sells, unlike a broker or agent that just arranges a deal. The scope of 423510 is broad. It includes distributors of ferrous metals (carbon steel, stainless, alloy) and nonferrous metals (aluminum, copper, brass, titanium), in every form — coil, sheet, plate, bar, tube, pipe, structural shapes — plus the value-added processing many centers bolt on.

A typical center combines a warehouse, cranes and material-handling equipment, processing lines, inside sales, purchasing and credit functions, and a local truck fleet or contracted freight. Processing ranges from simple cut-to-length work to slitting, blanking, plate burning, laser cutting, machining, polishing, and precision toll processing. In toll processing, the customer retains ownership of the metal and pays only for processing; this is economically different from merchant distribution because the center takes less commodity-inventory risk [2].

Reliance reports that its network handles more than 100,000 products, serves more than 125,000 customers, and delivered over 4.6 million orders in 2025 at an average value of approximately $3,120. Most of its customers are within 200 miles of the serving location, and approximately 40% of orders were delivered within 24 hours [2].

What it excludes (and the adjacent NAICS codes that catch those activities):

• Primary metal producers — the mills and smelters that actually make the metal — sit in NAICS 331 (Primary Metal Manufacturing). Companies like Nucor, Steel Dynamics, Cleveland-Cliffs, and Alcoa are producers, not 423510, even where they run their own distribution arms.
• Mill-owned sales branches distributing their own output are classified as manufacturing, not wholesale — so some real-world metal distribution sits outside this code. In 2023, $82.5 billion of the industry's total $296 billion in receipts came through producer-owned sales branches rather than independent merchant wholesalers [4].
• Scrap-metal dealers and recyclers are NAICS 423930 (Recyclable Material Merchant Wholesalers). Service centers do monetize processing scrap — Reliance returned approximately 259,000 tons of scrap to the manufacturing cycle in 2025 — but they are processors and distributors, not mills or scrap dealers [2].
• Metal fabricators that turn metal into finished products (structural fabrication, stampings) are in NAICS 332 (Fabricated Metal Product Manufacturing). The line is blurry: light processing (cutting to length) is distribution; heavy processing (welding a finished assembly) becomes manufacturing.
• Metal brokers and agents who never take title are NAICS 425120.

Ownership mix. The industry is overwhelmingly privately held. The 2022 Economic Census counted 6,006 firms operating 8,608 establishments [5][6] — meaning the typical firm runs one or a few locations. (An establishment is a physical operating location, not a company; a large multi-branch distributor can account for hundreds of establishments.) On top of the family-owned base sit: a small set of publicly traded consolidators (Reliance, Ryerson, Worthington Steel, Russel Metals); U.S. arms of foreign trading houses (Marubeni-Itochu, Toyota Tsusho, Samuel Son & Co., thyssenkrupp Materials); and private-equity roll-ups. O'Neal Industries is often cited as the largest family-owned metals distributor in the U.S. [7][8]

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3. How big it is

Federal statistics give a clear picture of a substantial, well-measured industry:

Three honest caveats on these numbers:

1. The revenue figure is a price snapshot, not a volume gauge. Because a service center's dollar sales move with the price of steel and aluminum, this NAICS can show big year-to-year "revenue" swings driven almost entirely by price, not by tons moved. Read the dollar figure as a moment in a volatile cycle.
2. The total is not a clean addressable market for independent service centers. More than a quarter of reported receipts ($82.5 billion in 2023) came through producer-owned sales branches, not independent distributors [4]. It is also a gross-sales measure containing the value of metal passed through the channel, not the industry's economic value added.
3. This industry is not undercounted the way some are — it isn't dominated by government or by sub-employee micro-operators, so the Census captures it well. The main measurement nuance is the boundary issues above: mill-owned distribution counted as manufacturing, and the fact that large public players report consolidated global revenue (Reliance's $14.29 billion in 2025 spans North America and includes processing that isn't purely U.S. wholesale) [10]. So you cannot simply add up public-company revenue and expect it to reconcile to the federal number.

Census-level margin data. For independent merchant wholesalers, the 2022 Economic Census reported $230.5 billion of sales, with cost of goods sold of $173.8 billion — producing a Census gross margin of $55.5 billion, or 24.2% of own-account sales [11]. These are aggregate industry statistics, not a normalized public-company operating margin.

Employment-to-revenue tells the story of the business model: ~145,000 employees against ~$296 billion of sales is roughly $2 million of sales per employee — a hallmark of distribution, where the cost of the metal itself dwarfs labor.

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4. The investable universe

Publicly traded pure-plays are few; most of the industry is private. The listed leaders:

Adjacent, larger public names touch this industry from the producer side — Steel Dynamics (NASDAQ: STLD) and Nucor (NYSE: NUE) are primarily mills (NAICS 331) but run downstream distribution and fabrication. They are a way to play the same demand with different (production) economics. However, steelmakers provide exposure to metal production and pricing, not primarily to NAICS 423510's distribution economics.

Major private / other owners: O'Neal Industries, Alro Steel, Steel Technologies, Samuel Son & Co., thyssenkrupp Materials NA, Marubeni-Itochu Steel, Toyota Tsusho America, Central Steel & Wire, Kenwal, and hundreds of regional independents [8]. If you want direct exposure without the public leaders, this is where private investors operate.

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5. How the money works

A service center makes money two ways, and the mix determines the quality of the business.

1. The metal spread. Buy from the mill at one price, sell to the customer at a higher one. This is the bulk of revenue but a thin slice of profit — pure "buy-and-resell" distribution runs low-single-digit net margins. The complication is that inventory is a market position. A center holds weeks or months of metal; if mill prices rise while that inventory sits, margins expand (you sell metal you bought cheap); if prices fall, margins get squeezed and the business can take inventory holding losses.

Rapidly rising prices are not automatically beneficial. A center can initially sell lower-cost inventory at new market prices, but margins compress if mill costs rise faster than customer prices. In a declining market, customers demand immediate reductions while the center is still holding expensive inventory. Ryerson expressly warns that falling prices reduce gross profit as higher-cost stock is liquidated, while rising prices can also hurt if pass-through lags [3].

2. Value-added processing. Cutting to length, slitting coils, leveling, plate burning, laser and tube cutting, and light forming turn a commodity into a made-to-order product [15]. Processing carries far better margins than plain resale, makes the customer stickier, and shifts earnings away from raw price bets toward service. The best operators push as much volume through processing as they can. Reliance says approximately half its orders now include value-added processing, versus closer to 40% more than a decade earlier, and attributes part of its higher sustainable margin to that mix shift. Ryerson reported that nearly 80% of the products it sold in 2025 were processed to customer requirements, though definitions and product mix differ between issuers [2][3].

The metrics that matter (the industry's equivalent of "same-store sales"):

• Tons sold and same-store tons — the true volume gauge, stripped of price.
• Average selling price per ton and gross profit per ton — decompose whether a good quarter came from price or from mix/processing.
• Gross margin % and EBITDA margin (earnings before interest, taxes, depreciation, and amortization) — profitability, and the LIFO/FIFO inventory-accounting choice (last-in-first-out vs. first-in-first-out) that shapes how price swings hit reported earnings.
• Inventory turns and working capital — how fast metal converts to cash.
• Return on invested capital (ROIC) — the discipline test for the consolidators.

The range of outcomes. The contrast between large issuers illustrates how much execution matters. Reliance reported a 2025 gross margin of 28.7%, gross profit of $4.1 billion, and net income of $741.6 million on $14.29 billion of sales. Ryerson (before including a full year of Olympic Steel) reported $4.57 billion of 2025 revenue, a 17.1% gross margin, and a $56.4 million net loss [2][3]. Product mix, processing content, branch productivity, inventory accounting, debt, and overhead make the difference — "steel distribution" alone does not imply a standard margin.

LIFO effects can be large. Inventory accounting can obscure underlying spread economics. Reliance recorded $113.7 million of LIFO expense in 2025 after $144.4 million of LIFO income in 2024. Ryerson recorded $55.7 million of LIFO expense in 2025 after $52.5 million of LIFO income the prior year; excluding LIFO, Ryerson said its gross margin increased to 18.3% from 17.0% even though reported gross margin declined [2][3]. This is why "gross margins" are not automatically comparable across issuers.

The counter-cyclical cash quirk. Because inventory is the biggest asset, a downturn actually releases cash: as sales and prices fall, the center runs down inventory and collects receivables, generating free cash flow precisely when revenue is dropping. This is why well-run distributors are prized as steady cash returners and can keep paying (and raising) dividends through recessions — a feature both public shareholders and private owners value. Investors should separate this working-capital reversal from sustainable earnings.

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6. What drives demand

Service centers are a leveraged read on the industrial economy. Demand tracks the health of a handful of end markets — industry estimates put the rough split at construction ~33%, automotive ~27%, aerospace ~16%, and machinery/equipment and consumer/other making up the rest [16]:

• Nonresidential construction and infrastructure — the single largest driver. Warehouses, factories, and public infrastructure spending move enormous tonnage; it is also interest-rate-sensitive. Reliance identifies nonresidential construction as its largest end market by tons and reported particularly strong 2025 demand there [2].
• Automotive and transportation — steel and aluminum for vehicles, trailers, and equipment; sensitive to auto build rates and the shift to lightweight aluminum.
• Machinery, heavy equipment, and industrial production — tracked closely against the PMI (Purchasing Managers' Index); a manufacturing PMI below 50 signals contraction and usually soft service-center volumes.
• Aerospace and defense — high-value specialty metals (titanium, alloys), currently a solid demand pocket.
• Energy — oil and gas pipe/tubular goods and, increasingly, grid and power-plant buildout.
• Mega-project reshoring — semiconductor fabs, data centers, and EV/battery plants are a forward-looking tailwind that lands squarely in the construction and machinery buckets.

Demand moves quickly because service-center orders are short-cycle and often just in time. Sitting on top of all of it is the price of metal itself, which drives the industry's dollar revenue independent of volume. MSCI (the Metals Service Center Institute) publishes the closely watched monthly Metals Activity Report tracking North American shipments and inventories — the industry's real-time demand pulse. Its late-2025 readings showed U.S. steel shipments roughly flat-to-down and aluminum modestly up, i.e., a soft-but-stabilizing volume backdrop [17].

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7. Regulation

This is a lightly licensed industry — no rate base, no reimbursement, no franchise regime — but it is heavily exposed to trade policy, which is the regulatory story that moves the numbers.

• Section 232 tariffs. In June 2025 the U.S. raised Section 232 tariffs on imported steel and aluminum to 50% (from 25%) [18][19]. Subsequent 2026 proclamations introduced full-value, derivative-product, and product-specific treatment [20][21]. For service centers this is a double-edged sword: tariffs prop up domestic metal prices (supporting inventory values and margins on the way up, and steering demand toward domestic mills the centers buy from), but they raise costs for the manufacturers those centers serve and can dampen end-market volumes. Tariffs can also leave a center exposed if policy changes while it holds expensive stock.
• Antidumping and countervailing duties (AD/CVD) on specific imported products (rebar, plate, tube) add another layer that reshuffles supply and pricing.
• General business regulation — OSHA workplace-safety rules (cranes, cutting, material handling), DOT trucking rules for delivery fleets, and standard environmental permitting. None is unusually onerous relative to heavy manufacturing.

The practical takeaway: trade and tariff policy is the biggest external regulatory swing factor, and it cuts both ways for margins and volumes.

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8. Competitive dynamics and consolidation

The federal concentration data show a highly fragmented industry with a consolidating top. In 2022 the largest 4 firms held just 16.8% of revenue, the top 8 held 25.1%, the top 20 held 41.6%, and the top 50 held 55.4%; the Herfindahl-Hirschman Index (HHI, a standard concentration measure where anything under 1,500 is "unconcentrated") was a very low 122 [6]. In plain terms: thousands of small players, no dominant giant, and lots of room to roll up.

That is exactly what is happening. The competitive edges of scale — purchasing power with the mills, geographic density, IT and inventory systems, and processing capacity — reward consolidation, and the leaders are pressing the advantage:

• Reliance built the largest position via decades of acquisitions (70-plus companies) and a decentralized operating model [10].
• Ryerson and Olympic Steel completed their merger in February 2026 into a combined group positioned as the second-largest North American service center, targeting ~$120 million in annual synergies. Olympic Steel's former ZEUS listing has been delisted, and Ryerson now trades as RYZ [12].
• Worthington Steel completed its acquisition of a controlling interest in Klöckner & Co in June 2026, creating a ~$9.5 billion combined business — a second large-scale platform [13].
• Russel Metals bought seven U.S. Kloeckner locations for ~$119 million (2025) as Klöckner narrowed its U.S. footprint toward higher-value work [8][14].

A second dynamic is vertical pressure from the mills. Producers like Nucor and Steel Dynamics have moved downstream into fabrication and distribution, competing for the same customers the service centers serve — a structural risk to the independents.

Digital competition. Digital quoting and e-commerce improve convenience and inventory visibility but also increase price transparency. Ryerson explicitly identifies online competitors and digital price transparency as a source of margin pressure. The likely winners are not purely online brokers but operators able to combine a usable digital interface with real inventory, processing capacity, credit, and rapid physical delivery [3].

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9. Risks

• Cyclicality. Volumes rise and fall with construction and manufacturing; a manufacturing recession hits tonnage directly.
• Metal-price volatility. Falling prices squeeze spreads and can force inventory holding losses; higher prices are not uniformly bullish — the direction, speed, and duration of the price move, and the distributor's inventory cost, accounting method, and pass-through lag, matter more than the spot price alone.
• Trade-policy whipsaw. Tariffs and AD/CVD actions can reverse quickly, moving both domestic prices and customer demand in ways hard to hedge.
• Mill disintermediation. Producers selling direct or buying distribution erode the middle layer.
• Supplier concentration upstream. Even a distributor with many branches ultimately depends on a smaller set of domestic and international mills. Outages, strikes, quotas, trade remedies, and extended mill lead times can impair product availability.
• Working-capital swings. Inventory-heavy balance sheets tie up cash in up-cycles (though they release it in down-cycles). Borrowing-base values contract when metal prices fall.
• Freight and energy costs. Delivery-intensive operations are exposed to fuel and logistics inflation.
• Labor exposure. Wage inflation and driver shortages raise costs and can undermine next-day delivery. Safety is material because centers handle heavy coils, plate, and structural products with cranes, forklifts, saws, and high-powered cutting equipment [2].
• Material substitution. Plastics, composites, glass, and carbon fiber can displace metal, while aluminum or advanced steels can displace conventional carbon steel. Reliance specifically identifies automotive lightweighting and alternative materials as risks when relative metal prices become unfavorable [2].
• Consolidation cuts both ways. Scale helps the acquirers but raises competitive intensity and integration risk; smaller independents face a squeeze.
• End-market concentration. A center tilted toward one cyclical sector (say, energy or autos) rides that sector's swings.
• Environmental exposure. Direct exposure is lower than at a steel or aluminum mill, but not zero. Centers face rules governing air emissions, wastewater, stormwater, fuel and chemical storage, hazardous waste, truck emissions, and contaminated industrial properties. Acquisitions can import legacy remediation liabilities [2].

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10. How to invest and the outlook

Public routes. The cleanest listed exposure is the service-center leaders: Reliance (NYSE: RS) — the scale leader with the best margins and a long record of steadily rising dividends prized by income investors; Ryerson (NYSE: RYZ), now combined with Olympic Steel as a larger #2; Worthington Steel (NYSE: WS), scaled up via the Klöckner deal (though it also has substantial steel-processing and automotive-related activities and is not a pure merchant-wholesaler proxy); and Canada-listed Russel Metals (TSX: RUS) with heavy U.S. operations. These stocks tend to trade at cyclically modest earnings multiples (low price-to-earnings and EV/EBITDA) because the market discounts the volatility — the flip side being that they can look statistically cheap at cycle peaks and expensive at troughs, so where you are in the cycle matters more than the headline multiple. For a producer-plus-distribution tilt, Steel Dynamics (NASDAQ: STLD) and Nucor (NYSE: NUE) are adjacent.

Private routes. Because the industry is thousands of privately held firms, direct ownership is very much on the table: buying an established regional service center (often available through owner succession), backing a private-equity roll-up in the space, or building processing capacity to capture higher-margin value-added work. The appeal for private buyers is the same counter-cyclical cash generation that public investors like — a "boring," asset-backed, cash-throwing business — bought at private-market multiples below the public leaders. The attractive targets tend to have defensible local density, scarce processing capabilities, a diversified customer base, high repeat business, and disciplined inventory. The principal traps are obsolete or slow-moving stock, earnings inflated by a favorable commodity-price period, underinvested processing equipment, environmental liabilities, and excessive dependence on an asset-based revolver.

Near-term drivers (forward-looking). The setup into 2026 is mixed. On the supportive side: elevated Section 232 tariffs are propping up domestic metal prices and steering demand to domestic supply [18]; reshoring mega-projects (chip fabs, data centers, EV/battery plants) feed the construction and machinery pipelines; and aerospace/defense demand is firm. On the cautious side: manufacturing activity has been soft-to-flat (late-2025 shipments were only stabilizing, not accelerating) [17], and interest-rate-sensitive construction is uneven. The structural through-line, regardless of the cycle, is consolidation — the largest players are actively buying scale, and the fragmented long tail is a multi-year runway for further deal-making. For public investors the question is cycle timing and price; for private investors it is sourcing the right regional business at the right multiple.

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Sources

1. U.S. Census Bureau, 2022 NAICS Definition — 423510. https://www.census.gov/naics/?details=423510&input=423510&year=2022
2. Reliance, Inc., 2025 Form 10-K (net sales, locations, order data, processing mix, LIFO, risks). https://www.sec.gov/Archives/edgar/data/861884/000110465926020651/rs-20251231x10k.htm
3. Ryerson Holding Corporation, 2025 Form 10-K (revenue, gross margin, LIFO, digital competition, processing mix). https://www.sec.gov/Archives/edgar/data/1481582/000119312526062397/ryi-20251231.htm
4. U.S. Census Bureau, 2023 Annual Integrated Economic Survey, NAICS 42351 (total sales, merchant wholesalers vs. manufacturers' branches). https://data.census.gov/table?codeset=naics~42351&g=010XX00US
5. U.S. Census Bureau, County Business Patterns 2023, NAICS 423510 (establishments, employment, payroll). https://www.census.gov/programs-surveys/cbp.html
6. U.S. Census Bureau, 2022 Economic Census — Comparative/Concentration Statistics, NAICS 423510 (firms, receipts, CR4/CR8/CR20/CR50, HHI). https://www.census.gov/programs-surveys/economic-census.html
7. O'Neal Industries, About Us (largest family-owned metals distributor). https://onealind.com/about-us/
8. Metal Center News, 2024 Top 50 Metals Service Centers, 2025 (industry structure; leading public and private companies). https://ftp.metalcenternews.com/downloads/2509_Top50-Companies.pdf
9. U.S. Small Business Administration, Table of Size Standards, 2023 (NAICS 423510 — 200 employees). https://www.sba.gov/document/support-table-size-standards
10. Reliance, Inc., Fourth Quarter and Full Year 2025 Financial Results, 2026 (net sales $14.29B; ~310 locations). https://www.globenewswire.com/news-release/2026/02/18/3240630/0/en/Reliance-Inc-Reports-Fourth-Quarter-and-Full-Year-2025-Financial-Results.html
11. U.S. Census Bureau, 2022 Economic Census — Wholesale Gross Margin Table, NAICS 4235 (cost of goods sold, gross margin for merchant wholesalers). https://data.census.gov/table/ECNGRMARGPROF2022.EC2242GRMARGPROF?q=EC2242GRMARGPROF
12. Ryerson Holding Corporation, Ryerson and Olympic Steel Announce Successful Closing of Merger, Feb 2026. https://ir.ryerson.com/news/news-details/2026/Ryerson-and-Olympic-Steel-Announce-Successful-Closing-of-Merger/default.aspx
13. Worthington Steel, Inc., Worthington Steel Completes Acquisition of Klöckner & Co, June 2026. https://www.sec.gov/Archives/edgar/data/1968487/000119312526254547/d31520dex991.htm
14. Russel Metals Inc., 2024 Annual & Fourth Quarter Results, 2025 (C$4.3B revenue; Kloeckner U.S. service-center acquisition ~$119M). https://www.prnewswire.com/news-releases/russel-metals-announces-2024-annual--fourth-quarter-results-302375306.html
15. Mead Metals / The Fabricator, Value-added services a metal service center provides (cutting, slitting, leveling, laser processing), 2023–2024. https://www.meadmetals.com/blog/what-value-add-services-does-a-metal-supplier-provide
16. Global Growth Insights, Metal Service Centers Market — end-market breakdown (construction/automotive/aerospace/machinery), 2025 (third-party industry estimate). https://www.globalgrowthinsights.com/market-reports/metal-service-centers-market-105083
17. Metals Service Center Institute, Metals Activity Report (North American steel/aluminum shipments, 2025). https://www.msci.org/research_data/metals-activity-reports/
18. White House, Proclamation on Adjusting Imports of Aluminum and Steel Into the United States, June 2025. https://www.whitehouse.gov/presidential-actions/2025/06/adjusting-imports-of-aluminum-and-steel-into-the-united-states/
19. White & Case LLP, Trump administration increases steel and aluminum Section 232 tariffs to 50%, 2025 (effective June 4, 2025). https://www.whitecase.com/insight-alert/trump-administration-increases-steel-and-aluminum-section-232-tariffs-50-and-narrows
20. White House, Proclamation on Strengthening Actions on Aluminum, Steel, and Copper, April 2026. https://www.whitehouse.gov/presidential-actions/2026/04/strengthening-actions-taken-to-adjust-imports-of-aluminum-steel-and-copper-into-the-united-states/
21. White House, Proclamation Further Adjusting Tariff Regimes for Aluminum, Steel, and Copper, June 2026. https://www.whitehouse.gov/presidential-actions/2026/06/further-adjusting-the-tariff-regimes-for-imports-of-aluminum-steel-and-copper-into-the-united-states/