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A substantial volume of supply has already come out of the North American market. Over 3.6 billion board feet (BBF) of permanent or indefinite mill closures in North America in 2024, followed by another 0.8 BBF plus further downtime on top of that — the cumulative effect is real and the inventory overhang that defined much of the past two years has largely cleared. Weekly supply/demand flows are noticeably better aligned, although dislocations are still occurring like we have seen with SYP since the beginning of the year. The Fastmarkets capacity outlook puts the structural picture in sharp relief: after years of the US South driving topline North American capacity growth — adding roughly 1.0–1.8 BBF of net new capacity in peak years like 2022 and 2023 — that buildout is finally slowing. The forecast for 2026 and 2027 shows net North American capacity contracting, as BC losses and curtailments outpace any remaining SYP additions.
But the market is probably not fully balanced yet. Canadian capacity — particularly SPF — likely still has more rationalisation to go, with mills operating at low rates that make it difficult to sustain price gains. There is also a question around SYP: despite the slowdown in new builds, the South still carries excess operable capacity that will require more market share gains for recent pricing gains to remain durable. The honest read from Montréal: we are closer than we were, the direction is right, but the job is not finished.
The underlying fundamentals for a North American lumber demand recovery remain intact. The US is likely still 1–2 million homes underbuilt. Household wealth and home equity are at elevated levels. Demographics support demand growth through 2030. The conditions for recovery are there — but two compounding macro headwinds are pushing the timeline out. The Iran energy shock is driving inflation higher again, keeping mortgage rates elevated and squeezing the discretionary income that drives home purchases and renovation activity. The broader tariff environment is adding further cost pressure through the construction supply chain, eroding builder margins and buyer affordability. Fastmarkets’ base case now points to 2027 as the earliest window for meaningful demand acceleration — a delay, not a cancellation.
The Fastmarkets end-use forecast puts specific numbers on the shape of that recovery. US housing starts are projected at 1.304 million units in 2026 (-3.9%), recovering to 1.387 million in 2027 (+6.3%). Repair and remodeling follows: +0.7% in 2026, accelerating to +3.0% in 2027 (RRI: 113.6). Mobile home production — an affordability-driven category that holds up when traditional homeownership becomes less accessible — is one of the brighter near-term spots at +5.4% in 2026 and +8.8% in 2027.
The Fastmarkets cost curve analysis presented at MWC makes the tariff impact concrete. Average duties on Canadian lumber shipped to the US were raised from 14.38% to 35.19% last summer — effectively doubling the duty burden overnight. Duties are paid as deposits by Canadian mills to the US Department of Commerce, which means they raise production costs immediately despite being a potential asset on the balance sheet. Combined with the 10% Section 232 tariff implemented in October 2025, the all-in cost impact has pushed BC Interior and Quebec producers to roughly $580–600/MBF in variable production costs.
There is a modest near-term duty reprieve in view. The Department of Commerce has completed its 7th administrative review (AR7), with preliminary “all other” combined rates now at 24.83% (ADD of 10.66% plus CVD of 14.17%) — down from 35.16% under AR6. Final assessments are expected in early October. But this partial relief does not change the fundamental picture: at current prices, a large portion of Canadian sawmill capacity is generating negative margins, and further permanent closures are the likely consequence. The softwood lumber dispute has cycled through seven administrative reviews since 2018 with no resolution. The only question is how much more capacity exits before the market finds equilibrium.
The SPF/SYP discount that ran above $200/MBF for an extended period has been narrowing, a sign the market is partially self-correcting. Much of the recent SYP rally has been supply driven given another wave of closures and downtime in the second half of 2025 along with compounding supply effects from the unusual winter conditions we saw down South in January and February. However, genuine pockets of strength are visible with certain distribution channels holding up, specific SKUs showing real tightness. But the wider structural picture is more complicated. A wave of new, highly efficient Southern mills has come online in recent years, and capacity still meaningfully exceeds current production levels. SYP pricing reflects this — extremely volatile, with intra-day price swings and very short lead times.
The Q1 rally itself had an underappreciated demand component on top of the supply story. A large pent-up backlog of multifamily starts concentrated in the Southeast hit the market simultaneously at the end of January. Because multifamily draws on a very narrow set of dimensions and lengths, all buyers were competing for the same limited product set at the same time. This dynamic has a natural shelf life — when multifamily projects clear their initial framing phase, typically around five weeks, buying activity pulls back sharply.
British Columbia’s provincial harvest has fallen from roughly 90 million cubic metres to approximately 40 million cubic metres over four to five years. The drivers — mountain pine beetle damage, indigenous land rights, wildlife corridors, and sensitive area designations — are not cyclical. There is no near-term reversal pathway. Fastmarkets projects a that altogether, BC will lose 7 BBF of operable capacity loss over the longer term, with the province’s share of North American softwood lumber production falling from roughly 22% in the early 2000s to under 10% by 2027. This transition has been extraordinarily painful in terms of closures, job losses, and community impact. But it is also the mechanism through which the broader market moves toward structural balance. The displaced volume is migrating east and south, with Eastern Canadian provinces and the US South absorbing demand that BC can no longer serve.
Residual markets — chips, pulpwood, sawmill byproducts — are the underappreciated constraint on how cleanly this transition plays out. Without viable residual outlets, the operating cost structure shifts upward for producers across the region, making rationalisation harder to absorb even when it is necessary.
No topic generated more divergent opinion at MWC than European spruce. The economics for shipping to North America are deteriorating on multiple fronts simultaneously: a 10% Section 232 tariff, rising log costs as the period of beetle-kill and storm-salvage oversupply ends, a weaker US dollar, elevated freight, and increasing regulatory burden are all compressing the case. Some producers are maintaining North American flows as the least-worst option in a globally oversupplied market, particularly with acute disruptions in the Middle East, which was one of the few pockets of strength in the global marketplace before the recent Guld War kicked off. How much additional volume exits — and on what timeline — is genuinely contested. The honest answer from Montréal is that nobody was confident in their number, and the range of credible outcomes over the next 6–12 months remains surprisingly wide.
A recurring theme was how compressed the planning horizon has become. SYP can swing intraday. European supply flows are being redirected quarter by quarter. Mill closures can reprice markets within weeks of announcement. The companies navigating this best are those with broad real-time market visibility, fast decision-making capability, and willingness to pursue opportunistic trades rather than relying on strategic positions set months in advance.
Post-pandemic income growth looks reasonable in aggregate, but the composition tells a different story. Mandatory expenses — housing, utilities, insurance, healthcare, transportation — have absorbed essentially all of the real gains, leaving a roughly 15% gap in discretionary spending capacity by late 2025 versus the pre-pandemic trend. The Iran energy shock is now widening that gap further, pushing inflation higher at exactly the wrong moment and reinforcing the Fed’s reluctance to cut rates. The result: mortgage affordability remains stretched, home purchase activity is constrained, and renovation spending is under pressure. Until energy prices ease and real incomes recover meaningful discretionary headroom, the demand signal for lumber stays muted — which is why the recovery keeps getting pushed to the right.
North American softwood lumber consumption has been falling for five consecutive years — a run that has no modern parallel other than Global Financial Crisis. After declining 1.2% to 56.9 BBF in 2025, Fastmarkets projects another 0.5 BBF decline in 2026 as the energy shock and affordability squeeze take another bite out of demand extending the down streak to consecutive years.
But 2027 is where the trajectory reverses. Fastmarkets projects a 2.2 BBF rebound in 2027 — the largest single-year demand increase in the forecast horizon — driven by new residential construction recovering as mortgage rates ease and the housing deficit reasserts itself. That is not a guarantee, and the timing depends heavily on how quickly the Iran energy shock unwinds and the Fed moves on rates. But the shape of the forecast is clear: one more difficult year, then a meaningful turn. For an industry that has been navigating five years of headwinds, that framing — visible at last — was one of the more quietly significant things presented at Montréal.
This was the thread running through everything at Montréal 2026. The phrase surfaced independently across sessions, bilateral meetings, and hallway conversations — not as a rehearsed talking point, but as a genuine description of where the industry is right now. Nobody is ready to declare a recovery. The financial stress of two-plus years of below-cost production, forced closures, and margin compression is real, and producers — particularly in Western Canada — remain cautious. But something has shifted beneath the surface. The conversation is no longer about how bad it is. It is about when it gets better.
The further downstream the conversation went, the more clearly this came through: “It’s not booming, but we can live in this environment.” Inventories have cleared. Supply has come out. The 2027 demand recovery window is in view. Canadian producers are still under serious financial pressure — duties, depressed prices, sticky costs — but even they were less despairing than many expected heading into the conference.
There’s real uncertainty about when the big recovery arrives, with tariffs, housing weakness, and inflation all working against momentum. But the broader takeaway from Montréal is that the industry is adapting to life in a low-growth environment — finding ways to operate, not waiting for a boom. Canadian mills, the most exposed in this cycle, are hanging on in the meantime, but for the rest of the market, this is less about surviving a downturn and more about settling into a new normal.
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