New Market Study: Canada’s Lumber Industry At A Crossroads

Canada’s lumber industry at a crossroads: Shrinking capacity and challenging market diversification, new outlook report finds

Canada’s lumber industry is heavily export-dependent. Roughly 65% of Canadian lumber production is sold abroad, and the US remains by far the largest customer, accounting for about 87% of exports in 2025 (see chart). This reliance leaves Canada highly exposed to US trade policy.

In 2025, the US imposed new trade barriers on Canadian lumber, including “Section 232” tariffs and higher Anti-dumping (AD) and Countervailing Duties (CVD). Combined, these measures increase Canadian producers’ costs by an estimated 25-30%, significantly eroding price competitiveness and pushing many sawmills into negative margins, according to the new market report Softwood Lumber – Tariffs, Turbulence and New Trade Flows to 2030.

In response, Canada is expected to seek greater market diversification in regions such as China, Japan, India, Europe, and the Middle East. However, diversification is challenging. Canadian lumber is manufactured to North American grades and sizes, while many overseas markets use different specifications. Shipping distances are longer, logistics costs are higher, and building reliable long-term relationships takes time in these regions.

As of 2025, export volumes to regions beyond the US are near historic lows (13% of exports in 2025, compared with an average of ~ 20% over the past 20 years), meaning diversification will be slow and unlikely to offset reduced US access in the near term (see chart).

Declining log supply is also constraining production, particularly in British Columbia, which represents a large share of Canada’s softwood harvest and lumber exports. Over the past 20 years, the province’s allowable annual cut (AAC) has fallen by one-third due to timberland set-asides, Indigenous rights settlements, insect infestations, and wildfire losses. Harvest levels have dropped by about half, raising log costs and leaving many older sawmills uneconomic. This has prompted Canadian firms to shift investment capital to regions with more abundant and lower-cost timber, particularly the US South.

Because sawmills anchor the broader forest products value chain, mill closures have cascading impacts. When sawmills shut down, pulp mills, panel manufacturers, and pellet producers lose access to residual fiber, which increases their costs and sometimes forces closures. The resulting contraction affects employment, rural communities, exports, and GDP.

The Canadian government is responding with financial support and new procurement initiatives. Federal measures include loan guarantees to ease liquidity pressures, funding to encourage product and market innovation, and “Build Canadian” policies intended to increase domestic wood use in construction. However, these efforts cannot fully offset structural disadvantages related to timber supply, high sawlog costs, and competitiveness in the critical US market, the report says.

Conclusions

Canada’s lumber and forest sector is expected to continue contracting through 2030. Sawmill capacity will decline, particularly  mong smaller and older operations in regions affected by insects and fires, and export patterns will slowly rebalance away from the US. Rural communities will bear the greatest impacts. If US tariffs are eventually removed, the surviving modern mills could benefit from improved margins as lumber prices are likely to increase in the US. Meanwhile, opportunities exist in gradually growing overseas markets and in the domestic construction sector, where housing starts would need to roughly double by 2035 to meet projected demand. Achieving that, however, would require policy changes, streamlined permitting, and lower construction costs - none of which are guaranteed. 

By: Håkan Ekström, Global Wood Trends (Seattle, USA) and Glen O’Kelly, O’Kelly Acumen (Stockholm, Sweden)

Source: Global Wood Trends