North American lumber industry struggles with closures, tariffs and post-pandemic demand shift

North American lumber producers face a multi-layered challenge as permanent capacity closures, steeply rising Canadian duties, and potentially transformative Section 232 tariffs converge to create what could be the most disruptive trade environment since the Smoot-Hawley era. These shifts are occurring while the market continues to work through post-pandemic demand recalibration, with consumption still approximately 9% below COVID-era peaks.

“We are dealing with a massive event that could literally cancel out a century of tariff reductions from globalization,” explained Dustin Jalbert, senior economist for wood products at Fastmarkets, at the outlook presentation held on the sidelines of the 2025 Montreal Wood Convention. “Even if the most extreme tariff scenarios don’t materialize, the industry cost curve is fundamentally shifting.”

A significant downside risk looms, however, if the broader economy enters a major recession accompanied by sustained high mortgage rates. Unlike typical downturns where housing demand might benefit from countercyclical monetary policy easing, retaliatory measures from China and other trading partners could keep bond yields elevated. This worst-case scenario – combining demand destruction with stubbornly high 30-year mortgage rates – would compound the industry’s challenge by eliminating the typical relief valve of lower financing costs stimulating housing activity amid economic weakness.



Capacity rationalization: 5 BBF and counting
The North American lumber industry has undergone unprecedented capacity rationalization, with approximately 5 billion board feet (BBF) of indefinite or permanent sawmill closures over 2023-2024 alone. While 2023 shutdowns were concentrated primarily in British Columbia, the 2024 closures of 3.2 BBF were more geographically dispersed, affecting operations across BC, the Pacific Northwest, and even the traditionally resilient U.S. South.

“This is a wipe-out year,” Jalbert noted. “I know it’s a rough year for capacity closures when I keep having to fiddle with my font and make it smaller and smaller to fit it all on one slide.”

British Columbia’s production has experienced a structural decline of nearly 50% since 2017, dropping from approximately 13 BBF to around 7 BBF annually. This collapse stems from a confluence of factors: diminishing recoverable timber from the mountain pine beetle epidemic, old-growth habitat protection policies reducing Annual Allowable Cut (AAC), and the persistent burden of U.S. countervailing and anti-dumping duties.

Perhaps most telling for market observers is that 2024 marked the first year since 2020 that North America experienced a net reduction in operable sawmill capacity, despite continued SYP capacity expansion in the U.S. South. Fastmarkets projects this net capacity decline will accelerate in 2025, with another reduction, albeit smaller, following in 2026 as the “slow-burn bull whip of supply adjustment” continues to work through the system.
 

The triple threat: duties, Section 232 and IEEPA tariffs
The emerging “Trump Tariffs 2.0” environment introduces multiple, potentially overlapping trade barriers that could fundamentally alter North American supply patterns. Industry participants must now navigate a complex web of policy measures:

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Source: fastmarkets.com