Lumber Cost Decreases Offset by Operating Cost Gains

When lumber prices cratered from their 2020–2022 pandemic highs, the expectation in many corners of the industry was straightforward: lower commodity prices would eventually mean lower costs throughout the supply chain, and producers who had weathered the volatility of the boom years would at least benefit from more predictable operating conditions on the way down.

That expectation has not been met.

According to Aspen Dudzic, communications director for the Alberta Forest Products Association (AFPA), the cost structure on the operating side of the ledger has not followed commodity prices lower — and the gap is creating real pressure on producer margins heading into the second half of 2026.

“We saw prices skyrocket during COVID, but so too did the cost to operate,” Dudzic told CTV News Calgary. “Post-COVID, we saw the market prices for lumber go down, but the costs to operate have not come down in the same way.”

The Price Story

To understand the squeeze, it helps to start with how far lumber prices have actually fallen. During the pandemic-era supply shock of 2020–2022, prices for some Canadian dimensional lumber products reached approximately triple current levels. Driven by a combination of explosive housing demand, supply-chain bottlenecks, and mill curtailments that had taken capacity offline, the price spike was historic by any measure.

The correction since then has been significant. Prices have retreated sharply as demand normalized, new capacity came back online, and housing starts in both Canada and the United States moderated under the weight of higher interest rates. For sawmill operators who rode the boom, the price cycle has run its course — the market has reset.

What has not reset is the cost side of the equation.

The Cost Story

Operating costs in the Canadian lumber sector are being held up by a cluster of factors that do not respond quickly to commodity price signals. Energy and fuel costs — which are embedded throughout the production and logistics chain, from harvesting equipment and haul trucks to kiln drying and transport — remain elevated relative to pre-pandemic baselines. Labour costs have similarly ratcheted upward during the inflationary period and have shown limited downward flexibility.

Supply-chain complexity is another compounding factor. The disruptions of 2020–2022 forced many producers to diversify suppliers, carry larger inventories, and absorb longer lead times — structural changes that added overhead and have not unwound simply because commodity prices normalized. Input costs for chemicals, packaging, and maintenance materials have also remained sticky.

The net effect is an asymmetry that cuts against producers: the price they receive for lumber responds quickly to market conditions, moving up and down with supply, demand, and inventory cycles. The price they pay to run the mill does not move in the same way or on the same timeline.

Trade Tensions Add Another Layer

For Canadian producers selling into the US market — which represents the dominant export channel for most Western Canadian lumber — the margin squeeze is compounded by ongoing trade dispute costs. US countervailing and anti-dumping duties on Canadian softwood lumber have been a persistent feature of the trade relationship for decades, with duty rates fluctuating through legal challenges and renegotiation cycles.

In the current environment, those duties represent a direct reduction in net realized price. When lumber prices are high, the duty impact is proportionally smaller relative to gross revenue. When prices are at cycle lows and operating costs are not declining proportionally, the duty burden becomes a more significant share of a shrinking margin pool.

Dudzic noted that ongoing US trade tensions remain a significant concern for the industry — an acknowledgment that the external cost environment is not simply a function of domestic inflation, but also of trade policy that Canadian producers cannot control.

What It Signals for Production Decisions

The margin squeeze described by the AFPA is not an abstract financial concern — it has direct implications for how producers manage capacity and capital allocation heading into the back half of 2026.

When operating costs remain elevated and commodity prices are at cycle lows, the economic logic shifts toward curtailment rather than production volume. Mills that are operating near or below cash breakeven have limited incentive to run at full capacity, and the industry has historically responded to this dynamic with announced curtailments, temporary shutdowns, and deferred maintenance investment. Those decisions, taken in aggregate, can tighten supply — which eventually puts a floor under prices — but the timing is uncertain and the near-term cash flow pressure is real.

For investors watching the sector, the cost-structure asymmetry is a signal worth tracking. Producers with lower-cost harvesting positions, owned (rather than purchased) fibre supply, and greater energy efficiency will weather this cycle with less margin erosion than those more exposed to market-rate inputs. Company-level cost disclosure in earnings reporting is worth scrutinizing: the spread between producers is likely wider now than it appears in aggregate industry statistics.

The Structural Takeaway

The broader lesson from this cycle is one that repeats in commodity industries: price cycles are visible and well-tracked, but cost structures are less transparent and slower to adjust. When prices fall, analysts and investors tend to focus on the revenue side of the income statement. The AFPA’s commentary is a reminder that the cost side deserves equal attention — and that the gap between a falling price environment and a sticky cost environment is where margin actually lives or dies.

Canadian sawmill operators and producers navigating the current environment would do well to pressure-test their cost assumptions with the same rigour they apply to price forecasting. In a margin-squeeze cycle, the producers who come out ahead are rarely those who called the price recovery correctly — they are the ones who managed their cost base most effectively while waiting for the market to turn.