Canfor's lumber operations returned to profit in the second quarter of 2026 as tighter supply, seasonal demand and transportation constraints raised North American benchmark prices. The pulp and paper segment posted a larger loss as weak demand, elevated inventories and lower softwood pulp prices reduced shipments and production, Canfor Corporation reported.

North American lumber markets strengthened through most of the quarter despite housing affordability constraints, elevated mortgage rates and geopolitical uncertainty. Lean field inventories, constrained transportation capacity and greater substitution between lumber species raised benchmark prices, with the largest benefit in Southern Yellow Pine products.

The average Western Spruce-Pine-Fir 2x4 benchmark price increased 5% from the first quarter to $488 per thousand board feet. The Southern Yellow Pine 2x4 benchmark rose 4% to $517, while the 2x6 benchmark increased 8% to $457.

Higher prices, increased production and lower unit manufacturing and product costs lifted lumber operating income to Canadian $41 million from a Canadian $44 million loss in the previous quarter. Adjusted lumber operating income reached Canadian $57 million, compared with an adjusted loss of Canadian $64 million.

Lumber sales increased 16% from the first quarter to Canadian $1.38 billion. Total shipments rose 8% to 1.35 billion board feet, driven by higher Western Canadian and European volumes, while Southern Yellow Pine shipments remained broadly unchanged because of trucking constraints.

Production increased 6% to 1.29 billion board feet. European output rose as mills operated for more hours following winter weather disruptions, while North American production benefited from improved planer productivity.

Offshore lumber markets remained under pressure. In Japan, weak housing starts, lower import volumes and greater use of domestic fibre continued to reduce demand. Construction activity also remained subdued in China, limiting lumber demand.

European lumber markets improved from the first quarter as leaner inventories supported modest price gains despite muted demand. Better weather and stronger purchasing activity supported Scandinavia, while repair and remodeling activity partly offset weak residential construction in the United Kingdom.

Canfor permanently closed its Urshult and Orrefors sawmills in Sweden because production capacity exceeded available fibre supply in southern Sweden. The company recorded Canadian $14 million in asset write-downs and Canadian $9 million in restructuring costs related to the closures.

North American lumber markets are expected to remain firm early in the third quarter because of lean inventories and ongoing transportation constraints. Conditions are likely to moderate later in the quarter as housing affordability challenges and macroeconomic uncertainty weigh on demand.

Asian lumber demand is forecast to remain weak through the third quarter. Greater use of domestically sourced species is expected to continue to pressure Japanese import demand and pricing, while limited construction activity is forecast to keep demand subdued in China.

European lumber markets are expected to remain relatively balanced through the third quarter. Steady demand, constrained supply and export activity are projected to support pricing, while market conditions in the Middle East and North Africa will depend on geopolitical tensions.

Global softwood pulp markets weakened further during the second quarter as subdued demand and elevated producer inventories continued to pressure prices. The Northern Bleached Softwood Kraft pulp list price delivered to China averaged $658 per tonne, down 4% from the first quarter and 10% from the second quarter of 2025.

Producer inventories ended May at 47 days of supply, one day higher than March and at the upper end of the balanced range. Canfor expects global softwood kraft pulp markets to remain under pressure during the third quarter because additional global capacity, persistent economic and geopolitical uncertainty, and subdued demand are expected to keep inventories elevated and prices weak.

The pulp and paper segment recorded an operating loss of Canadian $23 million, compared with a Canadian $16 million loss in the first quarter. Pulp shipments fell 18% to 96 thousand tonnes, while production declined 17% to 85 thousand tonnes, primarily because of a scheduled maintenance outage at the Intercontinental pulp mill.

Lower production increased per-unit conversion costs, while weaker pulp pricing reduced sales realizations. Pulp and paper sales declined to Canadian $144 million from Canadian $166 million in the previous quarter.

Canfor plans to close its Northwood Northern Bleached Softwood Kraft pulp mill in Prince George, British Columbia, by the end of 2026. The closure will remove about 300 thousand tonnes of annual production capacity as the company responds to a structural change in pulp market fundamentals, additional global capacity, subdued demand, elevated inventories and continued pricing pressure.

Demand for bleached kraft paper is expected to remain stable through the third quarter. Stronger paper-based packaging demand is projected to offset part of the uncertainty surrounding Canada-U.S. trade relations and global manufacturing overcapacity.