The conflict in Iran has extended into a sixth week. Despite growing fears about economic wreckage (we have already seen cracks in consumer sentiment, mortgage rates climbing, etc.), we have yet to see any significant second- and third-order impacts on forest products commodities (the operative word is yet). Despite President Trump’s suggestion that the US will retreat from the Middle East in the next two to three weeks, risks abound. Even with a retreat, the risk to the world’s energy arteries will likely persist; it is only a matter of time before companies in our universe suffer the consequences of the war. 

Some cost inflation has shown up quickly (e.g., energy and transport) and will pressure margins as soon as Q2. While a select few companies (those in certain packaging and paper grades) may successfully hike prices to at least partially offset higher costs, for others the downside peril to underlying demand means that margin compression is a risk (prices could fall without supply reductions). As such, while our commodity price and company earnings forecasts have not declined materially, we are adopting a more cautionary approach to valuations and moving EBITDA multiples lower for companies and commodities for which we perceive at more risk. 

While comparisons can be drawn between the current macro environment and the period following the Russian invasion of Ukraine (when oil prices last spiked above $100), there are a few stark differences within the forest products universe; these are causing additional apprehension. Forest products markets have struggled in general over the past three years: We think of lumber, pulp and timber markets, where a recovery was finally set to commence in 2026, although the same was said in both 2025 and 2024! Producer balance sheets are generally weaker today than they were heading into 2022—when most companies were flush with cash following the once-in-a-lifetime COVID market windfall. Several producers in our space needed markets to come to the rescue this year; however, with each passing day that the world is mired in this conflict, it looks increasingly as if 2026 will become another year to survive. 

 Key takeaways:

• Solid Wood: SYP prices are up dramatically off last year’s lows and some mills are now adding hours/shifts or restarting. S-P-F prices have climbed as well, but volumes remain suppressed due to duties. This rally will soon fade, we suspect. OSB demand is weak, but new capacity has been delayed, West Fraser is shutting a mill and imports have virtually disappeared. 
• Timber/Log: Log prices are generally flat to down. Export options are limited but are being explored. Timberland values continue to defy the reality of weak cash flows. 
• Pulp price momentum has slowed, more so for softwood than hardwood. Softwood prices, notably in China, continue to languish below cash-cost levels (recent shuts haven’t been enough). Hardwood prices have been on an upward track, but gains are coming in smaller increments. 
• Paper prices were up this month for newsprint (the full $50), some uncoated mechanical grades (partial), and all uncoated woodfrees (the bulk of increase is in place with the remainder coming next month). Further hikes may be forthcoming due to rising costs, but that could speed demand destruction as well as boost imports over the coming quarters. 
• Containerboard: Producers achieved $40 of their planned $70 price hike this month based on the survey by PPI Pulp & Paper Week. Demand remains sluggish and supply discipline will be required to keep markets snug. 
• Boxboard: Oversupply remains a key issue in the boxboard segment— and Solid Breached Sulphate (SBS)/Folding Boxboard (FBB) in particular. The shut by Smurfit (La Tuque, Quebec) helps, but more is anticipated given that demand is not coming to the rescue anytime soon. Coated Recycled Board (CRB) has been losing market share and will need to respond with more competitive pricing. We foresee more shuts this year before prices improve.