Can Kap Paper’s comeback reignite GreenFirst’s growth story in Canada’s struggling forestry sector?

In a much-needed boost for Canada’s forestry sector, GreenFirst Forest Products Inc. (TSX: GFP) has announced the restart of operations at its major customer Kap Paper Inc. in Northern Ontario. The move marks a turning point in a period marked by sawmill curtailments, supply bottlenecks, and depressed lumber prices. It is also a sign that coordinated public-private action can revive regional industries under pressure from both macroeconomic and environmental challenges.

The restart will allow GreenFirst to stabilise its sawmill residue flow and strengthen a value chain that had been weakened since Kap Paper idled its operations. For investors and regional stakeholders, this decision sends a powerful message: Northern Ontario’s forestry ecosystem is once again on the path to operational balance and employment security.

Why does Kap Paper’s restart matter so much to GreenFirst’s business outlook?

Kap Paper’s earlier idling had disrupted GreenFirst’s critical residue market. Sawmill by-products such as chips and shavings, which are used by pulp and paper mills, form a vital part of GreenFirst’s output economics. When Kap Paper went offline, GreenFirst faced an oversupply of these by-products, forcing it to slow down production at some sawmills. The newly resumed operations at Kap Paper restore that downstream demand and help GreenFirst normalise operations across its sites in Kapuskasing, Hearst, and Cochrane.

According to company statements, the restart represents not just a logistical correction but a stabilising influence for the wider regional economy. Dozens of small businesses and contractors tied to sawmill residues, transport, and equipment maintenance had been facing uncertainty. With Kap Paper back online, a regional economic circuit that had gone slack begins to hum again.

How does this fit into the historical challenges of Canada’s forestry and lumber sector?

Over the past decade, Canada’s lumber and paper industries have been at the mercy of multiple stress points—from U.S. trade tariffs to softwood lumber disputes and fluctuating housing demand. GreenFirst itself operates in a space where margins are constantly squeezed by duties and price volatility. Earlier this year, the company disclosed that it faced a steep combined duty rate of 35.19 %, translating into an estimated non-cash expense of around CAD 26 million in the third quarter of 2025.

At the same time, GreenFirst’s modernization investments have been under way to offset such policy risks. The company’s facilities cover about 6.1 million hectares of certified forest lands, giving it a strong foundation in sustainable lumber production. In an industry increasingly defined by low-carbon materials, this certification positions GreenFirst well against competitors dependent on imported or non-certified wood.

Yet policy turbulence has tested even these strengths. The restart of Kap Paper injects a dose of operational certainty—an ingredient the sector has lacked for years. It reduces inventory strain, cuts waste, and allows GreenFirst to resume normal throughput without worrying about unutilised residue piles.

What does GreenFirst’s recent financial performance reveal about its resilience?

In the quarter preceding this announcement, GreenFirst Forest Products reported net sales of CAD 84.5 million, up 18 % from CAD 71.8 million in the previous quarter. However, it still posted a net loss of CAD 9.6 million, with adjusted EBITDA at negative CAD 5.2 million. Lumber prices averaged CAD 712 per thousand board feet—reflecting the continued softening in North American housing activity. The cost of sales rose 29 % to CAD 80.1 million due to higher volumes and inflationary pressures.

Even so, GreenFirst maintained a relatively strong liquidity cushion, reporting CAD 4.4 million in cash and CAD 39.8 million in unused credit availability. Investors have viewed this as a sign that the company can endure the cyclical downturn without distress financing. Market sentiment after the Kap Paper restart leaned slightly positive, with analysts describing the move as “stability-restoring” rather than immediately transformative.

From an institutional perspective, most brokerage coverage still classifies GFP as a “Hold,” awaiting clearer signals of margin recovery. However, with improved residue demand and possible government support for mill upgrades, analysts suggest a near-term sentiment shift could emerge if operating costs decline over the next two quarters.

What role are governments playing in sustaining Ontario’s forestry recovery?

The restart at Kap Paper is not happening in isolation. Both the Government of Canada and the Province of Ontario have partnered with the company to support a long-term redevelopment of the facility. The plan involves making the mill more competitive and environmentally resilient—key factors for an industry facing mounting carbon and energy-efficiency regulations.

GreenFirst’s CEO Joël Fournier expressed gratitude to the governments for their commitment, noting that this collaboration not only supports jobs but also underpins the long-term sustainability of the northern forestry network. His remarks underscored that public-private synergy remains essential in keeping resource-based communities viable in an era of global decarbonisation.

In policy terms, this kind of intervention represents a shift away from ad hoc subsidies toward structural revitalisation—embedding cleaner technologies, circular-economy residue use, and biomass integration within legacy paper mills.

What risks and headwinds still loom for GreenFirst and the broader lumber trade?

Despite the upbeat tone, significant headwinds remain. The 35.19 % U.S. duty rate remains one of the biggest cost burdens for Canadian exporters. Unless the ongoing trade consultations deliver relief, these charges could keep GreenFirst’s profitability capped even as volumes recover.

Additionally, the industry’s fortunes remain tied to U.S. housing cycles. With elevated mortgage rates and slower housing starts, demand for lumber and related materials could remain muted into early 2026. GreenFirst also faces execution risks with its modernization programs—any delays in installing new sawlines or co-generation systems could blunt the impact of operational recovery.

Environmental compliance and carbon-cost trajectories pose longer-term challenges. While the company’s certification base is strong, the capital needed to align with emerging climate-disclosure frameworks could tighten cash flow during expansion phases.

How could this restart shape GreenFirst’s long-term investment narrative?

From an investor standpoint, the Kap Paper restart signals an inflection point rather than a conclusion. It alleviates an operational pain point and allows GreenFirst to focus on strategic growth levers: cost reduction, by-product valorisation, and capital discipline.

If the company leverages its residue advantage into bio-product diversification—pellets, biomass fuels, or biochemicals—it could improve revenue stability beyond lumber sales. Moreover, with supply chains normalising, GreenFirst can capture efficiency gains from continuous runs instead of costly stop-starts.

Market watchers suggest that if lumber prices stabilise and duties ease, GreenFirst could move from a “Hold” to a “Speculative Buy” rating by mid-2026. Institutional inflows would depend heavily on clear signs of margin recovery and stronger forward guidance.

For now, the Kap Paper restart gives GreenFirst the room to breathe—and perhaps to plan the next phase of its modernisation agenda from a position of relative stability.

What are the key takeaways from GreenFirst Forest Products’ response to Kap Paper’s operational restart?

• Kap Paper’s restart restores a vital downstream outlet for GreenFirst’s sawmill residues, stabilising operations across its Ontario mills.

• Government collaboration underpins the recovery, ensuring longer-term sustainability and competitive upgrades at the paper mill.

• Financial resilience remains intact despite ongoing duty pressures and soft lumber prices, supported by strong liquidity.

• Investor sentiment has improved modestly, with analysts monitoring how quickly margin gains translate into earnings recovery.

• Execution and trade policy remain critical watchpoints, especially as modernization projects progress and housing demand fluctuates.