-tion to be completed in Q2. Finally, we continue to work with Texana to explore a potential partnership to build a torrefied pellet plant mill in Chapleau. This project will support the province of New Brunswick effort to replace coal with green energy for power generation. There is currently a surplus of sawmill residue in Ontario, and this initiative would help strengthen demand if the project proceed. In addition, the federal government has announced measure to support the housing industry in Canada. One of our major chip customer, Kap Paper, is currently working with the federal government to explore the opportunity to build a new facility to produce building material in Canada. This project would help secure long-term demand for sawmill residue in north of Ontario. Finally, GreenFirst remain committed to continuous improvement as a core strategy to enhance business performance.
At the same time, we'll maintain a prudent and disciplined approach to cash management to ensure the company is well-positioned to navigate potential economic headwinds and emerging market challenge. I want to thank everyone for joining the call, we'll take a few question.
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. Please enter your questions on the web using the Q&A tab. One moment please for your first question.
Okay, we do have one first question here. What's your expectation for the remainder of the year with respect to lumber demand? I will answer this one. For the outlook, as mentioned, we're only forecasting modest price increase for the remaining of the year. This is in line with third-party forecaster, such as FEA or RISI. However, things could shift quickly with all the current geopolitical uncertainty. Since the start of the conflict, long-term mortgage rates have moved above 6% and gas price have risen, reflecting current economic condition that continue to shape consumer sentiment. However, housing activity saw an increase in March, and we believe the long-term fundamentals supporting wood product demand remain positive. We do have another question here, excuse me, on the Chapleau line.
With the completion of the Chapleau large log line, have you seen any meaningful increase in production volume or quality of output? When can we expect to see this reflect in the financial results? I will answer this question. In Q1, we hit our target on lumber recovery, and we're still in ramp-up mode for production with the new saw line. All performance testing were passed at the end of the quarter for the line. Production, like I mentioned earlier, is currently in the range of 90% + of the expected target. We are currently finalizing optimization and integration with other equipment along the production process, including the logging feed and the sawmill stacker output. We expect this integration to be completed in Q2.
We're also seeing better quality lumber going through the planer in terms of trim loss production and grade improvement coming from the wood produced from the new line. We're pleased to report that we expect the project to be under cost overall. We do have another question here. Are opportunity to sell more product in Canada material, or should investor expect the majority of sales to remain in the U.S.? Has ability to pass on tariff cost to U.S. customer improve relative to Q4 2025? I will answer that question. Some time ago, when before the tariff ramp up to 35% +, we started to shift some of our contract sales from U.S. to Canada.
Our intention is to continue to accelerate that change going forward because there's savings for the company if we focus on the right grade, the right program in Canada versus U.S. In addition, with the recent mill closure from our competitor in Ontario that was just announced a couple of days ago, it create another opportunity for us to even foster faster or accelerate our strategy to sell more in Canada. We're working right now with some of those customer to increase the volume. Okay, we do have another question. Can you speak to your expectation for input costs increase related to the inflationary pressure that we're seeing with energy prices? I will let Michel, our President, to answer the question.
Thanks, Joel. Yeah, so as you know, so energy-related inflation is certainly having an impact on our cost structure. Particularly on our forestry operation where the fuel is a significant input of these operations. As you are aware also, Q1 is our significant harvesting season, where we bring in our logs to our mills. As such, we should be minimally impacted by freight cost increases for the remaining 2026. This could translate into higher delivered wood cost over time if things doesn't change in the near future. I spoke about forestry, just a word on the lumber side.
While some of these cost pressure can be reflected in market pricing and are ultimately absorbed across the value chain, the extent of that recovery depends on the overall market condition and also the demand.
We do have another question here on liquidity. We've seen significant strain on the company liquidity position over the past few quarters. Can you speak to your ability to manage cash during this down cycle market if the down cycle market continue? I will let Peter, our CFO, to answer the question.
Okay, good question. Let me go through a couple of items that we've been exposed to that have resulted in this liquidity issue. Yes, we have had liquidity pressure both from market conditions and our seasonal working capital requirements, particularly in Q1, which is typical year-over-year in terms of inventory build. In addition, yes, we do see lumber inventories that are also higher year-over-year, which has weighed on our near-term liquidity. This is expected to re-support stronger cash generation as these volumes are sold in the coming quarters. In addition, you know, we both, Joel and I, did talk about in this call, we worked with the federal government, we did secure a CAD 30 million loan with BDC through our banking partners.
In addition to this, you know, we're working on various programs, with various levels of the government, primarily the provincial, for an additional CAD 10 million. As we discussed, you know, we're, we have, and we continue to look at all of our capital expenditures, and we try to remain disciplined from a cash management perspective. When we put this all together, we believe we're well positioned to manage through this down cycle.
Okay, we do have another question. As 80% of the company business is with the U.S., can you speak to any new U.S.-Canada relationship development in the near term? I will let Michel, our President, to answer the question.
Thanks, Joel. I would say what is encouraging is that we can hear the Prime Minister of Canada talking about the lumber industry as a priority for his government. We can see also that there's always ongoing efforts to engage with the U.S. That said, you know, there's limited traction at this stage, and the timing will likely depend on the U.S. There is also a possibility that softwood lumber becomes part of broader discussion around the CUSMA review. Although that process itself may extend over time rather than being resolved on July 1st, 2026, that day that's being advanced. You know, from the industry perspective, there's a clear view that any agreement needs to be the right one.
What we mention also to the government many times is no deal is better than a bad deal. That key element such as overall tariff burden, including, you know, the Section 232 that we talked about before, will need to be addressed. It's gonna be an important element of the negotiation. Again, while the discussion are ongoing, efforts are being made on multiple fronts, we would remain cautious in terms of near-term expectation for a resolution.
Okay, we do have one more question. There is some indication that U.S. duty could decrease from around 35%- 25% by October 2026. How would such a change impact the forest industry, in your view? I will let Michel, our President, to answer the question.
Sure. A reduction in U.S. duties from 35%- 25%, it will help. It will be certainly a step in the right direction and will help ease some of the pressure on Canadian producers. That said, you know, even at 25%, duties would remain elevated if we compare to historical standards. That will continue also to weigh on margins and also our competitiveness. I would add again that the 10% Section 232 tariffs further increases the overall burden, which continues to impact the industry. Ultimately, the impact will also depend on broader market condition, including also U.S. housing demand and lumber pricing.
We got also a question that I see if the tariffs could be passed to the customers. You know, with what we see, if we don't see any improvement in the U.S. housing demands and, considering also the high interest rate, as Joel mentioned earlier. We don't see how, you know, these duties could be absorbed by the customers. Again, from our perspective, while a reduction is positive, it does not change the need for more stable and predictable long-term trade framework.
Okay, we don't have any more questions, so that conclude our call for today. I would like to thank everyone to for your participation for our Q1 call. Thank you very much. Have a good day.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.