Has the buyer accepted the reason for the cancellation? Then, cancel the order citing Buyer Requests to Cancel, then this will not affect your seller performance.
I'm presuming this was a Simple Delivery transaction, and Buyer Pays postage? Then, the buyer paid eBay for the postage, and as the label is now unused, eBay will refund the postage cost to the buyer.
Send the buyer explaining this postage refund, and that it can take 30 days to appear.
@elizyo-9878