"The main challenge is that fleet growth has outpaced demand growth for a period of time, so while market fundamentals are improving in 2017 with demand growth expected to outgrow supply growth, there is still a significant amount of excess capacity that needs to be absorbed before a fundamentally supported rebound," Deutsche Bank said.
At the end of October, shipping association BIMCO predicted a fleet growth of 1.9% for 2016, based on 50m dwt delivered and 35m dwt removed.
A new outlook for iron ore and coal needs by Australia's Department of Industry, Innovation and Science implies a 1% capesize demand growth in 2017-18, according to Arctic Securities.
Global trade in iron ore is expected to grow by 5.5% this year and 2.5% next year as low-cost production from Australia and Brazil continues to rise, according to the Australian government.
China's intake of iron ore is expected to increase by 0.8% in 2017 and 0.2% in 2018, it said in its Resources and Energy Quarterly report. And that is from 2016's 1bn-tonne level.
China's volume growth for iron ore alone would lead to the demand for about 55 capesize equivalents this year, and some 40 in 2018, said Arctic in a note, compared with an orderbook of 100 vessels in 2017 and 44 next year.
That means that "incremental demand for tonnage from iron ore alone will offset vessel deliveries" by about 21, Arctic said, assuming only half are actually delivered.
"We are cautiously optimistic on dry bulk on a two-year period, but see the improvement driven by and large by constraining supply, as opposed to outsized gains in demand," it said.
Forecast deliveries of new dry bulk vessels in 2017 is expected at 564 units, dropping to 412 in 2018, according to Lloyd's List Intelligence data.
Removals this year will amount to 251 units with deletions over the 2018 to 2020 period coming to 447 units, LLI said in its Shipbuilding Outlook report.