The dry bulk market could experience one of the best cyclical expansionary phases since 1741 thanks to the lowest orderbook-to-fleet ratio in more than two decades, according to Cleaves Securities.

The upbeat forecast reflects the strong demand growth from China backed by a slowdown in shipbuilding activity. The Baltic Dry Index is currently hovering at 11-year highs.

The Oslo-based investment bank expects uncertainty regarding future regulations and technology to keep a check on vessel orders, resulting in higher fleet utilization at least until 2023. Chinese steel production remains robust, and many parts of the world continue their paths towards economic recovery. These measures should support the iron ore and coal trades, especially into China and India, and encourage more steel exports from China into other regions, Jefferies said in a recent client note.

According to data from Oceanbolt, the first six months of the year saw 772m tonnes of iron ore shipped globally, a record for the period. Chinese steel production hit a peak of 99.5m tonnes in May this year but fell in June ahead of the 100th anniversary of the Chinese Communist Party, due to more strict environmental measures during this period. “These measures have been lifted, and we expect steel production to increase in the third quarter of the year,” said Jefferies.

More importantly, the Brazil-to-China iron ore pipeline remains key, and Vale recently reiterated its 2021 full-year production guidance of 315m-335m tonnes, saying it could reach 350m tonnes by the end of this year, with most cargoes set to be exported in second half of the year.

The New York investment bank forecasts grain trade to remain robust as Brazilian and US soyabean exports hit record levels, while several nations are rebuilding depleted food and grain inventories, which is expected to improve midsize vessel prospects. In addition, the Chinese swine herd is now fully recovered from the outbreak of African swine fever, prompting greater imports of wheat, corn and soyabeans.

Jefferies said that the orderbook-to-fleet ratio remains at a multidecade low of just 5.7%, which would result in slower fleet growth through the remaining part of 2021 into next year. On top of regulatory uncertainty, limited access to capital, and a lack of shipyard slot availability should keep newbuilding orders low in the coming years. Jefferies forecasts fleet growth to be minimal through to 2023 at a minimum.