Dry-bulk shipping executives see broad-based commodity demand, not just China’s ongoing need for iron and coal, as helping improve freight rates across the industry.

Second-hand prices are improving, and that’s driving up the risk for a new round of newbuild ordering.

During a panel at the Capital Link International Shipping Forum in New York, Scorpio Bulkers president Robet Bugbee said the dry bulk industry has gone from “awful to really awful to not as bad” as commodity demand showed more strength than was predicted. “All of us in the market underestimated real, physical demand growth” for commodities, Bugbee said.

China’s economic growth remains the industry’s main driver and, in Bugbee’s opinion, “China is doing great.” The higher living standard of Chinese citizens is driving stricter environmental rules, which means a shift to higher quality iron and coal from overseas sources. Speaking of the move to cleaner air, Bugbee quipped that China “is hiring more people from the US EPA (Environmental Protection Agency).”

But Aristides Pittas, chief executive of Euroseas, says there is still risk in China due to policy moves. For examples, China limited operating days for domestic mines, but the resulting price increase for coal could sway Chinese leaders to reverse course. “Government policy affects the industry,” Pittas said. “China’s leaders could change their mind when prices go up,”

Mats Berglund, chief executive of Pacific Basin, agrees that Atlantic Basin coal demand appears strong. But he also says minor bulks, which account for half of overall demand, are also strong. “Grain demand is being driven by increased urbanisation,” Berglund said. “There is also good demand for cement and construction materials into North America.” But Berglund still worries about ship supply may respond quickly to better demand. Slow steaming, in particular, is helping limit supply. Operators could decide to operate at faster speeds, which would drive up supply.

Bugbee agrees slow steaming helped improve the supply side, as did vessel lay-ups and scrapping. But the length of time it will take a newbuild to hit the market means rates have more potential to increase. While Scorpio is “not in the market to order,” Bugbee said a newbuild today would not be delivered until late 2018 or early 2019. “We cannot add much to supply quickly,” Bugbee said.

Asked about risks in the market, Genco Shipping and Trading chief executive John Wobensmith says “new capital inflows” as second-hand ship prices get closer to newbuild prices. That could trigger a new round of speculative newbuildis. “Every single downcycle we’ve had has been the result of over ordering,” Wobensmith said.

But Star Bulk Carriers chief financial officer Hamish Norton said he wasn’t as concerned about that scenario. “Every (private equity) executive who backed a speculative dry bulk firm has been fired,” Norton joked.

Norton says the advent of low-sulphur emission rules for shipping will be a positive for ship supply as more vessels are likely to use slow steaming in order to save fuel. “More fleets will slow down,” Norton said. “That means not enough ships.”