Diana Shipping Inc (DSX) 2006 Q3 法說會逐字稿

Good morning. My name is Denise and I will be your conference operator today. At this time, I'd like to welcome everyone to the Diana Shipping third-quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise, and after the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

It is now my pleasure to turn the floor over to your host, Mr. Edward Nebb of Investor Relations. Sir, the floor is yours.

Thank you very much, and thanks to all of you for joining us for the Diana Shipping third-quarter conference call. With us today are the following members of the Diana Shipping management team -- Mr. Simeon Palios, Chairman and CEO; Mr. Anastassis Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Vice President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice, which you can see in its entirety in the news release that we issued yesterday.

Certain statements made during this conference call which are not statements of historical fact are forward-looking statements and are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on assumptions, expectations, projections, intentions and beliefs as to future events that may not prove to be accurate.

For a description of the risks, uncertainties and other factors that may cause future results to differ materially from what is expressed or forecast in the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission under the heading Risk Factors.

And with that, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer.

Good morning and thank you for joining us today. I am very pleased with the financial and operating performance of our Company for the third quarter of 2006. Our results for the year to date clearly show that our chartering policy enabled us to take advantage of the positive trends in the dry bulk shipping market. In a few moments, members of our senior management team will summarize our market outlook and provide you with a financial review.

First, I would like to focus on the highlights of the third quarter, which was an exciting period for Diana Shipping. Net income for the third quarter was $16.7 million or $0.32 per share. This strong performance largely reflected the growth in our voyage and time charter revenues, which was in turn driven by our fleet expansion strategy.

Based on the Company's results from operations, we have declared a cash dividend of $0.40 per share for the third quarter, an increase over the dividend rate paid for each of the first and second quarters. Including this dividend, we will have paid out a total of about $117 million to our shareholders since Diana Shipping became a public company.

We also announced a series of vessel acquisitions that will further expand our fleet. More specifically, we will be adding three new Capesize vessels over the next several years, which will diversify the fleet and enhance our fleet's potential to increase revenues.

In August, we took delivery of the Naias, a Panamax newbuilding, which expanded the size of our fleet to 14 ships. The new vessel was employed immediately upon delivery and is chartered to Bocimar Belgium N.V. for 11 to 13 months at $21,000 per day net.

In mid-September, we announced an agreement to purchase a Capesize dry bulk carrier to be named Sideris GS, which is near completion at the Shanghai Waigaoqiao Shipbuilding facility. This vessel is expected to be delivered to the Company in a few weeks from now.

As we announced earlier this week, the Sideris GS has been chartered to BHP Billiton for four years with a possible extension for an additional year.

In another significant expansion move, we assumed shipbuilding contracts for the construction of two additional Capesize dry bulk carriers to be constructed by Shanghai Waigaoqiao Shipbuilding Company Ltd. We expect to take delivery of these vessels during the second quarter of 2010.

During the third quarter, we also announced a change in our capital strategy that we believe is in the best interest of our shareholders. Specifically, our Board decided to target the capital structure, incorporating $150 million of semipermanent debt. This will provide resources to support the Company's long-term growth plans, but will, at the same time, due to the way in which cash flow is calculated, have a positive effect on the dividend per share.

As a result of our business strategies, as well as the fundamental strength of the dry bulk freight market, we are confident about the long-term prospects for Diana Shipping. We have a modern and expanding fleet that will allow us to take advantage of the opportunities in our market. We have a mix of time charter contracts that give us the flexibility to respond to freight market trends, and we have the financial resources to invest in the profitable growth of our business.

With that, I will now turn the call over to our President, Anastassis Margaronis, for the latest developments in the dry bulk carrier market.

Thank you, Simeon. I would like to start with the latest developments in the dry bulk shipping market by looking at the indices. On the 30th of June, 2006, the Baltic Dry Index stood at 2964 points, and yesterday it was at 4,242, which represents an increase of 43%. The Baltic Panamax Index was at 3,038 and yesterday stood at 4148, an increase of 37%. The Baltic Capesize Index was 3645, and yesterday closed at 5832, a rise of 60%.

This trend justifies our optimism expressed during our last conference call that the bulk freight market would be firmer during the third quarter compared to the second quarter of 2006, contrary to some shipping analysts' forecasts of a seasonal weakness in freight rates.

We will briefly look at the macroeconomic fundamentals, which as we know influence the demand for the transportation of commodities. After summarizing the main developments in the transportation of iron ore, coal and grains, we will focus on the balance between supply and demand.

China's gross domestic product grew at the rate of 11.3% per annum in the second quarter of 2006 and 10.4% in the third quarter. According to [Maersk] Brokers of Denmark, this rate of growth is expected to slow down to just under 10% per annum in the fourth quarter.

The U.S. Federal Reserve is confident that inflation has already peaked and might now be receding, although it remains above [recessed] targets. The U.S. economy grew at a 1.6% annual rate in the third quarter and the housing market continues its slide. Residential housing construction fell at an annual rate of 17.4% last quarter, the largest decline since the first quarter of 1991 after an 11.1% drop in the second quarter.

The latest OECD Composite Leading Indicators, the CLI, suggest there may be a slowdown in OECD economic expansion. The CLI for the OECD area decreased by 0.3 points in July to 109.5 from 109.8 in June. And its six-month rate of change was down for the fourth consecutive month.

The euro area's CLI decreased by 0.3 points in July, and its six-month rate of change has decreased two consecutive months. In Japan, the CLI fell 1.1 points with its six-month rate of change showing a downward trend since last March. The OECD positions for India, Brazil and Russia are for steady rates of growth.

Let's see how the demand for the transportation of major commodities fared during the third quarter of this year. According to the International Iron and Steel Institute, 2006 will be a strong year for the steel industry, with world growth rate in iron and steel use rising from 1029 million metric tons in 2005 to 1121 million metric tons in 2006, an increase of 9% year on year. This exceeds previous forecasts. For 2007, related forecasts are for a more modest growth rate of 5% to 1179 million metric tons.

According to Clarkson Research, worldwide iron ore imports for 2006 are estimated to reach 710 million tons for 2006. According to preliminary customs data, Chinese iron ore imports in August soared 33% month on month to 32.8 million tons, up a staggering 42% year on year. This brought January to August imports to 219 million metric tons. Some further advance is also likely during the fourth quarter, lifting the likely total for the year to about 335 million metric tons. This would represent an annual increase of about 60 million tons.

The trade publication Steel Business Briefing reports stocks of iron ore at the major Japanese ports at 26.6 million tons in mid-August, only slightly down compared to mid-July. Japanese imports of iron ore reached 10.4 million tons in July, up 7.9% year on year. The lion's share of these imports came from Australia and Brazil.

At the same time, in India, steel producers are trying to convince the Indian government to ban iron ore exports and save output for domestic use, even though exporters claim that current production can meet both the national and export demand. Needless to say that the continued reduction in iron ore exports from India to China would have a positive ton-mile effect for dry bulk shipping, with shipments having to come from more distant sources such as Australia and Brazil.

Turning to coal, Clarkson predicts that during 2006, annual seaborne coal trade will accelerate by 4.7% to over 700 million tons, but remain below its compound annual growth rate of 5% from 2000 to 2005. According to Clarkson, Russia and Indonesia expect to increase their thermal coal exports to China and the rest of the world by about 35 million tons; that's competing with the traditional suppliers in Australia, Canada and South Africa.

The Indian government predicts the country, partly due to the expanding steel industry, could be short of 60 million tons of coal by 2012. And in order to meet growing domestic consumption, imports will have to increase.

Overall, during the third quarter of this year, coal trades have boosted inter-Pacific and return leg business back to Europe and the United States of large bulkers, while conditions in the Atlantic basin has been relatively quiet. The overall trade market effect has been positive.

Looking now at grain shipments during the third quarter of 2006, the market suffered a net reduction in grain demand as the seasonal decline in South American trade outweighed the positive impact of both the India wheat program and continuing strong U.S. coarse grain shipments.

Worldwide imports of grains are expected to increase by 2% year on year during the 2006/07 season. Overall, current forecasts are therefore for only modest overall increases in tonnage volumes. The exceptions are, A., the soybean shipments, which as we mentioned in previous conference calls continue their brisk advance in volumes shipped; and B., shipments of barley from European and Black Sea exporters, which should increase during the 2006/2007 season to compensate for the poor Australian harvest. Here again, shipping will probably benefit from the longer voyages.

Let us look at the likely influence of all the above on the demand for Capesize and Panamax bulkers. What can be seen from the indices quoted above? During the third quarter, we witnessed a very strong increase in the earnings of all large bulkers. According to Clarkson Research, with the steel-making raw material trade still growing and power plants turning to coal because of high oil prices, the Capesize market may have room to improve further. The one-year time charter rate for a 170,000-metric-ton bulker stands at just over $60,000 per day, and these levels could, according to Clarkson, continue for a while.

According to London shipbrokers Howe Robinson, pure Capesize demand over the next year will run at least in line with fleet expansion and possibly exceed it.

The outlook for Panamax is perhaps a little less bullish, but this sector should be the first to benefit from any ore and coal overflow from the Capes, and to those who capture the lion's share of any expansion in the shipment of coal referred to above.

Clarkson expects the coal trade in the coming years to strongly support the Panamax sector as further coal-fired capacity and expanded coal-mining capacity come into operation. However, as we will present below, the growing fleet in 2006 and 2007 might hold back the market by absorbing a significant amount of new demand.

We can now look at some interesting supply-side figures and see how they compare to anticipated demand. According to Clarkson and Howe Robinson, the Capesize order book stands at 47 vessels for delivery in 2007, 40 for 2008, 38 for 2009, and 30 for 2010 and beyond, a total of 163 vessels, including eight vessels still to be delivered in 2006.

One of these eight newbuildings is the Sideris GS, which will be delivered to Diana Shipping in about three weeks from now. In terms of tonnage, the newbuilding order book represents about 30% of the existing fleet.

The Panamax order book stands at 224 vessels, 14 of which will be delivered during 2006, 103 in 2007, 63 in 2008, 32 in 2009, and 12 in 2010 and beyond. In tonnage terms, this represents 18.9% of the existing fleet for delivery over the next four years.

Before we attempt bringing supply and demand together and see what the likely outcome of these two opposing forces will be for the future trend of the freight market for large bulkers, let us briefly look at congestion and scrapping.

Congestion has the effect of artificially reducing the supply of tonnage by keeping ships in queues waiting to load or discharge. Many theories for rationalizing these operations have been put forward in an effort to make the market more efficient and eliminate long and unproductive queues of ships, but none have been successful thus far.

The fact remains that for as long as there is no meaningful improvement in ports and landside facilities, increased demand for the transportational of raw materials will sooner or later create congestion.

Compared to last year, we have higher congestion in the Australian coal-loading ports and about the same number of days are lost by ships loading iron ore in Brazil and Australia. A slight improvement can be seen compared to last year at the iron ore discharging ports of China. At the Newcastle coal-loading terminals in Australia, the waiting time is currently at its highest in 12 months, with average waiting time 13.5 days and 41 vessels waiting to load at Newcastle itself.

If analysts' predictions materialize for iron ore and coal shipment, it is unlikely that congestion will cease during the next few quarters, even though it might vary from one month to the next.

As regards demolition, there's no doubt that further market conditions have stopped the modest quickening of demolition activity seen earlier this year. During the first three quarters of this year, 47 dry bulk carriers were scrapped or lost, totaling 2,090,000 metric tons dead weight. As a result, the dry bulk fleet has grown by about 18 million tons, the equivalent of 6% in the three quarters, equating to an annual net rate of plus 8%.

For the Cape, rates of fleet growth are plus 6.6% for the three quarters annualized at plus 9% for 2006. For Panamaxes, fleet growth stands at a net plus 8.5% for the three quarters and more than plus 11% annualized. These are impressive rates of growth in both sectors, which have been easily absorbed by increased demand during the current year.

Our original forecast for dry cargo scrappings was for 4 million tons for 2006, but it now looks like a near 3 million or thereabouts will have been removed from the market during the whole year. This is clearly the result of the strong dry bulk freight market, which indeed exceeded our forecasts.

The result of the above is for the average age of the trading bulkers to rise even further. As of the beginning of September, the Panamax fleet stood at 99 million tons dead weight, of which 22% was more than 20 years old. For the Capes, which have a shorter life expectancy, about 17% of the fleet is over 20 years old.

There is therefore no doubt in my mind that any freight market weakness which lasts for more than a few months will lead to significant scrappings of older uneconomical tonnage, which will in itself contribute to the rebounding of earnings through its effects on tonnage supply.

Leading international shipbrokers and consultant Galbraith's Limited says the worldwide dry bulk trade market is set to grow at an average rate of 2.5% through 2010 and that fleet capacity is likely to grow by 24% over the same period. This fleet capacity increase amounts to a total growth of about 80 million tons dead weight. Carrying capacity is set to increase by about 680 million tons, while scrapping is expected to remain at low levels throughout the forecast period.

This report is based on a theoretical fleet-carrying capacity determined by assuming that the average dead weight fleet operating during the year achieves a level of eight voyages per annum. This is matched with the total cargo demand, actual and forecast volumes for the same year in order to give a theoretical surplus or deficit.

We generally concur with this prediction, with the following positive and negative issues that should be taken into consideration when formulating a view about the future course of the freight market for large dry bulk carriers. On the list of risks we have, firstly, the slowdown in the rate of growth in the U.S., evidenced by the housing figures referred to above and the general slowdown in gross domestic product growth. This, coupled with the OECD predictions of a slowdown in world growth, could have a dampening effect on demand for transportation of the commodities shipped in large bulkers.

A second issue has to do with newbuilding capacity. Our newbuilding inquiries have shown that shipbuilding capacity, particularly in China, is rapidly expanding. The rate of expansion cannot be calculated with any degree of accuracy because information is not readily available from the relevant authorities.

Empirical evidence, however, abounds, showing new shipyards entering the market and offering primarily Panamax newbuildings. At the same time, existing facilities are modernizing their production efforts and increasing the number and size of vessels they can produce each year. If this pace of expansion continues, more shipbuilding slots will become available for 2009 and 2010 deliveries, and our supply figures for those years could once again prove to be unreliable.

But there are positive aspects to be taken into consideration as well. For example, one of the assumptions made in the Galbraith's model is that scrappings will remain at the very low levels seen during the past three years. If Galbraith's assumption is correct, then by 2010, approximately 31% of the world's large bulk carrier fleet will be over 20 years old, and nearly 22% will be over 25 years old. We think this is an unrealistic assumption, mainly for two reasons.

The first has to do with national port control regulations and make the trading of over-age ships difficult from both a charters' and an owners' point of view. This will prevent 25-plus-year-old vessels trading in many ports of the world.

The second reason relates to natural wear and tear, which cannot be economically repaired and maintained. This is particularly true for larger ships, especially Capes, which load at speeds which place strain on their hulls and lead to wear, which, to be repaired, requires huge expense and long periods of off-hire.

In conclusion, we at Diana are cautiously optimistic about the near- and medium-term prospects of the dry bulk carrier market. When evaluating the future, it should be kept in mind that the returns being generated by dry bulk carriers today are quite spectacular by historical standards, even taking into account the current high asset values.

Therefore, an easing of rates, not a freefall, which we believe is highly unlikely, should not be looked upon as a disastrous prospect, especially for well-capitalized companies such as Diana Shipping.

Having said that, all the above considerations should be assessed carefully before any predictions are made for the long term. And we are not making a prediction. However, one of the ways we can protect the Company's cash flow and earnings from the possible negative effect of increased supply or reduced demand is to extend the period of our vessels' time charter contracts. This is one of the criteria which management will take into consideration in agreeing future time charter employment for the Diana vessels.

I will now turn the call over to our CFO, Andreas Michalopoulos, to provide you with the financial results for the third quarter.

Good morning. I am pleased to be discussing today with you Diana's operational results for the third quarter and nine months ended September 30, 2006. Third quarter of 2006 results compare to third quarter of 2005.

Net income for the third quarter of 2006 amounted to $16.7 million, an increase by $0.3 million or 2% compared to $16.4 million for the same period in 2005. This increase is attributable to the enlargement of the Company's fleet and was partly offset by reduced average hire rates.

The EPS of Diana Shipping amounted to $0.32 compared to $0.41 for the same period of 2005. Voyage and time charter revenues increased by $4.8 million or 19% to $30.6 million in the third quarter 2006 compared to $25.8 million in 2005. The increase is attributable to the increase in the number of vessels in the fleet after the acquisition of the Erato and the Thetis in November 2005 and the acquisition of the Coronis and the Naias in January and August 2006. This increase was partly offset by a decrease in the average hire rate.

Ownership days were 1247 for the third quarter of 2006 compared to 920 in the same period of 2005 due to the enlargement of the fleet mentioned earlier. Fleet utilization was 100% in the third quarter of 2006 and 99.9% in the same period of 2005.

The daily time charter equivalent rate for the third quarter of 2006 was $23,399 compared to $27,187 for 2005. Voyage expenses decreased by $0.2 million or 13% to $1.4 million in 2006 compared to $1.6 million in 2005. The decrease in voyage expenses is attributable to the decrease in commissions due to the elimination of the 2% commissions charged by the management company. This increase was partly offset by an increase due to increased revenues and number of vessels.

Operating expenses increased by $2 million or 50% to $6 million in 2006 compared to $4 million in 2005. The increase in operating expenses is attributable to the increased ownership days resulting from the delivery of the new vessels to our fleet and increased crew costs, stores and spares. This increase was partly offset by decreases in all other categories of operating expenses.

Daily operating expenses were $4802 in 2006 compared to $4,397 in 2005, representing an increase of 9%. Depreciation and amortization of deferred charges increased by $1.6 million or 62% to $4.2 million for the third quarter of 2006 compared to $2.6 million for the same period in 2005. This increase is attributable to the increase in the number of vessels to our fleet and the increase in the number of vessels performing drydock and special surveying.

Management fees amounting to $0.5 million in the third quarter of 2005 have been eliminated from our consolidated financial statements in the third quarter of 2006 due to the acquisition of our fleet manager. However, the acquisition of our fleet manager has caused an increase in general and administrative expenses, which for the third quarter of 2006 amounted to $1.9 million compared to $0.7 million in 2005, representing an increase of $1.2 million.

Interest and finance costs increased by $0.4 million to $0.7 million for the third quarter of 2006 compared to $0.3 million for the same period in 2005. The increase is attributable to interest costs relating to long-term debt outstanding during the period, which did not exist in the same period of 2005, and to interest relating to the financing method of accounting for leased property by the management company.

Now let us look at the nine months ended September 30, 2006, compared to nine months ended September 30, 2005. Net income for the nine months ended September 30, 2006, prior to the preferred share dividend amounted to $41.6 million and decreased by $9.5 million or 19% compared to $51.1 million for the same period in 2005. The decrease is attributable to declining trading conditions. The acquisition of the fleet manager on April 1, 2006, reduced net income available to common stockholders for the nine months ended September 30, 2006, to $21.4 million.

Voyage and time charter revenues increased by $1.8 million or 2% to $80.9 million in the nine months ended September 30, 2006, compared to $79.1 million in 2005. The increase is attributable to the increase in the number of vessels in the fleet and was partly offset by declining hire rates in 2006 compared to the same period of 2005.

Ownership days were 3576 for the nine months ended September 30, 2006, compared to 2515 in the same period of 2005. The increase in ownership days resulted from the enlargement of the fleet.

Fleet utilization was down to 9.9% for the nine months ended September 30, 2006, compared to 99.7% for the same period of 2005. The daily time charter equivalent rate for the nine months ended September 30, 2006, was $21,666 compared to $29,719 for 2005.

Voyage expenses decreased by $0.9 million or 17% to $4.3 million in 2006 compared to $5.2 million in 2005. The decrease in voyage expenses is attributable to the decrease in commissions in 2006 compared to the same period of 2005 due to the elimination of commissions charged by the management company after April 1, 2006. This decrease was partly offset by an increase due to increased revenue.

Operating expenses increased by $5.6 million or 52% to $16.3 million in 2006 compared to $10.7 million in 2005. The increase in operating expenses is attributable to the increased ownership days resulting from the addition of new vessels to our fleet and increased stores and spares, repairs and crew costs. Daily operating expenses were $4,548 in 2006 compared to $4,242 in 2005, representing an increase of 30%.

Depreciation and amortization of deferred charges increased by $5 million or 71% to $12 million for the nine months ended September 30, 2006, compared to $7 million for the same period in 2005. This increase is a result of the increase in the number of vessels to our fleet and the increase in the number of vessels performing drydock and special surveying.

Management fees decreased by $0.6 million or 50% to $0.6 million for the nine months ended September 30, 2006, compared to $1.2 million in the same period of 2005. The decrease is due to the elimination of management fees after the acquisition of the fleet manager. However, due to this acquisition, general and administrative expenses during the nine months ended September 30, 2006, increased by $2.4 million to $4.4 million compared to $2 million in 2005.

Interest and finance costs during the nine months ended September 30, 2006, increased by $0.4 million or 18% to $2.6 million compared to $2.2 million in 2005. This increase is attributable to an increase in interest costs for long-term debt and leased property and was partly offset by a decrease in amortization of finance charges.

Turning to the debt policy, the Company's Board of Directors has determined that it is in the best interest of its shareholders to target a capital structure incorporating $150 million of semipermanent debt to support the Company's long-term growth plans.

Accordingly, beginning with the dividend in respect of the third quarter of 2006, dividends per share are calculated as if only debt in excess of $150 million was refinanced with equity issued at market value on the date such dividend is declared. This change had a positive effect on the dividend per share in respect of the third quarter, and management expects it will have a more significant positive impact beginning with the dividend in respect of the fourth quarter of 2006.

The semipermanent debt will be incurred initially under the Company's credit line, which provides for no principal amortization until May 2012. The Company expects that any refinancing of its debt would be funded with debt similarly requiring no principal amortization until maturity. The Company expects to refinance debt, if any, incurred in excess of the $150 million semipermanent amount by way of issuance of equity from time to time, when the Company deems it advantageous to do so.

The adjustment in the Company's dividend policy as a result of its [influence] of the semipermanent debt is expected to, one, increase the amount of available cash from operations for purposes of calculation of dividends by the amount of interest expense incurred on the amount of debt exceeding the $150 million, and two, increase the number of shares outstanding in the dividend per share calculation to reflect the additional shares that would have to be issued to generate net proceeds sufficient to repay the amount of debt exceeding the $150 million on the date of the declaration.

Turning to dividend policy, for the third quarter of 2006, the Board of Directors has decided to declare a dividend of $0.40 per share. Diana declares and pays quarterly dividends that are substantially equal to available cash from operations during the prior quarter.

In calculating the cash dividend, we take into account expenses, drydocking reserves, contingent liabilities and capital needed to support the Company's operations. Pursuant to our amended dividend policy on September 22, 2006, the third-quarter dividend has not been increased with interest expense and is now calculated as if it were financed with equity for the outstanding debt, as the debt on our balance sheet did not exceed $150 million.

As a final note, the Company also has signed a secured term loan of $60.2 million with Fortis Bank, which the Company will use to pay the pre-delivery installments of two Capesize newbuilding dry bulk carriers to be delivered during the second quarter of 2010. There will be no principal payments on this loan before delivery of the ships, at which time this loan may be refinanced.

Interest on the facility during the construction period of the ships will be capitalized and included in the construction cost of the ships being acquired. As such, this interest will not affect the Company's calculation of the quarterly dividends per share.

Thank you for your attention. We will be pleased now to respond to your questions, and I will turn the call to the operator, who will instruct you as to the procedure for asking questions.

(OPERATOR INSTRUCTIONS). Justin Yagerman, Wachovia Securities.

I guess just a first kind of housekeeping question -- I wanted to get a sense of what you see as the G&A run rate going forward on a quarterly basis?

We see it at the levels it is now. As you have seen, it has not gone much further up from the second quarter. So we see it continuing more or less at this rate, with the normal interest increase that we might have. So around $2 million would be a good assumption.

Around $2 million per quarter? What kind of inflation on that should we be expecting, and will that hit in '07?

Sorry?

What kind of inflation on that should we be expecting, and will that hit in '07? Should we expect it to creep up throughout '07?

Not really. I would expect '07, for a total '07, $8.5 million, G&A expense.

And I am assuming some of that will probably be back-ended.

That's right.

I guess one of the major questions is on the Panamax recharters in Q4. What are you currently seeing -- I mean, you haven't announced any new ones, so I'm assuming that nothing is finalized yet. But what are you seeing in the market? And in terms of duration for those charters, what are you guys going to be looking for?

Well, we are looking for anything in excess of a year, most probably for two years. But of course, the key issue is with the charterers. And we are going to be very particular on the charterer, bearing always in mind that we are looking at an overall picture of chartering here. And I think that, yes, we will be going for a further -- for a period longer than a year.

So kind of in the middle of one to two years and maybe longer if you could get something locked in with--?

A charterer, yes.

Well, you guys have certainly done well with --

I will tell you, the longer you go, the less charterers are available first class.

Absolutely. When you look at the market and where your vessels are going to be as they come up, I think you touched on it earlier, but how do you see the Atlantic versus the Pacific? And where are the vessels going to be positioned that are coming off in Q4?

The Pacific at the moment is stronger than the Atlantic. But I think the Atlantic is coming up now. And we have in mind also to position some vessels in the Pacific. So we are going to split the vessels which we have open, which are -- it depends whether you're going to take [as opened] versus the ones which are chartered with the full-time charter rules. We have five vessels open, so we are going to place them in such a manner to try and get the benefit for both the Atlantic and the Pacific.

So you will diversify them, then?

Yes.

When you look at your balance sheet now, you guys have talked about this $150 million of semipermanent debt that you are targeting. Is that what we should think about as kind of the trigger level over which you would need to do equity financing to clean up the balance sheet?

That is right. That is the trigger level that we will -- that you should be looking at. Of course, we will be at around -- when we will get the newbuilding delivery of the Sideris, in December, we will be at around $120 million debt, so we will not have a rise at this level.

And also on another note, you have to understand that the predelivery finance of the two Capesize vessels of 2010 are not to be included in this $150 million semipermanent debt.

So that is kind of project --

Exactly. We consider that as a separate project.

Something we have been saying all along -- there is no here automatic process in place which leads us to the equity market once we incur debt. With the balance sheet in the state that it has been and will be, we will be very, very careful before we decide on equity offerings to refinance debt in excess of the levels that we have been discussing.

I mention this because there are amongst circles the fear that the Company immediately accesses the markets as soon as there is debt to be refinanced with equity. There is nothing which will make us do that unless we feel it is good for the Company, basically, to do so, and that the market is receptive for such offerings.

Fair enough. Thanks for the clarification. I guess, then, the last question and I'll turn it over to somebody else -- when you look out at the S&P market right now, obviously, asset values are fairly high -- doesn't seem to have scared you guys off from the Capesize market, and you're able to get a nice charter on that vessel. Where are you looking right now Capes versus Panamaxes? Are you considering other assets classes, and what is attractive to you at the moment, if anything?

Well, the values are monitored daily, mainly by our CEO, who is essentially in touch with brokers, shipyards directly, and other owners who have tonnage for sale. As we all know, the market is extremely thin now, values are high, the deals are not as abundant as they have been, and even though we would like to expand the Capesize fleet, and we have shown this with the latest contracts and acquisitions, we're going to monitor the market for any type of bulk carrier which appears to be attractive.

But we have a preference, admittedly, for Capesize vessels. But we appreciate that there are very, very few who are serious sales candidates. And it's even more difficult to get a new shipbuilding contract.

So you're focused more on Capes than Panamax at this point? That is the part of the fleet that you'd rather build out?

If we have a choice, other things being equal, yes.

Why is that? Is that just because of the higher level of profitability in up markets, or--?

It is the higher level of profitability at strong markets, and at the same time, the ability to fix and get long-term employment for the ships once they have been acquired -- more easily to get the long-term charter for a Cape than for a Panamax.

(OPERATOR INSTRUCTIONS). Greg Lewis, Fortis.

I just have a couple of quick questions. One is I noticed that vessel operating expenses per day went up a little bit over last quarter. I guess they're up $4800 per day. Is that kind of a good rate going forward?

First of all, the reason for this quarter versus the previous quarter for the operating expense to have gone up is due to the fact that during the third quarter, we had the renegotiation of the crew costs. And in this competitive market, in order to be able to keep the good-quality seafarers that we have, we needed to be at market rates. So we needed to readjust this amount. And it is fair to keep this rate at this for the fourth quarter. That is fair to keep that rate, yes.

Also, how about -- what about -- I see a few vessels will be coming -- there is like a window for their charter redelivery to Diana. Is it safe to assume that in a strong market that these vessels will be delivered closer to the end of the window as opposed to the beginning of the window?

For instance, say you have a vessel coming up in late December at $21,000 per day. If rates remain strong, is it safe to assume that that vessel is probably going to be redelivered closer to the end of February? Is that a good assumption?

I think you are right. It is going to be delivered on the latest date. You are talking about Dione and the Erato, which are opening -- and the Triton, which are opening between 7th and October to the 7th of December -- the Dione, and 23rd of October and 23rd of December for the Erato, yes.

And then lastly, are there any drydockings coming up in the next couple of quarters?

The next drydock that is foreseen is for the Pantelis SP, which is foreseen on the second quarter of 2007.

Justin Yagerman, Wachovia Securities.

I didn't think I was going to get back so quickly. I just wanted to ask you guys, given your market view, what are you seeing right now from Asian negotiations on iron ore? And what are you expecting for price increases in '07?

The iron ore negotiations are at the fairly early stage still. And the prospects are for an increase in the region of 7% to 10%. But this is bound to change, depending on how negotiations proceed from here on. We have to remember that last year's negotiations dragged on and on, and only came to an end during the end of the second quarter.

But here, people expect faster negotiations. There is a lot of posturing and positions taken mainly by the main suppliers. But I think between 7% and 10% should be a pretty accurate guesstimate for the increase in iron ore prices at first. And when negotiations commence, people were hopeful that would be no increase at all. But the steel production numbers that I mentioned for 2006 have gone a long way to make people begin to forecast an increase in the iron ore prices, in excess of the 19% already agreed for the previous year.

I think you mentioned before, and I just want to make sure I have this right -- from the Australian grain side, you guys are seeing the drought impacting things like creating longer lengths of haul because of barley coming from Europe replacing that? Is that a correct characterization of what is going on?

Yes. Of course, it is a seasonal and temporary phenomenon. It won't keep coming back to assist us on the supply and demand equation, but yes, that is what I meant. Overall, on the balance of ports of origin and ports of destination, that will have a positive ton-mile effect.

So on the margin, that is helping probably Panamax demand a little bit.

Yes, I would say exclusively that, and to a certain degree, Handymaxes.

And I guess just a final question -- when you guys look at your time charter agreements, do you allow charterers to carry cement on your vessels?

We try to avoid it if we can. But if you allow them to carry a few cargo, it's not the end of the world.

(OPERATOR INSTRUCTIONS). Seeing that we have no further questions, I would now like to turn the floor back to Mr. Simeon Palios for any closing remarks.

Again, we appreciate your interest in and support for Diana Shipping. We will continue to strive to earn the trust of our shareholders with prudent management, strong financial performance and an attractive dividend policy. Thank you.

Thank you. This does conclude today's Diana Shipping conference call. You may now disconnect your lines, and have a wonderful day.