Diana Shipping Inc (DSX) 2007 Q3 法說會逐字稿

Good morning or afternoon, ladies and gentlemen. And thank you for standing by. Welcome to the Diana Shipping third quarter 2007 earnings conference call.

(OPERATOR INSTRUCTIONS)

This conference is being recorded November 15, 2007. I would now like to turn the conference over to Edward Nebb, Investor Relations Advisor. Please go ahead.

Greetings, all. This is Ed Nebb. And I want to welcome you to the Diana Shipping 2007 third quarter conference call. The members of the Diana Shipping management team who are with us today include 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 on 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 provisions 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 SEC, including the prospectus under the heading risk factors.

And now with that, I will turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer.

Good morning and thank you for joining us today. I am speaking to you today from Japan. And I have been traveling here on business for the past week, including a visit to Shanghai for the delivery of our newest Capesize vessel, the Boston. It is a pleasure to be with you.

I am pleased to report that Diana Shipping delivered an extremely strong performance for the third quarter of 2007. More importantly, our actions during the quarter have positioned the company to continue this positive track record. We are extremely optimistic about the future of the dry bulk shipping industry. And we have expanded our fleet, managed our charter relationships, and strengthened our balance sheet to take maximum advantage of the favorable trends in our business.

I would like to point out some of the highlights of the third quarter. Then the members of our senior management team will review our market outlook and discuss the financial results in greater detail.

Net income increased 202% for the third quarter of 2007 to US$50.4 million, as compared with $16.7 million a year ago. This strong performance reflected the sale of Pantelis SP in July 2007 and the growth in our voyage and time charter revenues due to our fleet expansion strategy as well as favorable market conditions.

With regard to fleet expansion, we announced agreements during the quarter to acquire two Capesize dry bulk carriers, the motor vessel Thalassini Niki and the motor vessel Thalassini Kyra. The Thalassini Niki is a 2005 built vessel, which will be delivered to us at the end of this month. The Thalassini Kyra was built in 2002 and will join our fleet in February 2008.

With the delivery of these two vessels as well as the new buildings under construction, the Diana Shipping fleet consists of a total of 21 ships. This compares with 17 vessels at the end of the 2006 third quarter.

As always, we have managed our fleet in a prudent and balanced manner to obtain the maximum benefit from market conditions. Of the 19 vessels in our current fleet or soon to be delivered, 14 are under long-term contracts. The majority of these contracts extend to 2009 and in many cases as well beyond.

We also have four vessels whose charters will expire between now and early 2008. Since the average daily rate on those four ships is today approximately $40,600, we have considerable room for earnings improvement as the charter rates are reset.

We have continued to seek opportunities to strengthen the balance sheet to support future growth. In September, we completed an offering of 11.5 million shares of common stock, including the over-allotment at a price to the public of $25 per share.

The company declared a cash dividend of $0.58 per share for the third quarter, consistent with our policy of rewarding shareholders with an attractive dividend. Including this dividend, we will have paid out a total of about $248 million to our shareholders since Diana Shipping became a public company.

As we enter the final quarter of 2007, I believe that Diana Shipping is in the strongest possible position to benefit from the favorable dynamics of our marketplace. We have expanded and diversified our fleet. We have structured our time charter contracts in a manner that maximizes financial performance and the visibility of our earnings. And we have a solid balance sheet to support our profitable growth going forward.

With that, I will now turn the call over to our President Stacy Margaronis. Thank you.

Thank you, Simeon, and a warm welcome to all who have joined us in this latest quarterly conference call. We should start by looking at what happened in the dry bulk freight market since the beginning of the third quarter of this year.

On July 2nd, the Baltic Dry Index stood at 6,304 and yesterday closed at 10,995, an increase of 74.4%. The Baltic Cape Index started the quarter at 8,650 and yesterday closed at 16,113, an increase of 86%. The Baltic Panamax Index was at 6,477 and on November 14th closed at 10,944, rising by 69%.

Also interesting is the fact that from November the 5th to the 13th of this month, the Baltic Cape Index increased by 12.5%, while the Baltic Panamax Index moved marginally higher. During the same period, most of dry bulk shipping stops lost between 15% and 20% of their values. We believe that this remarkable divergence of the physical freight market from the price of dry bulk shipping stocks cannot be attributed to movement in the paper market, as some have claimed.

To us, the broad sell off of dry bulk shipping stocks during that week indicates either that sales were taking place to cover investor losses elsewhere or that there is a total lack of understanding over the fundamental forces which move dry bulk shipping freight markets. We hope it is the former rather than the latter.

There is no doubt that demand for dry bulk shipping continues to be driven by record world steel production, which is lead by China, where production is expected to increase by 22% year on year by the end of 2007. According to Maersk Broker, global steel consumption in 2007 is expected to increase by 7% to 1.2 billion tons. And in 2008, steel usage is estimated to increase by a similar amount to about 1.3 billion tons.

Again, as has been repeatedly mentioned in the past, increased demand for steel is driven by gross domestic product and most importantly industrial production growth. In China, India, Thailand, Taiwan, Venezuela, Hungary, and even in countries like Switzerland and Austria, industrial production is rising at more than 7.5% year on year. This indicates that even though China's size and industrial production growth rate of 18.9% are by far the most important, growth is spread worldwide in both developing and developed countries.

Before looking at the supply-demand balance, both present and future, we will briefly look at the components of demand and latest developments affecting these. Starting with the demand for iron ore, imports to China, the world's largest buyer of this commodity, are expected, according to the Vice Chairman of the China Iron and Steel Association, to rise 11% the next year to an estimated 410 million tons.

As regards price, according to the median forecast of eight analysts surveyed by Bloomberg last month, it could rise 30% effective 1st April, 2008, as supplies are still lagging behind demand. If this price increase were to be agreed, the Chinese would be faced with a delivered cost of iron ore between of $66 and $96 per metric ton, depending on the place of origin. This is calculated with current estimates of a 2008 freight rate premium and still compares very favorably with the $100 to $170 per metric ton for Chinese domestic ore and $170 per metric ton, which is the CIF spot price of Indian ore.

According to Howe Robinson, for the first time in history, there is a real possibility of the world iron ore trade expanding by more than 100 million tons in 2008. And it is this realization that is surely underpinning the rising levels of optimism for the forward trade market.

Added to this is the forecast of further increases of iron ore shipments from Brazil to the Far East, estimated to reach 42 million metric tons in the third quarter of this year and to continue increasing during the fourth quarter of 2007 and the first quarter of 2008. This is particularly likely in view of the (technical difficulty) that the Chinese winter season sees domestic iron ore production decline sharply.

Statistics issued by the Japanese Ministry of Finance and Korean government show that iron ore imports have been rising this year at rates of between 4.5% and 5.5% year on year in these two countries, which obviously helps boost overall demand as well.

Looking at iron ore stocks at Chinese seaports, according to Clarkson's, these fell in September by 4.5% month on month to 40.4 metric tons. In our view, this does not support the often-heard argument that recent trade market strength was caused by stockpiling ahead of the anticipated price increases in the metal itself.

Coal is also showing interesting signs of strong growth. According to Howe Robinson, in 2008, the overall global coal trade should increase by around 40 million metric tons, which is about 5% higher compared to 2007. During the third quarter of this year, China became again a net exporter of coal, mainly due to substantial increase in Chinese coal production.

However, it is estimated by the Scandinavian analyst D.S. Norden that by 2010 China will be importing between 150 million and 200 million metric tons of coal. Increased Chinese coal imports will add further fuel to ton-mile demand for dry bulk ships, increase the physical strain in coal ports, and thereby raising the likelihood of port congestion remaining high for a considerable time ahead.

Turning to India, this economy has been growing at an average rate of 8.6% since 2003, while consumption in investments pending has been increasing, as happened in China and South Korea at the early stages of their economic development.

Economic takeoff was a term coined in 1960 by American economist W.W. Rostow, who said that economies evolve in stages and that a takeoff is the period when the old blocks and resistance to steady growth are finally overcome. According to Lehman Brothers Asia Limited, India's economy is at a takeoff stage and poised to grow as much as 10% per annum for the next decade.

In August this year, production at factories, utilities, and mines increased almost 11% from a year earlier after gaining 8% in July. All this economic activity has led Clarkson's to estimate 2008 Indian imports of coking coal at about 25.7 million metric tons, and increase of 16% year on year, plus 32.4 million metric tons of thermal coal, an increase of 14%.

Looking further out into the future, according to shipping (technical difficulty) India's construction boom and expanding middle class have led to a dramatic increase in power station investments. There are plans to add 64 gigawatts of coal-fired power plants in the five years from 2008 to the end of 2012. This will in turn increase annual thermal coal consumption from around 370 million metric tons in 2007 to around 530 million metric tons in 2012.

With most of Indonesia's exports of coal already committed and Australia's coal exporters producing at full capacity, we can see India sourcing coal from the Russian-Baltic ports to cover immediate shortfalls. This would have obvious benefits for demand through the ton-mile effect.

Of course, in the longer term, the best supply prospect is probably Australia. India is investing in port infrastructure with at least five Capesize ports aimed to service the potential triangular trade among Australia, China, and India.

Developments in the grain trade have, as usual, been much less impressive than for coal and iron ore. International Grain Council has revised its estimates for total world trade in grain during 2007-8 upwards by 2.6%. And it now stands at 222 million metric tons, which is slightly down to last year's volumes.

However, behind this apparent scene of tranquility are some impressive pockets of growth. For example, maize and sorghum shipments are estimated to reach 91.4 million metric tons and 6.5 million metric tons respectively, representing increases of 4.6% and 23.4% year on year.

Furthermore, the International Grain Council currently estimates that world trade in [sorghum] will increase for the fourth consecutive year to 75.8 million metric tons, up 8.1% year on year. This is mainly due to higher purchases by China, which is heavily reliant on the global market to meet domestic demand.

Another sector of dry bulk trade, the importance of which is often neglected by shipping analysts, is the Chinese and other Asian coastal trade. Whilst reliable data remains hard to come by. According to Howe Robinson, there is compelling evidence to suggest that these trades are both larger and faster growing than many recognize.

Howe Robinson's best estimate at the beginning of the year was that China's coastal trade alone may have reached 600 million metric tons. And they anticipate that it will increase by at least 10% this year. Key drivers can be seen from the rate of growth in Chinese domestic production and consumption of coal, iron ore, and agricultural produce, and other industrial raw materials, which are related to general gross domestic product and industrial production growth.

(technical difficulty) Handymax, and other Panamax vessels with more and more cargos, however, going into larger Panamaxes and a few Capesize bulkers. The benefit for the overall supply-demand balance for dry bulkers is important and growing every year.

Turning to congestion, we should start by saying that the rising dry bulk rate environment continues despite Australian port congestion falling during the last few weeks. The average number of ships waiting to load Australian coal fell progressively from 115 the first quarter this year to 109 in the third quarter. There are now only 40 ships queuing outside Newcastle, down from a record number of over 70 earlier this year.

According to Howe Robinson, a certain level of congestion is endemic at the time of market overreach. Their central expectation would be for average levels of congestion in the key load ports in the fourth quarter of 2007 and first quarter of 2008 to moderate but not evaporate.

We agree with this view as regards both Panamax and Capesize bulkers in spite of the port improvement and landside logistics improvement schemes in the pipeline today. These schemes will help keep congestion under check as opposed to eliminating it altogether, assuming of course how our demand growth assumptions hold.

As we have said in the past, congestion benefits ship owners up to the point of diminishing returns, where the shippers will not book cargoes because of the certainty of long and costly delays in the loading or discharging operation.

In the short term, the Newcastle terminal operator PWCS has confirmed its plan to extend beyond December 31st the current (technical difficulty). But this time, the plan includes Newcastle's two main rail operators. This, if successful, will expand the quota system to the rail network as well as the port terminal, ensuring smoother flow of cargoes from the mines to the ports.

As regards ton-mile demand, this has once again increase recently. According to shipping analyst R.S. Platou of Oslo, in iron ore, Asian sourcing is growing quicker from Brazil compared with Australia and India. In serial, South American exporters have increased their exports to Asia and the Middle East, compensating for lower U.S. and Australian exports. Not least, China's significant increase in steel and cement exports have resulted in longer trade because Europe and the Middle East have been most active importers.

Turning to the supply of dry bulk tonnage, much has been said about the new buildings on order. The raw numbers are indeed alarming, with about 81.3 (technical difficulty) Capesize fleet on order and 42.5% of the Panamax fleet scheduled for delivery between the rest of this year and 2012. There are 21 confirmed conversions of single-hull VLCCs to very large oil carriers. And there are another nine VLCCs where the conversion decision is still pending.

The restrictions here are primarily availability of conversion facilities and the long-term trading uncertainty of these vessels, which will always be the least preferred choice of vessel for charters due to their age and technical characteristics.

Furthermore, according to Howe Robinson, in the longer term, it is possible that some of the apparent economies of scale of these conversions may become illusory because of the geography of the Brazil to Asia trade, which means that these ships are being locked into shuttle voyages with a 35-day ballast and are thereby only able to perform about 4 to 4.5 voyages per year.

This may work at times when the market is in the grip of significant trade imbalance. But as soon as these unwind, the smaller ships with the ability to perform triangular voyages may well become rather more competitive than is currently envisaged.

But it is essential that the new building figures are looked at more closely for there are important details hidden behind the raw numbers. Figures supplied by London broker Simpson Spence & Young indicate that there are 204 Capesize vessels booked for delivery from China in 2010 alone. However, around 64%, or 130 of these Capesize orders for that year are due for delivery from new shipyards entering the large dry bulk vessel building segment.

Factors that would cause problems for greenside ship builders include a shortage of engines and equipment to fit new vessels as well as the procurement of enough steel plates at prices within the costing of new building projects. What is therefore likely to happen is that a lot of these 130 ships will either be delivered late or never be delivered at all. Unfortunately, it is impossible to even guess how many ships would be affected by these production problems. [One thing is] for sure that not of all of these vessels will be delivered in 2010.

Another factor to keep in mind is that up to and including 2009, the new building deliveries, about 120 capes, should easily be absorbed by incremental demand, even with very little scrapping. If for reasons referred to above some ships have not delivered, then there could be a shortage of bulkers during this period.

Let's now turn to the supply-demand balance and how some shipping analysts foresee the freight market moving over the next year or so. According to [Furley Consultants], assuming that no more than 10% of the world dry fleet of vessels over 50,000 tons dead weight are tied up in congested ports, freight growth will be equal to supply growth during 2008. This also assumes no increase in ton-mile demand during the year.

When looking at these forecasts, it is essential that we keep in mind that at the phase of the shipping cycle when markets are operating at or in excess of capacity, when demand increases even marginally, the rate rises exponentially. This is the point reached by the market during the second and third quarters of this year and may very well continue into 2008 and 2009. Of course, no one can predict the future.

Before concluding, we should not neglect summarizing the main risks to this optimistic scenario which we have presented above. First, the possibility of a significant slowdown in growth or even recession in the United States and Europe. Even though the United States trade with China is not as important for Chinese growth as it was ten years ago, there is no doubt that the effect of such a slowdown if it happens will have an effect on the rate of growth and demand for the transportation of bulk commodities.

Secondly, the mispricing of risk has been in the forefront of financial news broadcasts and analyses in relation to subprime debt and special investment vehicles. We need not mention more as much has already been said about controlling systemic risk in world financial markets and the risks to world trade associated with the failure of such controls.

Thirdly, supply side considerations from 2010 onwards, if all the ships on order are delivered on time and there is no significant pickup in scrapping. Fourthly, the Chinese government's failure to successfully deal with social unrest fueled by the significant economic inequality of 900 million Chinese living in the countryside and the 400 million living in the cities. And finally, failure by the Chinese government to control corruption, which according to the Washington-based Carnegie Endowment for International Peace costs China 3% of its GDP, more than it spent on education in 2006.

Therefore, on balance, we at Diana Shipping remain optimistic about the future trends of the dry bulk trade market and are continuously monitoring the risk factors that affect this optimistic scenario while being always prepared through our strong balance sheet to take advantage of any future downturn in asset values.

At the same time, we aim to protect our fleet cash flow and dividend payable to our shareholders through our chartering policy involving both long- and short-term time charter contracts.

I will now pass you over to our CFO Andreas Michalopoulos, who will provide you with our company's financial highlights for the third quarter 2007. Thank you.

Thank you, Stacy, and good morning. I am pleased to be discussing today with you Diana's operational results for the third quarter of 2007 as well as for the nine months ended September 30, 2007.

Let's start with the third quarter of 2007. Net income for third quarter amounted to $50.4 million and increased by $33.7 million, or 202%, compared to $16.7 million for the same period in 2006. This is mainly attributed to gains from the sale of motor vessel Pantelis SP in July 2007, amounting to $21.5 million, to increased average hire rate, and also to the enlargement of the company's fleet in the water that went from 14 vessels at the end of the third quarter of 2006 to 16 at the end of the third quarter 2007.

The earnings per share of Diana Shipping amounted to $0.78. Voyage and time charter revenues increased by $18.5 million, or 60%, to $49.1 million in the third quarter of 2007, compared to $30.6 million in 2006. The increase is attributable to increased average hire rates and the increase in the number of vessels in the fleet after the acquisition of the Naias and the Sideris GS in 2006 and the Aliki and Smirio in 2007.

Ownership days were 1,477 for the third quarter of 2007, compared to 1,247 in the same period of 2006, due to the enlargement of the fleet mentioned earlier. Fleet utilization was 99.9% in the third quarter of 2007 and 100% in the same period of 2006. The daily time charter equivalent rate for the third quarter of 2007 was $31,655 compared to $23,399 for 2006.

Voyage expenses increased by $0.9 million, or 64%, to $2.3 million in 2007 compared to $1.4 million in 2006. And increase in voyage expenses is attributable to the increase in revenues. Operating expenses increased by $1.4 million, or 23%, to $7.4 million in 2007, compared to $6 million in 2006. The increase in operating expenses is attributable to the 18% increase in ownership days, resulting from the delivery of the new vessels to our fleet and also to increases in crew costs, insurances, annual taxes, and other. Daily operating expenses were $5,010 in 2007, compared to $4,802 in 2006, representing an increase of 4%.

Depreciation and amortization of deferred charges increased by $2.4 million, or 57%, to $6.6 million for the third quarter of 2007, compared to $4.2 million for the same period in 2006. This increase is attributable to the increase in the number of the vessels to our fleet and was partly offset by reduced depreciation expense due to the agreement to sell the motor vessel Pantelis SP.

General and administrative expenses increased by $0.3 million, or 16%, for the third quarter of 2007 to $2.2 million, compared to $1.9 million in 2006. The increase is mainly attributable to increases in salaries and to the exchange rate of U.S. dollars to euros.

Interest and finance costs increased by $1.2 million to $1.9 million for the third quarter of 2007, compared to $0.7 million for the same period in 2007. 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 2006 and to interest relating to the financing method of accounting for lease property of the management company.

Now let's turn to the nine months ended September 30, 2007, compared to nine months ended September 30, 2006. Net income amounted to $97.9 million, an increase by $56.2 million, or 135%, compared to $41.7 million for the same period in 2006. It's mainly attributed to gains from the sale of the motor vessel Pantelis SP, July '07, to improving trading positions, and to the increase of the vessels in the fleet.

Voyage and time charter revenues increased by $50.7 million, or 63%, to $131.6 million in the nine months ended September 30, 2007, compared to $80.9 million in 2006. The increase is attributable to increased average hire rates in 2007 compared to the same period of 2006 and the enlargement of the company's fleet.

Ownership days were 4,271 for the nine months ended September 30, 2007, compared to 3,576 in the same period of 2006. The increase in ownership days resulted from the enlargement of the fleet. Fleet utilization was 99.3% for the nine months ended September 30, 2007, and 99.9% in the same period of 2006. Daily time charter equivalent rate was $29,402 compared to [$21,666] for 2006.

Voyage expenses increased by $1.7 million, or 40%, to $6 million in 2007 compared to $4.3 million in 2006. The increase in voyage expenses is attributable to the increase in revenues and was partly offset by the 2% elimination in commissions charged by the management company after its acquisition of (technical difficulty) in 2006.

Operating expenses increased by $4.6 million, or 28%, to $20.8 million in 2007, compared to $16.3 million in 2006. The increase in operating expenses is attributable to the increased ownership days, resulting from the addition of new vessels to our fleet and increased crew costs, insurances, and repairs. Daily operating expenses were $4,877 in 2007, compared to $4,548 in 2006, representing an increase of 7%.

Depreciation and amortization of deferred charges increased by $4.8 million, or 40%, to $16.8 million for the nine months ended September 30, 2007, compared to $12 million for the same period in 2006. The increase is the result of the increase in the number of the vessels to our fleet.

Management fees amounting to $0.6 million in the nine months ended September 30, 2006, represented management fees charged by the management company during the first quarter of 2006 before it's acquisition in April '06.

General and administrative expenses during the nine months ended September 30, 2007, increased by $2.2 million, or 50%, to $6.6 million, compared to $4.4 million in 2006. The increase is attributable to expenses of the fleet (inaudible) relating to the first quarter of 2007, which did not exist in 2006, the increases in salaries, and to the exchange rate of U.S. dollar to euro.

Interest and finance costs during the nine months ended September 30, 2007, increased by $3.2 million, or 123%, to $5.8 million, compared to $2.6 million in 2006. The increase is attributable to interest expenses relating to long-term debt that was outstanding during the first half of '07 and did not exist in 2006.

Now turning to dividend policy, for the third quarter of 2007, the Board of Directors has decided to declare a dividend of $0.58 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 dividends, we take into account expenses, dry docking reserves, contingent liabilities, and capital needed to support the company's operations.

That summarizes the financial section. And I would like to thank you for your attention. And now we would be pleased to respond to your question. And we turn the call to the operator, who will instruct you as to the procedure for asking questions. Thank you.

(OPERATOR INSTRUCTIONS) And our first question comes from Jonathan Chappell with J.P. Morgan. Please go ahead.

Thank you. Good morning, guys. First question -- or actually both questions have to do with the operating strategy going forward. You obviously got a very nice rate on the Panamax Dione that you redid this week. You have four more Panamaxes rolling off in the next several months. When you look at rechartering those, would you be more market optional, try to get the one-year contracts at the very strong rates? Or do you think there'd be more of a blend of one-year, two-year, three-year contracts to kind of offset recharter risk?

Well, I think that we have four ships to recharter in about three months from now. And maybe we will charter them before the expiration of these three months. But apart from those three vessels, there are other vessels which are coming open within 2008. I think the whole structure of our fleet is such that we can charter the remaining of those four plus the other two or three ships which are coming open at a period less than one year. And I consider the less than one year a spot position because don't forget that even if the vessel expires after a year from today, you are able to recharter for three or five years at a very handsome rate.

Right. Okay. The second question also on the operating strategy is your fleet's grown quite significantly since you went public. Yet you still have that $150 million debt ceiling that you refer to. Have you looked at potentially increasing your debt capacity, levering up a little bit more -- not too much, but just a little bit more -- to maybe increase your opportunities for fleet growth going forward?

Jonathan, this is Andreas. First of all, this -- at the moment, we have, as you have seen from the results of the quarter, the revolver that is at zero due to the equity offering. Now when we will have the two vessels, the Thalassini Kyra and Thalassini Niki delivered, which is around February '08, then will be the time for us to reconsider this $150 million semi-permanent debt threshold that you are talking about because we will be at, on, or about the level of $200 million.

So this is something we will consider at that time if everything else remains equal until then. And certainly, you will be the first to know if we make such a change or not. But this is something we will consider because -- but nevertheless, having said that, we want to keep debt to cap ratio levels at very healthy levels in order not to change our strategy in terms of dividend because you know that we do not want to -- we do not believe that you can be a sustainable dividend player and also have high leverage.

Right. That makes sense. And then just the last one is a housekeeping item. What's the dry docking schedule look like for the remainder of this year and in 2008?

We basically -- all the vessels that had to go through an intermediate survey have done their intermediate survey. And most of them -- all of them basically have done an underwater inspection that was the only requirement for those vessels, so that we are finished with 2007. The first vessel that comes under intermediate survey according to the latest dry dock schedule that we have is the motor vessel Aliki. And this is not before the month of March 2008. So we feel very comfortable with our intermediate and special surveys.

Very good. Thank you, Andreas. Thank you, Simeon.

Thank you. Our next question comes from the line of Justin Yagerman with Wachovia. Please go ahead.

Good morning. This is [Mike Glover] filling in for Justin Yagerman. Just a couple quick questions -- with regard to the acquisitions market, what are you seeing there? And obviously, you just made a couple acquisitions. But if you could provide any more color on that, that'd be great.

Well, there are ships around that you can buy even today. There are Panamaxes and Capes. And provided they're accretive, I think we will consider them. We have always our eye and ear on the market for possibilities that can bring and increase the wealth of our shareholders.

Great. Just a follow up -- are you still seeing first class charters looking for three to five years? I think you might've mentioned that earlier. And what does the charter marker look like?

Well, today, I have visited five of the major charters in Tokyo. And quite honestly, I have never received such a warm and eager -- what do you call -- eager welcome by all of them because they knew that there were some ships to be chartered. I had the chance of going and visit them November 2006, exactly a year earlier. But I can assure you the welcome I received was not the same. I was completely taken by surprise with the warm -- what do you call -- the warm way they have received me. It is purely because they know that the tonnage on the dry cargo will be very valuable. And they would like to have more tonnage, all of them. And I'm talking about the five major, most conservative charters perhaps of the world.

Great. And then just a final follow up -- with regards to crewing cost, can you speak a little bit about the pressures you're seeing there and what you see for 2008 and then when you renegotiate in 2009?

We -- this is part of the advantage of having a very experienced management team and a very -- it's a very old company. We do not -- we have people that crew our vessels that are with us since many, many years that have been trained through us through the different levels of their career. So although we renegotiate contracts with the crew members every year and this is reflected in the third quarter operating expenses numbers, this is a very smooth renegotiation, where no big surprises exist.

We obviously make sure that we give the necessary benefits to our crew personnel and that we also train them -- because training is a very big part of our work -- accordingly in order to keep them happy. Now this does not eliminate the fact that there are scarcities in crew personnel nowadays. But for the moment, due to the very young age of the fleet as well, we tend to have to get a preference for crewing personnel to come to our vessels to serve our vessels.

Great. Thank you very much. And congratulations on another strong quarter.

Thank you.

Thank you. Our next question comes from Seth Glickenhaus with Glickenhaus & Company. Please go ahead.

I want to congratulate you fellows. I think you're doing an outstanding job. The only question, the only misgiving I have about this whole area -- and we're one of the great optimists about it -- is the price level has skyrocketed as you know. And I was just wondering if you were thinking of accelerating those ships that come out in April and getting them contracted out earlier.

I think that's a very good question, actually. But don't forget that today you can charter those vessels for approximately $53,000 to $55,000 for five years but not with a major charter yet.

I see.

Now what we are going to do is we are going to watch very carefully our friends at Waigacgiao, SWS. SWS will have to tell us by January, February what they are going to do regarding the steel cutting of the first vessel, which is hull 1107. Now they have to cut -- to perform the steel cutting seven months ahead of delivery. So we are expecting them to start steel cutting by February 2009. And we expect to get the vessel -- we expect; we have not any confirmation -- by 2009, November 2009.

If that is the case, then the vessel will draw first-class charters to charter here. And then we have to [rethink] again. So it's a matter waiting until January, February when the dates will be more accurate and we will be in a better position to have a first-class charter to knock on our door. I hope I have answered your question.

Thank you. You certainly have. Good luck to you.

Thank you very much.

Thank you. And our next question comes from the line of Greg Lewis with Credit Suisse. Please go ahead.

Good afternoon and thank you. Yes, Stas, I guess this question's for you. There's been a lot of talk about China trying to mask its demand for iron ore. But when you look at the BDI or even the Cape Index, I mean, they're clearly at near their record levels. So I mean, are we actually seeing a reduction in demand from China? Or are we just hearing more talk about that reduction in demand?

Well, something which we have to be careful about is that, of course, China is the main driver of the whole thing. But apart of China, it is countries like India, other Asian countries, including Japan, Central European economies, Brazil, Russia, which are showing robust growth and increasing demand for power and commodities in general. We do not expect this trend to reverse itself anytime soon.

As regards supply or tonnage, we know with a high degree of certainty the number of dry bulk carriers scheduled for delivery between now and the end of 2009. These are entirely manageable provided demand growth does not falter during that period.

There is no doubt that the Chinese are trying to manipulate the demand for the transportation of iron ore in connection with the various negotiations on price. We haven't seen any significant drop in the ordering, hence the movement of the BCI Index, which has been going up continuously for nearly ten days now. And we're going to enter a time of volatility until the price negotiations end. And we have a feeling they will end sooner than they did during the last time and the time before that, especially the previous negotiations two years ago that lasted down to May of the following year.

So we are not at all pessimistic about the overall demand for iron ore from China going well into the new contract price period of 1st April, 2008, and beyond. But between now and then, there will be some posturing between the consumers of the product and the suppliers and the mining companies in order to try and negotiate the best possible deal for each party.

Okay. Great. And then I guess my next question is, looking at high charter prices, we've seen on a smaller scale end users, such as like a steel mill or even like a coal-burning power plant, begin to look at acquiring tonnage. Have we seen -- have they been able to make any sort of meaningful impact in the new building order book?

We haven't seen major users of the commodities enter in a big way the new building order book market, not at all. But no doubt, they might be considering it. And they might be ordering from here out into 2011 or '12. But they're not the power that would determine the prices or the numbers of the ships that will be delivered. They have been ordering the way they were expected to order due to their size, of course, and clout in the market, but nothing exceptional.

Okay. Great. Congratulations on a great quarter.

Don't forget, if I could add something, that in the past we had the major oil companies trying to buy tonnage themselves. And they have withdrawn after a few years. So I think the steel mills are going to look very carefully into the situation of what was happening with the tanker operators at the time. And they will refrain from doing so because their business is completely different from [shipping].

Okay. Great. I couldn't agree with you more. Thank you.

Thank you. Our next question comes from the line of Scott Burk with Bear Stearns. Please go ahead.

Hi. Good morning, guys. Just a couple of follow-up questions here -- you talked about the potential acquisitions. There is at least one large fleet, 20, 25 vessels, that's available out there. How do you guys think about doing larger acquisitions as opposed to kind of the one or two vessels at a time that you've done in the recent past?

We're looking at all the possibilities available, large or small, whether it's fleets or individual ships. So obviously, there is the basic criteria of accretion to dividends that we have always stated is the most, single most important criteria to decide acquisitions for our company. And we will not allow the company to be drawn into a change in our dividend policy and our overall attitude towards debt basically to banks and gearing just because a deal looks attractive on paper but might not be as attractive as we really think.

So we look at the deals in detail. They have to be accretive. And they have to be such that when done do not affect the company's policy, as stated earlier. So the answer, Scott, is that we look at all deals within these parameters. And we try not to get carried away by any criteria, be it enthusiasm, economies of scale or anything else.

Okay.

And this, if I could add, Scott, is the fact that we have such a strong balance sheet that we are able to look at small and big deals the same way, exactly the same way.

Okay. That's right, good part of your strategy. Let me ask you about one of the things that's interesting. I've had a little bit of divergence between what Cape's spot rates have been doing the last week and a half or so and the rates on the smaller, the Panamax and Supermax have been doing. Can you talk about what may be causing the difference there with Capes reaching all-time highs with Panamax kind of hanging about flat?

Yes, here, the explanation as usual will be found after this quarter is over. And then we will be able to talk with certainty exactly what has been happening. One this is for certain, that iron ore shipments are continuing at very, very strong rates of growth. That is what is supporting the Capes. Another thing supporting Capes is the ton-mile effect. We have a lot of South American shipments taking longer, as we know, going to Asia, and therefore underpinning demand even further.

The Panamaxes might have tempered their rise from the fact that we have had a slight reduction as we said during our presentation of congestion in Australia, primarily Australia and coal-loading ports, which are, of course, the stronghold of the Panamax trade from Australia to China. We will see when numbers have come through whether this guess on our part is indeed the cause why the Panamaxes did not perform as well as the Capes during the last few days, not that they have done badly that is.

Yes. Okay. And then one final question --

I think the way I have been received today by these five major charterers in Tokyo proves that the Panamaxes are going to follow suit with the Capes. And next week, I think we may have a slight decline on the rates of the Capes. But we will definitely have an increase on the Panamaxes.

Okay. And one final question -- BHP looking to buy out Rio Tinto, if that deal goes through, do you see any additional power to the producers of iron ore that may negatively impact day rates? Or what kind of impact would you foresee?

Very difficult to draw a connection between day rates and the negotiating power of the miners with the steel mills. We believe that the miners are so large, even without any merger between these two that you mentioned, that there is basically very little difference as regards negotiating position if BHP and Rio Tinto join forces or not. Effectively, they are enormous companies compared to the steel mills, even the large ones. And we think that to draw a connection between the day freight rates or time charter hire and the consolidation in the mining industry is not very useful. I think it won't give us any useful results or conclusions.

Thank you very much.

Thank you. Our next question comes from the line of Urs Dur with Lazard Capital Management. Please go ahead.

Hi, guys. Congratulations. Great quarter. I was wondering if you guys could expand a little bit upon growth in ton-mile demand, how you see that growing, what are the main drivers of that. It's been pretty sustained, close to about 5% over the last few years. And it'd be very beneficial for everyone involved if it can keep going. And I want to see how you think that might be sustained going forward.

Yes, the main reasons why ton-mile demand will continue increasing is what we mentioned earlier on. It's basically the increase in importance of the South American miners for the iron ore trade compared to other suppliers as we know, especially from Australia. And at the same time, we have the Chinese increase in steel and cement exports that we mentioned, something fairly new, which is creating shipments out into now European and Middle Eastern nations, which have a huge demand for these commodities.

At the same time, of course, we have the South American exporters of grain products going out to Asia and the Middle East. And we see these trends continuing with fluctuations, of course, because there is no doubt that the nearby producers of the commodities that are needed, especially in Asia are producing to capacity. And therefore, these clients, let's say, of iron ore and other commodities from grains to coal, have to look further afield to get their volumes of commodities needed. And it is a trend that we feel is not going to be reversed for a number of years to come.

Okay. When you model the industry going forward on the demand and/or supply side, do you guys actually consider in any sort of compounding fashion a specific number for the growth going forward of ton-mile demand? Or is this basically a broader outlook that you have on the growth of ton-mile demand? I mean, for instance, I am using a 5% number personally from what I see. Do you use that in your modeling at all?

Don't use a specific percentage in the modeling. What we have to use, of course, is the number of trips on average that a Panamax and a Capesize bulker do in one year.

Right.

It translates -- basically translates the cargo-carrying capacity of each Panamax and Capesize bulker into effective supply of tonnage. And then the demand is looked upon, of course, in volume terms. And therefore, we are playing with the number of voyages, which is between 5 and 6.5 voyages per annum for Capes and Panamaxes, a smaller number for Capes and a larger number for Panamaxes. It's not an accurate science. And it's not an accurate calculation. But that's the way we try to get to as accurate a figure as possible.

I realize it's extremely challenging number to get to. I don't know anybody in the industry who can really hit that number with any sort of certainty. But it is a very interesting one. It helps the modeling. One other question -- it seems like there are more players and more volumes in the paper market than we've ever seen on the dry bulk side. It does seem like there are a number of players now who also own shares. And when the forward market has hiccups, like it did or ten days ago, or any sort of significant decline, it seems like shares get dumped, too, even though many of these players are not even close to being hardware owners or close to owning ships themselves.

What's your opinion of the forward market vis-a-vis the physical market, its influence on valuation, and whether or not it should be considered important connection or not?

Well, it's something relatively new. So therefore, any conclusions that we draw here are bound to be tentative. What we could say, of course, with certainty is that there is nothing we can do to control what's happening in the paper market. And very few people can, unless this market becomes regulated, which I think is going to take a long time.

What we have looked empirically is that there is no easy association here between what we see with dry bulk shipping stocks and the paper market because I'd like to remind all of us that when we had the huge sell off in the dry bulk shipping stocks, there were a number of days when the paper market was moving higher or was steady, while the dry bulk shipping stocks were losing value at more than about 3% or 4% per day.

Sure.

So we are not exactly comfortable in saying that there is a direct correlation. And to what extent, of course, in future this will have a more immediate impact is something we'll have to watch and see. But for the time being, we're not convinced that they are directly correlated.

Great. That's very helpful. I mean, I guess really the follow up on that is -- I mean, how physical can the paper market get? Or is the paper market going to stay paper? Do you have an opinion there? I mean --

Urs, this is Ioannis. I can say that from the one side usually of the paper market, from the one side, there is a physical that is somewhat related to the shipping industry. But usually on the other side, there is a speculator.

Right.

So basically, as Stacy explained, needless to remind you, what the [FFAs] were saying at the end of 2005 regarding 2006 or 2007 or '08, they were completely wrong. The FFAs are people that make and losing money for being wrong on the FFAs basically. You understand?

Yes, no, absolutely. I was just looking for clarification from your end. I think you're preaching to the choir for me. But thank you very much. Extremely helpful. Great, great quarter. Thank you.

Thank you. And unfortunately, that's all the questions we have time for today. I would now like to turn the conference over to Mr. Palios.

Well, thank you again for your interest in and support for Diana Shipping. We are very encouraged by the positive outlook for our market and our company. And we look forward to sharing our results with you next quarter. Thank you.

Thank you, ladies and gentlemen. That does conclude our conference call for today. Thank you for your participation. And have a great day.