Diana Shipping Inc (DSX) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Diana Shipping, Inc. Second Quarter 2008 Earnings Conference Call. During today's presentation all parties will be in the listen only mode. Following the presentation, the conference will be open for questions.

(OPERATOR INSTRUCTIONS)

This conference is being recorded today, Thursday, July 31, 2008. I would now like to turn the conference over to Edward Nebb, Investor Relations for Diana Shipping. Please go ahead, sir.

Thank you, Mitch, and greetings everyone. I want to welcome you to the Diana Shipping 2008 Second Quarter Conference Call. Members of the Diana Shipping management team who are with us today are Mr. Simeon Palios, Chairman and CEO, Mr. Anastassis Margaronis, President, Mr. Andreas Michalopoulos, Chief Financial Officer, Mr. Ioannis Zafirakis, Vice President -- excuse me, Executive Vice President, Director 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 release we issued this morning. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements 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 the risks, uncertainties and other factors that may cause future results to differ materially from the forward-looking statements, please refer to the Company's filings with the SEC. And now let me turn the call over to Mr. Simeon Palios, Chairman and CEO.

Thank you, Ed. Good morning and thank you for joining us today. I am pleased to report that Diana Shipping continued it's robust performance during the second quarter of 2008 resulting in record revenues and earnings for the quarter and the year to date.

Our investment in building a young fleet, our proven chartering strategies and our relationships with high quality [charterers] have resulted in a highly visible and consistent revenue stream for the balance of this year.

The Company also is well positioned to benefit from the positive, long-term momentum in the dry box shipping market and we are confident that our strategies will continue to produce strong results for shareholders during the months ahead and well into the future.

Now I would like to point out some of the highlights of the recent period, then the members of our senior management team will review our market outlook and discuss the financial results in greater detail.

Net income was a record $56.7 million for the second quarter of 2008, an increase of 118% from the comparable results for last year. Our earnings for the 2008 second quarter also reflected a positive trend from the first quarter of this year rising approximately $3.5 million U.S. dollars as compared to first quarter.

For the six months ended June 30th, 2008, our net income was $109.9 million, an increase of 131% as compared to the first half of 2007. This strong performance for the second quarter and year to date was largely the results of higher voyage and time charter revenues reflecting our ability to capture the increase in prevailing time charter rates, as well as the expansion of the company's fleet.

For the quarter ended June 30th, 2008, we operated an average of 19 vessels or three more than the average number for the second quarter of last year. As you know, we have been working successfully to divest in private fleet and have grown our capacity significantly in the Capesize class in recent years.

By pursuing a chartering strategy that provides a high degree of revenue visibility in the current market, we have already fixed revenues of between $163.8 million and $167.8 million for the 98% to 99% of the days remaining for 2008. The stability of our revenue stream is a strong indication of our ability to deliver consistent results and lucrative dividends to shareholders throughout the balance of this year.

With respect to the dividend, the company has declared a cash dividend on its common stock of $0.91 per share for the second quarter ended June 30th, 2008. This represents our tenth consecutive quarter increase in the dividend and clearly demonstrates our commitment to rewarding shareholders through a attractive dividend policy. The cash dividend will be payable on or about August 28th, 2008 to shareholders of record as of August 14th, 2008.

Looking ahead to the balance of 2008, our stable and consistent revenue stream is a source of great confidence and stands in sharp contrast to the uncertainties that have impacted many sectors of the global economy.

We believe that our strong balance sheet, proven fleet management and chartering strategies, and excellent relationships with the world's leading charterers have positioned Diana Shipping for continued solid performance in the near term and will allow the company and our shareholders to benefit from the opportunities in our industry over the long term. With that I will now turn the call over to our President, Stassi Margaronis.

Thank you. Thank you, Simeon and welcome to all who have joined us in this second quarter conference call. We will start with a brief look at the freight market development since the end of the first quarter.

On 31st March, 2008, the Baltic dry index stood at 8,081 points while on 30th July closed at 8,388. The Baltic [NYMEX] index started the second quarter at 7,867 and at the end of July stood at 7,524. While the Baltic cape index moved from 11,993 to 13,077 during the same period. During this period, the practice of modern ships firmed together with long term time charter employment rates across the board.

Factor in economic data now. During the year the IMF lifted its 2008 world growth forecast from 3.7% to 4.1% on the basis that the world economy had remained more resilient than expected in the first half of the year. However, it warned that the world economy is still facing some serious challenges from high oil prices, slowing economies and falling house price in several western economies.

The OECD's composite leading indicator for China was up by two points in May and 1.9 points higher than a year ago. China's economic growth slowed for the fourth quarter in a row, with second quarter GDP growth at 10.1% compared to 10.6% during the first quarter 2008. This was not necessarily bad news, especially viewed with the June drop of the consumer price index to 7.1% year on year from 7.7% in May.

Japan's economy grew 3.3% in the first quarter of 2008 as exports to Asia and emerging markets world-wide [estimation] whether the U.S. economic slowdown. During the same period, Europe grew at the higher than expected 0.7% led by a 1.5% expansion rate in Germany. The U.S. economic growth was barely positive during the first quarter.

Steel production. With steel production the numbers are again pretty encouraging. According to most brokers global steel-making capacity is expanding rapidly and is projected to increase from 1.6 billion tons in 2007 to around 1.9 billion tons per annum in 2010. Most of the increase will take place in Asia.

As regards iron ore, after a steep increase in the shipment volumes of iron ore during the first few months of 2008, Chinese stockpiles at ports have reached record levels. Even though they recently came down to around 73 million tons from 82 million tons, they are still at nearly double the average volumes of the last couple of years.

Therefore, we would not be surprised if the Capesize freight markets open slightly for a few weeks while the steel mills work through the stockpile. Another reason for the softness could be the halting of production by some of the northern Chinese steel mills due to the Olympic games.

However, we agree with shipping analyst [merch] broker that the second half of 2008 could see increased iron ore supply growth if the available logistics and infrastructure can accommodate the existing expansion plans of the mining companies.

Looking at the longer term picture, commodity analyst [Louis Dreyfus] anticipates growth in seaborne iron ore trade to double in volume between 2007 and 2015. Chinese custom data shows that China's imported iron ore in the first nine months of 2008 was up 19.6% year-on-year at 192 million tons.

At lot of it came from Brazil which exported 140 million tons of iron ore worldwide from January to June this year, almost 13% more than the equivalent period last year. The (inaudible) beneficial effect on freight markets was quite obvious. Australian iron ore exports reached a new monthly record of 28 million tons in May, almost 6 million tons more than during May last year.

This took the January to May 2008 exports to 126 million tons compared with 104 million tons during the same period in 2007. In the same period shipments to China increased to 73 million tons, 19 million tons more than last year.

(Inaudible) researchers are forecasting total volumes of iron ore shipments for 2008 to reach 850 million tons, an increase of about 8% from last year, with Australian exports estimated to increase by about 13%, Brazilian and South African exports increasing by just under 10%, Indian exports estimated to be reduced by around 2.5% at 88 million tons.

Turning our attention to coal, according to [Dobson's] research, total seaborne exports of coking coal are estimated to reach 224 million tons during 2008, an increase of 6% compared to last year. Preliminary data projects that in the first five months of 2008 Australian exports of coking coal were slightly down year on year, at 102 million tons versus 104 million tons last year, as a result of the floods which hit Queensland.

This will reduce the annual growth of Australian exports of this commodity after the 9.8% increase we witnessed in 2007. However, the lagging shipments from Australia are being counterbalanced by a surge in U.S. exports, relieving some of the pressure on supply and benefiting freight rates through the ton-mile effect.

According to the U.S. Department of Commerce, U.S. coking coal exports to destinations excluding Canada reached 4.13 million tons in May this year. This was more than double the shipments of May last year.

As regards to thermal coal, seaborne exports are estimated by Dobson research to rise by 3% during 2008 at 589 million tons. U.S. steam coal exports, excluding again Canada, dipped for the second consecutive month in May at 1.18 million tons, but were still more than five times the volume shipped in May last year.

Thermal coal stockpiles in China have fallen to around nine days worth of supply, which is lower by about one third compared to the average inventory levels. There is little doubt in most shipping analyst minds that following the conclusion of the Olympic games in Beijing demand for thermal and coking coal in China will continue growing and will underpin the growing demand for Panamaxes and Capes.

Grains. International Grain Council are actually forecasting a drop in the seaborne export volumes of grain product during the July to June 2008, 2009 crop year with volumes dropping to 224 million tons. The main reduction is expected to come from U.S. exports which are estimated to drop by 20% year on year while Australian exports are expected to increase by 80%.

Looking at the trade routes, it is difficult to ascertain the ton-mile effect on demand from these large swings, chiefly indeed materialize. Looking at the anticipated increases of imports to China and Vietnam of 29% and 40% respectively, coupled with anticipated reduction in European Union imports by around 50%, we could conclude that the overall ton-mile effect on demand will probably be negative.

However, the volumes of grain imported by China and Vietnam are relatively small by world standards, hence the inconclusiveness of the calculations. Wheat production in Australia forecast to be the world's third largest exporter of this grain, may miss the government's estimate as dry weather is expected to cut the yield potential.

Output may be 19.5 million tons, this harvest which compared with 23.7 million tons government projection. However, overall, the IGC projects the global wheat production to rise during the 2008-2009 crop season, but any increased trade will probably be upset by falling May trade as a result of minimum growth production.

Congestion now. Severe weather during early June has exacerbated the already chronic poor congestion outside New Castle, Australia. The terminal's operators, [PWCS], have now made a mandatory reduction to quarter allocations of 1 million tons for the third quarter after receiving an insufficient response to request for voluntary quota reductions, thus lowering the previously declared expectation of 91 million tons of shipments in 2008.

Vessel [queues] in the meantime rose again to reach 40 vessels as of June 16. Nevertheless, export capacity from that area is set to rise to 140 million tons per annum after 2010 from the present shipping capacity of 95 million tons. Apart from the above development, congestion has not changed much since our last conference call and putting into place role in effectively reducing supply of available tonnage in the bulk carrier trade.

Turning to the order book for bulk carrier tonnage, it has moved only slightly higher since our last conference call standing at 62% of the existing fleet. For Panamaxes the order book at the end of May this year stood at 45% of the existing fleet, while for the Capesize vessels the equivalent number is 98%.

The much analyzed and discussed [Greenfield yard problems] as well as credit related issues and not forgetting the vital ship building material constraints, will have the effect of dragging out into the future some of these orders, while a good number of them will be cancelled altogether.

No one can say with certainty the net effect on ship supply figures of all these factors. Most shipping analysts seem to agree that about 25% to 30% of the new [buildings] on order might never be delivered, while the order book should be looked at over a period of about four years from now to take into account delays in the delivery of vessels that will indeed be delivered.

Virtually no large bulk or scrapings having taken place this year. The [Panamax] fleet has grown by about 6% year on year and the Capesize tonnage by 7% year on year. With 28.9 million tons of Capesize bulk are scheduled for delivery in 2009, the Capesize fleet might increase by more than 15% if there are no scrapings or other ship withdraws. It does not include the by now infamous VLCC conversion.

Over the last nine months, Dobson estimates that 32 VLCCs have been sent for conversion. Information is difficult to get, but Dobson assume that 25 are being converted into work areas and another seven to offshore structures.

Now that the VLCC markets have recovered and earnings increased, some conversion plans are being reevaluated and compared to the [double skinned] conversion. Only time will tell what the outcome of such deliberations by owners of single hull VLCCs will be.

The picture of a Panamax new building coming on stream during 2009 is much more benign with about 11.2 million tons joining the fleet in 2009 and presenting only 10% of the existing fleet, assuming again no scrapings or other tonnage withdraws.

With the dry bulk overage fleet reaching 30% of the total by year end, that is ships over 20 years old, it is likely that the wear and tear beyond economic repair and national and international regulations will lead to the scraping of bulk area tonnage over the next few quarters. As usual, the numbers will be determined by the freight market, and more importantly the anticipation of future freight market movement.

Future supply and demand balance now. We agree with most shipping analyst predictions, including [Merks] and Dobson, that the new building delivery during the second half of 2008 has expected to be matched by strong growth and demand.

However, it is possible that the current high levels of port congestion and the continuing high demand for iron ore and other steel making raw materials, will continue to put upward pressure on rates. This appears to be the view of the paper market traders as well.

During July, FFAs for the fourth quarter were picking upwards which seems to indicate that the lower levels seen in the physical market would be short lived. This bullish sign for the markets could indicate that rates might rise in the coming quarter and stay robust well into the new year. Looking at the prices of FFA contracts out into 2009, once again prices seem to indicate significant market confidence going forward.

Another factor often missed by the popular shipping press and some shipping analysts is the available or rather lack thereof of ship repair facilities for routine vessel maintenance regardless of accidents requiring repairs and dry docking. Many classification societies, including the American Bureau of Shipping, have noted the dramatic rise in requests by owners for extensions of surveys.

They ascribe it partly to the strength of the trade market and partly to the lack of available space at ship repair facilities. It is extremely difficult according to ABS for a new building shipyard to convert into a ship repair facility. It is not uncommon for surcharges to be paid by some owners for ship repairs to jump the queue for repairs and dry docking.

This is a new problem owners have to contend with and it has to be dealt with effectively in order to avoid running expenses going higher and/or downtime increasing significantly by ships due for survey, waiting for a dry dock.

Risk factors now. We have indeed mentioned in past conferences the main risk factors affecting this relatively optimistic scenario for dry bulk shipping over the next several quarters. They range from lack of basic shipbuilding materials to the faltering demand for commodities, the flooding of the market with new buildings that nobody wants and finally the possible failure of the world financial system from which all shipping transactions depend.

Many observers compare the present banking crisis to what happened back in 1929. In his book, The Great Crash: 1929, Professor John Kenneth Galbraith, identified five weaknesses with an especially intimate bearing on the ensuing depression. One of these weaknesses was the bad banking structure.

In 1929, the weakness of banks was implicit in the large numbers of independent units. When one bank failed, the assets of others were frozen and depositors elsewhere had a silent warning to go and ask for their money. Thus one failure led to other failures and these spread with a domino effect.

When income, employment and values fell as result of the depression, bank failures could quickly become epidemic. This happened after 1929. It would be hard to imagine a better arrangement for magnifying the effects of fear.

To use a quote from the above mentioned book; "The weak destroyed not only the other weak, but weakened the strong. Needless to say, such a banking system once in the convulsion of failure had a uniquely repressive effect on the spending of its depositors and the investments of its clients."

It is encouraging to note that governments and central banks worldwide, with the exception perhaps of the European Central Bank, have taken complete measures so that the economies in Asia and the Americas, both north and south, do not fall into depression because of the credit crunch and possible bank failures.

Mr. Bernanke is very well aware of the above disaster scenario acted promptly and wisely when the banking crisis started looming in the horizon with darkening clouds gathering fast as a result of fear and speculation as well as poor risk controls on the part of many banks. This should make us hopeful that the 1929 type of banking crisis has been averted and with that serious risk for world shipping.

Ironically, the credit crunch might come to the rescue of prudent ship owners by causing the cancellation of a number of new building contracts either because yards cannot get the finance they need to build these ships or because speculative owners cannot raise debt to partly finance the acquisition of new building.

We have repeatedly stressed that our Company's strong balance sheet will help our CEO and senior management to safely navigate Diana's shipping through the stormy waters of any future downturn in the freight market so to emerge stronger and bigger than before, having taken advantage of opportunities which will have presented themselves during the down cycle. I would now like to pass you on to our CFO, Andreas Michalopoulos, who will present our second quarter and first half 2008 results. Thank you.

Thank you, Stassi, and good morning. I am pleased to be discussing today with you Diana's operational results for the second quarter and six months ended June 30th, 2008. The second quarter of 2008. Net income for the second quarter of 2008 amounted to $56.7 million and increased by $30.7 million or 118% compared to $26 million for the same period in 2007.

This increase is attributable to increased average high rate and also to the enlargement of the company's fleet, that's going from 17 vessels at the end of the second quarter of '07 to 19 at the end of the second quarter of 2008. The earnings for share of Diana Shipping amounted to $.76 for the second quarter of 2008 compared to $.41 for the same period in 2007.

Voyage and time charter revenues increased by $42.8 million or 97% to $86.8 million in the second quarter of 2008 compared to $44 million in 2007. The increase is attributable to increased average high rate and the increase in the number of vessels in the fleet after the acquisition of the Semirio in June, with Boston in November, the Salt Lake City in December, 2007 and the Norfolk in February 2008. This increase was partly offset by the decrease in revenues due to the delivery of the (inaudible) to its new owners in July of last year.

Ownership dates were 1,729 for the second quarter of 2008 compared to 1,444 in the same period of 2007 due to the enlargement of the fleet mentioned earlier. Fleet utilization was 99.9% in the second quarter of 2008 and 99.8% in the same period of 2007.

The daily time chart equivalent rate for the second quarter of '08 was $47,844 compared to $29,081 for 2007. [Voyage] expenses increased by $2 million or 100% to $4 million in 2008 compared to $2 million in 2007. The increase in voyage expenses is attributable to the increase in revenues which created high commission payments.

Operating expenses increased by $3 million or 43% to $9.9 million in 2008 compared to $6.9 million in 2007. The increase in operating expenses is attributable to the 20% increase in ownership days resulting from the delivery of the new Capesize vessels to our fleet and increases in crew wages, insurances and repairs and the exchange rate of the U.S. dollar to euro.

Daily operating expenses were $5,702 for the second quarter of 2008, compared to $4,784 in 2007, representing an increase of 19%. Depreciation and amortization of deferred charges increased by $5.6 million or 104% to $11 million for the second quarter of 2008, compared to $5.4 million for the same period in 2007. This increase is attributable to the increase in the number and size of the vessels to our fleet.

General and administrative expenses increased by $1.6 million or 70% for the second quarter of 2008 to $3.9 million compared to $2.3 million in 2007. The increase is mainly attributable to increased expenses relating to our annual meeting, company promotion and charging expenses, to accrued employees cash bonus and compensation on restricted stock which did not exist in 2007, and to the exchange rate of U.S. dollars to euro.

Interest and finance costs decreased by $0.3 million to $1.5 million for the second quarter of 2008 compared to $1.8 million for the same period in 2007. The decrease is attributable to the decrease in interest rates which resulted to reduce interest costs relating to long term debt outstanding during the period.

For the six months ended June 30th, 2008 compared to six months ended June 30th, 2007 now. Net income for the six months ended June 30th, 2008 amounted to $109.9 million and increased by $62.4 million or 131% compared to $47.5 million for the same period in 2007. The increase is attributable to improved trading conditions and the increase in the size and number of the vessels in our fleet.

Voyage and time charter revenues increased by $83.1 million or 101% to $165.6 million in the six months ended June 30th, 2008 compared to $82.5 million in 2007. The increase is attributable to increased average high rate in 2008 compared to the same period of 2007 and the enlargement of the company's fleet.

This increase was partly offset by the decrease in revenues due to the sale of the (inaudible) and its delivery to its new owners in July 2007 which derived revenues during the first six months of 2007 that did not exist in the same period of 2008.

Ownership days were 3,417 for the six months ended June 30th, 2008 compared to 2,794 in the same period of 2007. The increase in ownership days resulted from the enlargement of the fleet. Fleet utilization was 99.9% for the six months ended June 30th, 2008 and 98.9% for the same period of 2007. The daily time chart's equivalent rate for the six months ended June 30th, 2008 was $46,533 compared to $28,212 for 2007.

Voyage expenses increased by $2.9 million or 78% to $6.6 million in 2008 compared to $3.7 million in 2007. Voyage expenses mainly consist of commissions and income or loss from [bunkers] during the delivery and redelivery of the vessels.

Increasing voyage expenses is attributable to the increase in commissions which are a percentage of revenues and was partly offset by income resulted from the sale and purchase of bunkers at the delivery and redelivery of vessels amounting to $1.1 million for the second quarter of 2008 compared to $0.2 million in the same period of 2007.

Operating expenses increased by $5.7 million or 43% to $19.1 million in 2008 compared to $13.4 million in 2007. The increase in operating expenses is attributable to the increased ownership days resulting from the increase in the number and size of the vessels to our fleet and increased crew costs, insurances, repairs, stores and spares, and the exchange rate of U.S. dollar to euro.

Daily operating expenses were $5,582 in 2008 compared to $4,806 in 2007 representing an increase of 16%. Depreciation and amortization of deferred charges increased by $11 million or 108% to $21.2 million for the six months ended June 30th, 2008 compared to $10.2 million for the same period in 2007. This increase is the result of the increase in the number and size of vessels to our fleet.

General and administrative expenses during the six months ended June 30th, 2008 increased by $3.1 million or 70% to $7.5 million compared to $4.4 million in 2007. The increase is attributable to $1.6 million of accrued cash bonuses and [compensation] costs on the restricted stock during the six months ended June 30th, 2008 that did not exist in the same period of 2007, and to the exchange rate of U.S. dollars to euro.

Interest and finance costs during the six months ended June 30th, 2008 decreased by $.9 million or 23% to $3 million compared to $3.9 million in 2007. The decrease is attributable to reduced interest as a result of the significant decrease in LIBOR rates for the period, partly offset by the increased weighted average debt outstanding during the first six months of 2008 compared to the same period in 2007.

Insurance settlements for vessel un-repaired damages amounted to $0.9 million and relates to cash received in the first quarter of 2008 for un-repaired damages claimed for the motor vessel Coronis during the previous year.

Turning to dividend policy, for the second quarter of 2008, the Board of Directors have decided to declare a dividend of $.91 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 cash flow needed to support the Company's operations. Pursuant to our amended dividend policy on September 22nd, 2006, the second quarter dividends has not been increased with interest expense and is not calculated as if we were financed with equity for the outstanding debt. The qualifying debt on our balance sheet was on or about $150 million.

Thank you for your attention. We would now be pleased 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. Thanks.

Thank you, sir. We will now begin the question and answer session. (OPERATOR INSTRUCTIONS). And our first question comes from Jonathan Chappell with J.P. Morgan. Go ahead, please.

Thank you. Good afternoon, guys. My first question is you're in what most people would probably think as an enviable position as having eight Panamaxes up for renewal by the end of the first quarter of '09.

With the market sentiment that Stassi kind of laid out of a stronger fourth quarter, what kind of chartering strategy are you looking at for those eight ships and, I mean, will you do a mixture of short term and long term charters and also would you start to look to lock in today, or do you want to wait until you are closer to the renewal period?

Thank you for your question. Yes, indeed we have seven vessels which are coming open until the end of the first quarter. Now if you take the average of these seven vessels that are employing today, you will see that the average rate is $51,000 daily.

Now as we are coming closer to the delivery of those vessels it looks that for a three year period we have in front of us excess of $55,000 from first class [average]. Now you have to come a bit closer to the delivery to get 75 today for one year, so we're going to play it between the three years and one year, that is what is the intention.

Okay. On the growth side, two questions. First of all, no ships scheduled for delivery in 2009 and relative to some other public companies you've been kind of quiet on the acquisition front. Is there just not enough quality tonnage at attractive prices out there, or can you not make the returns work given current asset prices and current charter rates?

We are constantly on the look out for Capes and Panamaxes and there are ships which are accretive to the dividend for sure, so we have very much in mind to do something provided of course the capital markets are there to support us.

Okay. That's actually a good lead into my final question regarding financing. Would any growth in 2009 be reliant on capital markets, or if the right acquisition came along that the capital markets might not be open, would you adjust your debt strategy and take the financing on short term to fund an acquisition?

No, we will always be consistent to what we have said. So we are not going to get bank debt at this particular moment. We are only going to raise equity from the capital markets.

Okay. Thank you very much, Simeon.

Thank you.

Thank you. And our next question from Justin Yagerman with Wachovia. Go ahead, please.

Hey, good morning, gentlemen. How are you? My first question has to do with the timing of the Cape deliveries that you have. Right now they are scheduled for 2010, but you know at different points you've alluded to the possibility of early deliveries from the shipyards as well as we've seen at least a few examples of early deliveries take place in the market with other companies. So I was curious what you are hearing from the shipyards now in terms of the progress of those vessels and what you think the timing of those Cape deliveries will actually be?

I think, Justin, we will be in a better position in the beginning of the year to give you a more accurate testament as to when we expect delivery of those [few] ships. The yard is a very strong yard, they're very reputable and they always have been delivering ships well ahead of schedule.

But we cannot at this state tell you a more accurate delivery position than what we have on the contracts. But we are expecting the delivery to be closer -- earlier than what we have on the contract, but we will know in the beginning of the year, 2009.

And I'm right in remembering that the contract that you've [signed] on one of those Capes allows for an early delivery and actually incentivizes you on it?

Well, yes, incentive was there because the yard always was delivering the vessels earlier than scheduled. But I'm not in position to tell you at this particular moment because they have not start cutting the steel and for that particular ship they would be cutting the steel in the early 2009. And then I will be more accurate on the delivery.

Sure. And I guess piggybacking on Jon's question with the Cape delivery coming, you've still got one of them open for 2010, how far in advance of delivery of that vessel do you think you want to sign it and I guess how are you thinking about that over the next year or so?

Well, very [reluctant] because we have quite a number of people, first class people who are sniffing around and if you take into consideration the price we have paid for acquiring this tonnage today the rate is quite handsome and we are looking to see what we can get and we know what we can get from a first class charterer and we're watching it.

If I may add on delivery timing the issue here has become even more complex, by what I incurred quickly on the supply of shipbuilding materials. More and more pieces of equipment from machinery to steel are becoming a problem for even established shipyards to procure on time.

So where there might be a willingness of a shipyard to actually devote the labor to produce and deliver a ship early, there is very little they can do if they don't have the shipbuilding materials in place. So, Simeon, very correctly is answering this question cautiously.

And personally, I have some doubts that even early 2009 shipyards will have a clear picture as to the procurement timing of their shipbuilding materials. This is not a very new phenomenon, but it's beginning to become a more serious problem and we are seeing delays in deliveries by yards that have no problem in actually delivering which is financial or otherwise, but purely shipbuilding materials related. So we have to watch very carefully what our shipyard is doing. Thanks, Justin.

That's interesting. Looking at OpEx and thinking about accruing costs and the rise in other components that go into that line item, are there any contracts that would influence the timing of increases and OpEx, as we go out over the next 12 months. I guess my other question would be what kind of magnitude of OpEx, increases are you guys anticipating as we look out over the next 12 months or so?

I think that there is nothing extremely specific that would indicate heavy increase of OpEx apart from the usual increases that happen. I, for example, we know and we've said many times on this conference call that crew costs are renegotiated during the third quarter and once we negotiated it and agreed upon they are given retractably for the entire year during that quarter.

Apart from that and apart from not being to very well get the euro/dollar type rate which influences some of the crew costs and some of the spares, we have nothing that is really indicating us something different than what you see for the moment in our operating expenses.

Andreas, do you have color on the Q3 negotiations on crew costs? Is that something you can share, or some kind of magnitude of increase that you would expect in Q3? Or is that already kind of baked into this quarter's numbers? How should we be thinking about that?

It is not into this quarter's numbers and unfortunately we do not have yet color this happens during the end of the quarter, so we do not have yet color where these negotiations are going to go. But --

The actual impact would be more on Q4 and beyond?

On Q3 it will be.

Okay.

We expect it to be on Q3. If this drags along it might be on Q4, but we expect it to be on Q3.

Okay. And then finally on G&A, we saw a little pick up there and was just curious you know how you expect that to run as we go through the rest of the year.

Actually the uptake of the G&As was really due to this cash bonus accrual that we have decided to make from the first quarter. You have seen that increase if you compare the first quarter to the first quarter of last year. You also see an increase.

And this is really due to this cash compensation accrual that we have cautiously decided to have and that we didn't have last year because we didn't know if we were going to get any kind of cash compensations. So I would not expect that number also to change significantly over the next quarters. You should be where you are at the moment.

Okay. I guess, the last one, and I'll turn it over to somebody else. When you're talking about the equity markets needing to be there for an acquisition, how do you guys internally evaluate that, because your stock has been above net asset value for quite a while and I guess in terms of thinking about the health of the equity market when evaluation acquisitions, is that just one part of the criteria?

Is your fear that if you did an equity offering in this type of an environment that the stock would take a hit that could take it down towards net asset value or potentially below? Where are your fears about the equity market that have constrained you thus far from making accretive acquisitions?

I think, Justin, that there are a series of things that we look at internally when we consider either an acquisition or an offering. I think the most important one is the fact that as Mr. Palios stated, we do not want to change our strategy at this moment and therefore we do not want to be forced to change our strategy.

And you can very well imagine the scenario where we acquire a vessel accretive to our dividend per share, try to go for an equity offering, get on a very volatile market as it was during the past months and then be forced to acquire that vessel with debt. This is something we have said to our investors very openly that we're not prepared to do at this point in time.

So this is one part of the equation, I guess the most important one. And the other one is that obviously we look at the volatility of our stock and we would like to see the equity markets be a bit more stable and we feel this might happen.

And also we are looking at the yield, which is the main criteria we would like investors to focus on. So all that I think make us evaluate internally and but still being focused on continuing to grow.

Justin, just to add something regarding your question whether we are afraid of going below net asset value, this we don't think that this is something that is going to happen to our Company because every time we do an offering it is accretive to the dividend (inaudible) the usual proceeds and we have proven that in the past -- we have proven that. So basically, we are not afraid of getting a big discount to our stock rise, what we hope is an increase to our stock rise because we are improving our numbers every time we do an offering.

Well, you've been able to achieve that when you've done acquisitions, so there's no reason it won't happen in the future. Thanks guys, appreciate it.

Thank you, Justin.

Thank you. And our next question comes from Greg Lewis with Credit Suisse. Go ahead, please.

Thank you, and good afternoon. I guess just to follow up on expenses. In looking at depreciation it was up quarter-over-quarter and I'm just wondering why. The fleet didn't really change. So was there like a different accounting policy for that?

Not at all. No change in accounting policies. Just because of the Capesize vessels that one were bigger and two were more expenses and this were -- this we had more Capesize vessels in our fleet since last year --

I'm talking about Q1 of '08.

Oh, well, for Q1 of '08 and Q2 we had motor vessel Norfolk that was in full steam and in Q1 was delivered only on the 12th of February, so that's why you see increase there. Apart from that, no, there is nothing that I can -- there was no change in that. It's a standard calculation.

Okay. And then on -- and just more of a broad question. Have you been approached by either owners that can't get financing and want to sell their new building contracts or by shipyards that have contracts with owners that they're skeptical on their ability to deliver payments to potentially get any vessels?

No yet -- not yet.

But we are expecting something to come.

Okay, thank you very much. Have a great day.

Thanks.

Thank you. And our next question comes from Urs Dur with Lazard Capital Markets. Go ahead, please.

Good morning, guys. I mean good afternoon. I'd like to, if possible, revisit the growth strategy here. I do see, even though it was mentioned in the case in our next year, calendar '09, especially on the FFAs it's very firm, but it's sloping downward and has been in recent weeks.

If the equity markets are volatile here and you'd like to use them and we have a downward sloping curve, what's the optimal timing of growth, or is it just simply just going to be opportunistic and accretive on the share when you see it?

Well I think that the slope pointing south today can easily be changed and point north tomorrow.

Sure.

But --

I think people even though the order book is large a lot of it is going to be delayed, but some of it. So we do look at that. But most people are still figuring the order book is exceeding demand growth.

The paper may look south but the actual long term charters are looking better than what they were last May for example.

Oh, I can see that. That's -- the long term activity is very healthy so that's excellent for you guys. All right. Excellent. And thank you for that. And then the other thing is I am just wondering are there any adjustments on the balance sheet coming up that might effect operating cash flow in the next quarter, next years, Andreas, that we should be aware of?

Not specific adjustments in the balance sheet, no.

Okay. All right. Well thank you very much.

Thank you.

Yep, thank you.

Thank you. And our next question comes from Kevin Sterling with Stephens, Inc. Go ahead, please.

Good afternoon, all. Most of my questions have been answered, so I just have one question. It relates to the levels of iron ore at the Chinese ports and as you mentioned it's relatively high compared to historical norms. But I was wondering if we could get your sense of the inventory levels actually at steel mills. Are these inventory levels relatively low?

There is very little information on the steel mill inventories and from what we have seen, which is by no means reliable, they are relatively small compared to the port stockpiles, but we don't have any reliable figures for the steel mill stockpiling.

Okay. Well thanks for your time today.

You're welcome.

Thank you. And our next question comes from [John Mims] with BB&T Capital Markets.

Hey, good afternoon, guys. You know in the earnings in some of the recent reports we've seen some indications of rising scrap steel prices over the last quarter. Are you seeing that in your markets and do you think that will have any impact on ship scrappage rates?

Well under different circumstances it would have, but considering now the earnings of older units compared to their scrap values or any increase in the scrap value that we have witnessed over the last couple of quarters, no we haven't seen any impact yet.

The earnings of the old ships are too strong for the impact of any increase in their scrap values to change the decision of the owners to trade or scrap. It's mainly the cost of passing a survey still that are going to be the determining factor together with their anticipation about the future trends of the freight markets.

Okay, great. That makes sense. And one follow up. Looking at the Baltic spot rates, it seems to be kind of falling off in the last month. Is that softness, would you say that's mostly Olympics related, looking ahead at that, or is there something else there? Could you add some color to that?

Well it's the combination of the excess tonnage and a lack of pressed for cargos could put further pressure on rates. But we believe that come September, October we will have a difference scenario together.

All right. I appreciate the time. Great quarter.

Thank you.

Okay, thank you. And our next question comes from Brian Lester with The Abernathy Group. Go ahead, please.

Currently your equity is yielding somewhere depending upon the day between 10% to 13% which is equivalent to sort of the type of financing that you might be entering into if you used equity for purchase of new equipment.

Can you help us understand why you would consider equity more attractive than debt given the latitude or the ability that you have to increase debt on the balance sheet at rates somewhere in that, I don't know, 6% to 7.5% level?

Correct. You see we have first to understand where we stand in the shipping cycle now-a-days, as we are certainly in the upper half of the business cycle of shipping meaning that we are in a cash flow environment.

Being in a cash flow environment with an such expensive assets the only way you can purchase them is by using equity and then rewarding your shareholders by giving back as a dividend the nice cash flow that you have.

If you were to purchase a vessel today, let's say at was $150 million and get the debt amount of the 50% that's $75 million, you are entering into a different risk profile as a company. It is not difficult or is not something that we have not seen in the past of $150 million asset going down to $50 million and then you are financed 120% on that asset, meaning two things.

First of all, you would have an issue of survival in a bad market and secondly, equally important, you will have missed a lot of opportunities of buying lots of vessels at $50 million each. This is the policy of Diana in the last years.

We have consider the benefit of being strong in a full cycle as more important than the difference between of the cost between debt and equity. We think that the difference between those two is justified because of the opportunity that will arrive one time in the future.

Thank you. Either way though, it seems as if you are taking on the exposure of the new equipment whether you are using debt or equity and currently the market is forcing you to pay something in the area of 10% to 12% for using the equities markets versus the debt market requesting something in that 7% give 1% one way or the other market.

So it just seems like that the road to less finance charges would certainly be the debt market. I understand your thesis on being above the midpoint in the shipping cycle, and it's valid, but given the -- you know, given the financial situation of the world now it seems like some of the supply that we thought were sort of scheduled to come on may be constrained and I hope you'll just reconsider all of those options for the shareholders' interest. At some point, we shareholders I'm sure all appreciate your protecting us, but using financing that's half as expensive might be thoughtful at some point.

You're forgetting your way of thinking something by creating at a premium to net asset value, you understand that our currency every time we issue equity it's much stronger than cash, meaning that we are not paying the full price of the asset that we are buying. This is something that you should put in your calculation when you are referring to a difference between debt and equity costs. That's one issue.

Secondly, we -- provided we are buying [modern] assets, the difference of the asset value today and when the market drops is irrelevant because we are not going to be forced to sell it. Though in a debt situation it's not going to be irrelevant because you're going to have some closes in your debt financing return [receipts] that the banks will takeover at that time.

And this is very important. So we have on the one side the strong currency by [raising up] the premium to net us a value, therefore we do not pay the full price for the vessel in effect. And secondly, we do not have to worry about net asset values and values [of our] vessels.

One further question. The equipment that you're looking at, is the equipment that you're focusing on likely to be from cancelled options, meaning new builds that would have an earlier delivery than normal? Or is it more focused on equipment that is in use?

Our policy and our model states in a sense that we put the money that we raise at work as soon as possible, very quickly in order for not being diluted for the period that we do not have the equipment as you say. So basically we prefer assets that are in the water or that are just about to enter the water in order to put them at work [accretively] to our dividend per share.

How old will you go with equipment that's in the water?

We want to buy something that [if] it is below our average age of today which is below four years. So basically, we have to keep the modernity of our fleet.

Thank you for your questions. Thanks.

Thank you. And ladies and gentlemen, that concludes our Q&A for today. I would now like to turn the conference back over to management for any closing statements.

We are proud of the strong results that our Company has produced for the first half of 2008 and we look forward to sustain our performance as the year progresses. As always, we thank you for your interest in and support of Diana Shipping, Inc. Thank you.

Ladies and gentlemen, this concludes the Diana Shipping, Inc. Second Quarter 2008 Earnings Conference Call. You may access the replay system at any time by dialing 800-40-6-7325 or 303-590-3030 and entering the access code of 3896305. Thank you for your participation, and you may now disconnect.