Diana Shipping Inc (DSX) 2009 Q2 法說會逐字稿

Good morning, my name is Antonielle and I will be your conference operator today. At this time I would like to welcome everyone to the Diana Shipping Inc. Q2 conference call and webcast. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Ed Nebb, Investor Relations Adviser to Diana Shipping. Please go ahead, sir.

Thank you, Antonielle. And welcome to all of you. Thank you for joining us for the Diana Shipping Inc. 2009 second quarter conference call.

The members of the Diana Shipping management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastassis Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the safe-harbor notice which you can see in its entirety in the release we issued earlier today.

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

And with that let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping. Go ahead, sir.

Thank you, Ed.

Good morning, and thank you for joining us today. I am pleased to report that in the second quarter of 2009, Diana Shipping maintained a track record of consistent strong performance despite the uncertainties and challenges of a global economic downturn.

Our results for the period were distinguished by solid profitability, a growing and substantial cash position, and a balance sheet that is one of the least leveraged of publicly traded companies in the dry bulk sector.

We delivered these achievements by continuing to pursue our time-tested strategies, managing our fleet for maximum revenue visibility, pursuing relationships with high-quality charterers, and maintaining a conservative approach with respect to funding our business.

Now, I would like to point out some of the highlights of the 2009 second quarter. Then the members of our senior management team will review our market outlook, and discuss the financial results in greater detail.

Net income was $30.4 million with voyage and time charter revenues of $59.8 million for the second quarter of 2009. This compared to net income of $56.7 million and voyage and time charter revenues of $86.8 million for the same period a year ago.

Diana has continued to engage in profitable charters with top-quality charterers. During the second quarter, we chartered the Oceanis with Bunge S.A., and just last week we announced a charter for the Naias with J. Aron, the principal global trading subsidiary of Goldman Sachs.

Following these two recent charter agreements, we now have 100% of the fleet employed through the end of 2009. Our charters remain well-balanced with delivery dates into our existing fleet ranging from 2010 to 2015. This provides both current stability and future upside opportunity.

We achieved another daily time charter equivalent rate of $33,073 for the second quarter, which covers daily vessel operating expenses by a factor of approximately five-and-a-half times.

During the second quarter, we further strengthened Diana's balance sheet. Our equity offering of 6 million shares of common stock in May raised approximately $100 million. As a result of our earnings and the equity offering, our cash position increased to nearly $218 million at June 30, 2009. Total debt remained relatively low at $262 million at the end of the second quarter of 2009.

As we view the overall dry bulk marketplace, we continue to believe that Diana is well-positioned to manage through the current difficult period and to capitalize upon future opportunities. In particular, we believe that the challenges faced by more highly leveraged ship owners as well as yards and lenders will allow for the acquisition of vessels on attractive terms.

As we have said in the past, we would be attentive to such opportunities to expand our fleet and enhance our cash generation potential for the benefit of our shareholders.

At the same time, we're taking a cautious approach as we believe that it is too soon to declare a recovery in the dry bulk market. We intend to adopt a disciplined approach by deploying our resources to acquire vessels gradually as we invest in future opportunities.

We continue to face the future with confidence. The Company's solid profitability, strong cash resources, and conservative capital structure will enable us to build greater shareholders' value in the years ahead.

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

Thank you, Simeon, and a warm welcome to all who have joined us on this second quarter '09 conference call.

Second quarter of this year was certainly one full of exciting developments as far as world trade was concerned. Keeping our observations within the dry bulk shipping industry, we can start by saying that we have witnessed a dramatic rise in the Baltic Capesize Index, the BCI, from the region of 2,039 on April 1st, to a high of 7,122 points on July 1st, an increase of some 349%.

Correspondingly the Baltic Panamax Index, or BPI, rose from 1,293 points to 2,984 points on July 1st, an increase of 230%.

Looking at the latest forecast for the world economy published by the World Bank, we believe that the global economy excluding China will shrink by about 3% this year, while China is estimated to grow by about 7.2% amid signs that the economy is doing better than expected with the help of the generous stimulus package announced a few months ago by the Chinese government.

In trying to find an answer to the all-important question of whether or not the world industrial output is about to rebound, we have to look at Asia and the rest of the world separately. Excluding China, Korea, and Japan, world industrial output is still contracting, even though at a slower rate than earlier this year. However, as mentioned by Clarksons, in Asia things look much brighter.

China's industrial production jumped 10.7% in June, and in May, steel output reached 46 million metric tonnes, equal to the June 2008 record. However, in June 2009, world steel production excluding China was down 30% compared to a year ago, and this makes it even more difficult to decide if the Chinese output numbers are sustainable or not.

There is no doubt that areas of strong steel demand in China are construction, automobiles, and ironically enough, shipbuilding. For as long as the Chinese government continues to support the economy, we anticipate final demand to remain firm in the short and medium term, and hence the outlook for iron ore imports is reasonably positive.

However, there are at least two negative factors in relation to Chinese imports of iron ore, at least in the short-term. Firstly, iron ore inventories are still at near record levels, about 75 million metric tonnes, meaning that the imports will have to be supported by continued strong demand from steel mills going forward.

Secondly, iron ore prices have reached levels of around $100 per metric tonne landed in China, where more Chinese iron ore producers are able to compete against imported iron ore in spite of the inferior quality of their product.

For example, in June Chinese iron ore production was up 27% month-on-month to reach an all-time record of 83 million tonnes. This trend is likely to continue with domestic iron ore producers gaining more market share in the second half of 2009 compared to the early part of the year. Nevertheless, preliminary Chinese customs data for June indicate another very strong month for iron ore imports with 55.3 million metric tonnes entering the country.

If confirmed, this would represent the second highest monthly total ever, just short of April's record 57 million metric tonnes. As a result, preliminary first half 2009 iron ore estimates are at 297.2 million metric tonnes, up 29% on the same period last year.

This lifted bulk carrier demand, particularly for Capesize bulkers. In addition, port congestion also ensued, restricting the available supply of tonnage.

It is interesting to note that as of a few weeks ago, about 16% of the world bulk carrier fleet, or all deliveries since the beginning of 2007, were waiting for berths of China, Brazil, and Australia.

To make things even more favorable for the owners of Capes, iron ore vessel bookings from Brazil to China jumped to a record in July as Australia suspended spot sales of iron ore to China following the detentions of Rio Tinto's top sales officials in China.

Finally, the icing on the cake came in the form of a strike at Chennai port in southern India. This strike, until it was resolved a few days ago, had led to a complete halt of iron ore handling operations since the 29th of June. The port handles about 12% of India's total iron ore exports, which exceeded 100 million tonnes last year.

In view of all the above-mentioned developments, it is remarkable that spot daily time charter rates for Capes did not exceed their earlier record set in June 2008, and peaked at around $95,000 per day.

The answer to this might become more obvious as we discuss the supply of tonnage later on. Before leaving the subject of iron ore trade to look at other bulk commodities, it is worth noting that according to Clarksons, total seaborne iron ore trade is expected to shrink in 2009 by 2% to 824 million metric tonnes compared to last year.

Turning to coking, or metallurgical coal, the most noteworthy event of last quarter has been the increase of Australian exports to China, and the associated port congestion both of which had expected to increase coking coal markets for the rest of this year.

On the other hand, Chinese coking coal exports are projected to reach a mere 2.1 million tonnes, which if realized will make China a net importer of about 16 million metric tonnes for 2009. Clarksons expect the overall shipments of coking coal worldwide to reach 201 million metric tonnes, which will represent a reduction of 8% compared to last year.

The seaborne trade of thermal coal is indeed foreseen to be much more steady for 2009, with an expected reduction of just 1% at 570 million metric tonnes compared to 2008. This overall figure conceals some dramatic changes such as China's anticipated increase by 82% in imports, and a reduction of 13% compared to last year of imports to the United States.

European and Japanese electricity demand is expected to fall this year reflecting the effects of the global economic downturn. This will be largely offset by increases of imports to China as mentioned above, as well as to India and South Korea.

As regards the seaborne grain cargoes of all kinds, these are expected to reach about 221 million tonnes, 6% down compared to 2008. Here, the only noteworthy events of the quarter were the good harvests in North Africa, Turkey, and Iran, dictating lower import requirements. Strong imports however are expected to be going to Russia, and the rest of the CIS.

Now it is time to look at the very important but hard-to-forecast supply of tonnage for the rest of the 2009 year, and going out into 2013. Before we do that, we will go through a relatively easy housekeeping exercise and look at congestion, which has, as we know, helped artificially reduce the supply of available tonnage.

According to Maersk Broker, the number of Capesize bulkers waiting to berth at Australia's coal-load ports and China's iron ore discharge ports appears to have declined recently.

During the last week of July, the Australian coal port loading queues have dropped to 18 ships from more than 30. Meanwhile, there were 65 Capes waiting to berth in China, compared to a peak of 88 in the middle of June. This trend is expected to continue as trade returns to a more normal pace, and therefore more ships will enter the market for chartering over the coming months.

As of June this year, the order book for all types of bulk carriers over 10,000 metric tonnes deadweight stood at 285.5 million tonnes deadweight, or 66% of the existing fleet.

Deliveries go out to 2013 with the highest annual deliveries, 109.6 million metric tonnes, scheduled for 2010. From the new building order book total, 146.9 million metric tonnes or 96% of the existing Capesize fleet are on order. And 58.9 million metric tonnes or 50% of the existing Panamax fleet are scheduled for delivery over the next three years.

Statistics as to the growth of the trading fleets of each category of bulker vary depending on the assumptions made as to absolute cancellations that is actual as opposed to ships which are cancelled and then resold by the shipyards, delayed deliveries, and scrapping.

According to the assumptions made by Clarksons, the Panamax fleet at the end of 2009 will stand at 121.2 million tonnes deadweight, higher by only 4% compared to the end of 2008.

The corresponding figures for Capes are 171.4 million tonnes deadweight or 10% higher than at the beginning of the year. It is interesting to note that so far this year only 7 Capes have been demolished. And unfortunately with daily rates being where there are today, there is no reason to assume that many more will be heading for the scrap-yard between now and the end of the year.

On the Panamax front, 24 ships of about 1.6 million tonnes deadweight were scrapped so far this year. And here again there are no reasons to expect that unless daily rates weaken considerably from their present levels between now and the end of the year, we will see many more ships being scrapped during the second half of 2009.

It is quite obvious that in order to make some sort of informed guess on fleet size going forward, we have to take a view on new building order cancellations. It was recently reported by Lloyd's List that according to shipping consultants Drewry's about 21% of the dry bulk order book is currently at risk of cancellation. Drewry's also predict that over the next two years, the cancellations will increase across all sectors of shipping together with delays to deliveries.

Still on the subject of cancellations, the Scandinavian [Classification] Society, VNV, recently announced that the number of confirmed cancellations to date is still a relatively small proportion of the order book, just over 10% in the case of bulk carriers.

VNV confirmed what has been suspected by many observers of the ship building industry to date, i.e. that a number of ships ordered at Chinese yards and cancelled by their owners were still being built, but had been reassigned to Chinese owners or the yards were continuing to seek new buyers.

Ignoring the above mentioned complications, Maersk Broker calculates about 280 or so vessels have been cancelled from the order book representing about 25 million metric tonnes, 60% of which are from Chinese yards. This is hardly surprising if we take into account that over 46% of the dry bulk new building order book is held by Chinese yards.

Another interesting aspect comes from shipyard analysts Worldyards, according to whom an increasing number of shipbuilders are preparing to become ship owners. Surely that cannot be good news for pure ship owners or the shipping industry at large.

This trend started in Japan in the 1980s and has been around ever since. However, during the past shipping boom, this practice became entrenched as a business model for shipbuilding.

An increasing number of shipbuilders were building ships for their own account, sometimes disguised as a third-party corporate client, for a variety of reasons. In China, many private yards were building what can be called commodity ships on the speculation that a foreign owner would eventually emerge to buy the new buildings at resales at a profit.

Some shipyards just did it for no other reason than because they have too much money to play with. When new building demand died off, we saw many medium- to large-sized Chinese shipyards forming ship-owning companies to take over slots abandoned by ship owners or slots which had simply been reserved in order to maintain production flow.

We agree with Worldyards that shipbuilders becoming ship owners is an absolutely terrible idea. It simply means that whatever is not wanted by the market, to the extent that ship owners represent that market, will be built, completed, and delivered.

Actions of ship owners and shipyards thus far are not helping to shift the supply-demand balance in the right direction in any meaningful way. Owners are trying to convince yards to let them off the hook without compensation, and shipyards, supported by government liquidity, form ship-owning companies to operate ships either contracted for their own accounts or abandoned by owners, who did not pay as per the shipbuilding contracts.

The only way out of such a mess is for owners, yards, and their respective bankers to try and reschedule the order book as far as practically possible without the interference of third parties and particularly government agencies.

If calculating a canceled order is difficult, what about calculating the number of vessels that will not be delivered by newly established and greenfield yards due to lack of credit for owners and shipbuilders alike? Here we have taken a rather simplistic view and have decided to assume in our model that none of these vessels will be delivered.

Approximately 30% of the world dry bulk order book is with such yards, with an emphasis on smaller bulkers rather than the larger ones. Nevertheless, we still assume that none of these vessels will ever be built.

Where does all this leave us as regards the short- and medium-term balance between supply and demand? There are two prevailing views, as usual with opposite conclusions, of which we favor the second as being more realistic in its assumptions.

The first runs along the lines that the combined effect of all the vessels with significant new building order cancellations, and the delay in new building deliveries, will result in modest dry bulk fleet growth during 2009 and 2010.

The main assumptions here are that only 50% of the new building order book for 2009 and 40% of the order book for 2010 will be delivered due to various issues the credit crisis has created, most importantly the inability of ship owners to obtain financing and their desire to preserve liquidity.

A further assumption about scrapping has been made as between 5% and 5.5% of the world dry bulk fleet per year for 2009 and 2010 due to the aging of the fleet. These assumptions leads to an estimated increase of the world dry bulk fleet of 4.6% in 2009 and 6.2% in 2010, which is certainly more manageable than other estimates even though the overall figures disguise a heavy weighting towards the larger ships simply because the order book is similarly weighted in their favor.

We tend to favor the short-term forecast of Howe Robinson, who after applying appropriate multipliers for each type of bulk carrier, arrived at an additional cargo carrying capacity by the end of 2009 or early 2010 of about 529 million metric tonnes per annum.

On a net basis, this may vary between 322 million metric tonnes and 147 million metric tonnes of additional capacity per annum, depending of course on scrappings and other factors influencing these figures.

However, the estimated changes in volumes of bulk commodity shipments in 2009 show declines across the board compared to 2008, with the exception of the Chinese coastal trade, which is estimated to rise by about 5% this year.

It's our view that to try and resolve a severe fleet oversupply situation waiting to happen, ship owners will have to think seriously about scrapping not only their very old ships, but also ships which some might not consider that old.

This is particularly relevant in the Capesize sector where only [16%] of the existing fleet is over 20 years old, and 32% of the fleet is less than 4 years old.

Unfortunately, the current trend is in the opposite direction due to the good earnings of these ships. Even though in May this year 1.2 million tonnes deadweight of bulkers were scrapped; in June, a mere 269,000 metric tonnes deadweight of bulk carriers were sold to scrap-yards.

During the first three weeks of July 2009, 12 Capesize bulkers have entered the market, and since the beginning of the year 49 such ships have joined the fleet.

The trend is set to accelerate even though we agree with the view held by many shipping analysts that we could see approximately 15% to 20% of the 2009 order book delayed until 2010.

The recent rise in the Baltic Dry Index or BDI has undoubtedly led more ship owners to decide to go ahead with the construction and delivery of ships scheduled for completion during the next 12 months. This should lead to the acceleration of new building deliveries.

Looking beyond the second half of 2010, we agree with the view expressed by some shipping analysts that even four or five years of between 40 million tonnes and 45 million tonnes deadweight of actual deliveries per annum against a scheduled 71.2 million tonnes deadweight this year and 110.3 million tonnes in 2010, should be sufficient to place a lid on any upside in market utilization, and reduce vessels' earnings towards breakeven, with corresponding drops in asset values.

This view assumes dry bulk demand growth of about 4.8% per annum over the next five years, with heavier weighting towards the end of the period with fleet growth of at least 5.5% net per annum, more heavily weighted towards the beginning of the period.

To many listeners' disappointment, this is our view about the likely future trend of values and earnings of bulk carriers, especially the larger categories of ships.

As mentioned earlier by our Chairman and CEO, part of the core of our business strategy is to be ready to take advantage of [asset] acquisitions as they present themselves without necessarily setting specific price targets, maintaining our strict and high technical standards for the ships which we will be acquiring over the next few quarters.

If we plan our acquisitions carefully, and with some element of good luck, we will succeed in coming out of the downturn with a strong balance sheet, and a larger fleet, which will generate high cash flow, earnings, and eventually healthy dividends for the benefit of all our shareholders.

I will pass you now to our CFO, Andreas Michalopoulos, who will provide you with the financial highlights of our second quarter and first half 2009 financials. Thank you for your attention.

Thank you, Stassi. And good morning. I am pleased to discuss today with you Diana's operational results for the second quarter and six months ended June 30, 2009.

Second quarter of 2009; net income for the second quarter of 2009 amounted to $30.4 million, and the earnings per share of Diana's shipping amounted to $0.39.

Voyage and time charter revenues decreased to $59.8 million compared to $86.8 million in 2008. The decrease is attributable to decreased average hire rates and increased off-hire days.

Ownership days were 1,729 for the second quarter of 2009, end-2008, but operating days were 1,700 in the second quarter 2009 compared to 1,728 in 2008.

Fleet utilization was 99.1% in the second quarter of '09, and 99.9% in 2009 -- in 2008. The daily time charter equivalent rate for the second quarter of 2009 was $33,073 compared to $47,844 for 2008. Voyage expenses were $3.1 million for the quarter.

Operating expenses amounted to $10.3 million, an increase by 4%. The increase is attributable to an increase in repairs which was partly offset by decreased insurance costs. Daily operating expenses were $5,962 for the second quarter of 2009 compared to $5,702 in 2008, representing an increase of 5%.

Depreciation and amortization of deferred charges amounted to $11 million for the second quarter of 2009. General and administrative expenses increased by $0.3 million or 8% for the second quarter of 2009 to $4.2 million compared to $3.9 million in 2008. The increase is mainly attributable to increased compensation cost on restricted stock

Interest and finance costs decreased to $0.9 million for the quarter compared to $1.5 million in 2008 due to lower average interest rates for the six months ended June 30, 2009, now compared to the six months ended June 30t, 2008.

Net income for the six months ended June 30, 2009, amounted to $65.2 million, and the earnings per share to $0.86.

Voyage and time charter revenues decreased to $122.5 million in the six months ended June 30, 2009 compared to $165.6 million in 2008. The decrease is attributable to decreased average hire rates and increased off-hire days in 2009 compared to the same period in 2008.

Ownership days were 3,439 for the six months ended June 30, 2009, compared to 3,417 in the same period of 2008. (Technical difficulty) 3,370 in 2009 compared to 3,412 in 2008. The increase in ownership days resulted from the acquisition of the Norfolk in February 2008, and the decrease in operating days was due to increased off-hire and dry dock days.

Fleet utilization was 98.6% for the six months ended June 30, 2009 and 99.9% for the same period of 2008. The daily time charter equivalent rates for the six months ended June 30, 2009 was $33,983 compared to $46,533 for 2008.

Voyage expenses amounted to $6.3 million. Operating expenses amounted to $19.7 million, an increase by 3% compared to the same period in 2008. The increase is attributable to increased repairs and was partly offset by reduced insurance costs.

Daily operating expenses were $5,743 in 2009 compared to $5,582 in 2008, representing an increase of 3%. Depreciation and amortization of deferred charges for 2009 amounted to $21.8 million. And general and administrative expenses in 2009 increased by $0.8 million, or 11%, to $8.3 million compared to $7.5 million in 2008. The increase is attributable to increased compensation costs on restricted stock awards.

Interest and finance costs in 2009 decreased to $1.7 million compared to $3 million in '08 due to decreased average interest rates. In the second quarter of 2009 we entered into a zero-cost-collar agreement, the valuation of which as of June 30, 2009, provided losses of $108 million (sic - see Press Release), and did not affect the EPS amounts of either the quarter or the six months ended June 30, 2009.

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.

(Operator Instructions) Your first question comes from the line of Doug Mavrinac.

Good afternoon, everyone.

Hi there.

Hi, Doug.

Hi. I just had a handful of follow-up questions for you guys. First, from a demand perspective, you guys have been one of the most consistent employers of your vessels over the course of the last several months.

Obviously charter rates have improved over that time period, but my question is more of has the level of demand by charterers improved, or is it just the same guys out there willing to pay a little bit more given the improvement in rates?

So my question is more of do you see more counterparties out there willing to put vessels away for a longer period of time now than you did, say, maybe a few months ago?

Well, effectively there has been a brisk interest for chartering ships, backed by the future forward contracts of course, which always play a role as to the number of charterers that would like to take a view as regards six, nine, or twelve months forward charters.

And all in all, we can say that there has been a healthy demand, even though it has not been explosive in the sense that we've seen exceptional demand which we haven't seen earlier on.

The problem as usual is to decide what is going to happen over the next couple of quarters. And there again, we will have to take a view on where the future forward agreement contracts are going to be heading, and at the same time where the views of the larger charterers and shippers will go from here on, looking at the supply-demand situation.

Okay, great, thank you, Stassi. And then the second question; a lot of people have -- it's been well written about, the order book and slippage and delays and whatnot. As it relates to Diana Shipping and the two Capes that you guys are taking delivery of, one later this year, and one next year, can you just provide an update as to the status of those, whether you expect to receive those on time and just overall what the status of those two are?

Well, as regards to Hull number 1138, the vessel will be delivered to the owners on the 28th of October of this year, which is on schedule.

And the other vessel, the 1107, will be delivered within February 2010, which again is on schedule. And we do not foresee any delays on those deliveries which are scheduled as of today.

Great. Thank you, Mr. Palios. And just one final question before I turn it over to others. You guys are in a very obviously enviable position with the amount of cash that you have built up on the balance sheet over the course of the last several months.

My question is given that war chest that you've essentially built up, are you guys seeing any acquisition opportunities yet that are of interest?

And if not at what level -- do you have a level in mind of cash so that you say okay, well, yes, we're comfortable maybe reinstituting the dividend? Or is it more of just you have to balance what you expect to see with your dividend decisions?

We are starting to note some movement across the shipyards. And the key development over the last few months is the aggressive pricing of Capes by a major Korean yard, which is now starting to infiltrate the decision-making of a broader spectrum of yards.

Now, as regards to the pricing I'd like to answer that by stating that our strategy is to take advantage of asset acquisitions without setting specific price targets, maintaining our high technical standards, and age profile for the ships which we will be acquiring over the next few quarters.

Now, you also asked something about the divided. As we have said in the past, as long as we are in the part of the shipping sinusoidal cycle where we consider line opportunities for vessels will arise, we do not plan to reinstate the dividend.

We are convinced that investing in ship asset is a much better use of our free cash flows than paying a dividend. However, we strongly believe that when we face [pinches], Diana will come out of which stronger and with very attractive dividends.

Perfect, very helpful. Thank you.

(Multiple speakers) -- the three questions.

That was it. Thank you. It's very helpful.

Your next question comes from the line of Gregory Lewis.

Yes. Thank you and good afternoon.

Hello, Greg.

Hi.

Just a follow-up on one of your comments, Stassi. You mentioned that shipyards are going through the process of building and owning ships for the [treatment] of commodities.

At this point have you had -- what types of discussions, if any, have you had with shipyards about taking these assets from them or is this something that's going to take a little bit longer to play out?

We haven't had any specific discussions with yards to buy ships that are owned by them. What we do know is that there is a trend developing rather fast which is the second phase of this shipbuilder ship-owning process which is effectively the yards taking over abandoned slots with the help and finance from major Chinese yards. But they have not approached us yet with a view of selling these or any of those.

Okay, great. And then just a follow-up on the potential acquisition of vessels. If we look at the track record over the last couple of years, specifically when you were buying Capes, typically those, you would buy a Cape then, it would come pretty much attached with like a long-term time charter.

Being that there's really not a lot of depth to the time charter market, will that prevent you from going out and acquiring Capes, or how do you think about that?

Well, I think we have to be very explicit. When we are on the upper cycle of this sinusoidal curve, I think we have to use money from the capital markets. And it doesn't really matter as long as we charter the vessel with a first-class charterer, and provided of course the vessel is new.

Now, when you are on the lower cycle of this sinusoidal curve, then of course you have to use bank debt. And the bank debt is much, much cheaper than the dividend you are paying. So I think this is the key element behind buying high-priced vessels and low-priced vessels.

Greg, this is Ioannis. Regarding the chartering of those vessels that you asked, of course Diana is prepared to buy ship assets without time charter attached for a long period, because it's going to be an asset play rather than a cash flow play that it used to be in the past.

We are not prevented for buying assets because we don't see long-term charters for them. We will buy as long as we feel that this is the right time to start buying vessels, regardless of the charter attached.

Okay, great. And then my last question is, clearly China has been strong over the last few months, everybody is going with [direct] iron ore imports. But have you seen a pick up in cargoes through any other region or country?

Well, there are sporadically volumes increasing, yes, from South America to Europe, and as I mentioned earlier we have grain cargoes moving to Russia.

But we haven't seen a major trend developing where we can identify them and say these will play a pivotal role in the future course of the freight markets.

Nothing to compare with the iron ore, two types of coal that we have mentioned, and added to that the Chinese coastal trade. The Chinese coastal trade as I mentioned has been increasing in volume. It has exceeded 600 million tonnes a year now, and an increase of 5% of course is significant.

We have obviously to keep in mind that most of this trade is carried in Handysize and Handymax ships and the Panamaxes are beginning now to be involved in the Chinese coastal trade and very few Capes.

Okay. Thank you very much for your time, gentlemen.

You're welcome.

Your next question comes from the line of Urs Dur.

Good morning guys, or good afternoon.

Good afternoon.

Hello.

Good morning.

Good afternoon. Just in regards to Stassi's comments about the market and indicating that gradual acquisitions are possible, but then again the outlook for the order book you're more cautious, where do you feel asset values are going to go from here?

They've been fairly stable for a few -- a number of months now although very illiquid. Can you comment on both things? Can you comment on the liquidity of opportunities today, as well as where you think asset values are going to go? Maybe not with numbers, but maybe percentage points down from here.

For the liquidity in asset trades, it's going to increase, unfortunately as the prices fall, because the prices are not going to drop unless earnings drop.

When earnings drop, pessimism will set in and some owners who have been holding out in the hopes of getting either a profitable long-term charter, or a better price for their ships are going to effectively start offering the ships for sale before deals happen that will mark down the value of their assets.

So we expect, as I said, liquidity to increase when prices drop, but we are not sure when this will happen. That's why we are waiting patiently, and we are going to stage our acquisitions over the next few quarters because we don't know exactly the timing when asset values are going to bottom out.

But do you feel -- does that -- should I take that as a implication that you would look at it over the next few quarters as a high probability of acquiring some ships and that identifying where you feel asset values may well bottom?

Yes, we intend to start buying ships within the next couple of quarters and continue for a few quarters beyond that until we feel that the asset values have bottomed out.

Great, fantastic. Really everything else has been asked on my behalf, so thank you very much.

You're welcome.

Your next question comes from the line of Scott Burk.

Hi, good afternoon, guys.

Good afternoon.

Hi, Scott.

I had a question about just the charter -- chartering policy going forward. You've got the -- essentially the whole fleet locked up for the rest of 2009 and 50% covered for next year; when do you start looking for new charters for the vessels that are rolling off in the first part of 2010?

Hi, Scott. As we have said in the past, the way we charter our vessel has do with the portfolio process to our chartering. We charter the vessel periodically, meaning that we want to have a vessel to fix every now and then and position that vessel to -- afterwards for delivery at a point where we do not have a lot of other vessels opening. So you should expect us to start fixing the 2010 -- the vessels that they open in 2010, close to those dates.

Okay, what I expected. One of the follow-up was the acquisitions. So it sounds like you might actually be ready to pull the trigger on some vessels, some vessel purchases near term. What -- are you seeing some deals that are starting to look attractive, or what's the impetus to actually start looking at point charter?

Well, essentially, we are being approached by several brokers with opportunities and we are watching the prices. Now, the prices have been going, as far as we are concerned, of course in our acquisition policy, the wrong way during the last few weeks which effectively has pushed back the starting point of the acquisitions.

Because even though we haven't set specific price levels for the acquisitions, we do not wish to buy into a market where values are rising, when our views are, as I expressed them earlier on, rather cautious, if not pessimistic, about earnings and valuations.

So essentially when we feel relatively comfortable that values are at a point, where compared to maybe historical levels, are appropriate for Diana to start the acquisition program, then we will do that. And we -- as you guessed, we are not certain that this will be towards the end of the year.

Okay. And so it sounds like you're going to average in too the vessel prices at the time. So that implies that you'll just be buying single vessels or are you looking for fleets, two to three, four, or five vessels at a time when you do start doing purchases?

I think it's better to go vessel by vessel because by buying vessel by vessel, you don't buy ships in one specific time with a lot of exposure. I think it's better to even out your purchases. So one by one maybe is better, or two at a time.

Okay, thanks, guys.

You're welcome.

Your next question comes from the line of Anders Rosenlund.

Thank you. Would you consider buying assets in other asset classes than dry bulk vessels?

Would you repeat the question, please? We don't --?

Will you consider buying assets in other asset classes than dry bulk vessels?

We are of course watching the market in every segment, and particularly the containers, because that is an area which has been hit more than the dry cargo, but we would like to keep our philosophy of Panamaxes and Capes intact for the time being.

Okay, but you won't rule it out?

No. Not completely, no, because it's asset [playing].

For containers, of course, because as we have stated in various prospectuses what we look at is dry bulk market and container market. We are not considering the wet tanker market or anything of the sort.

Anders, let me say again something that we have said in the past. If we were to do something in the containers market, that would be for a very short period, and most probably there will a spin-off into a different company because we don't feel that shareholders like the idea of a diversified fleet in a company.

So if we were to do something in the containers, it was going to be through Diana Shipping Inc, but very quickly spinned off to a different entity.

Brilliant. Thank you.

You're welcome.

And your next question comes from the line of Rob MacKenzie.

Good morning guys. Sorry, good afternoon.

Hello.

Most of my questions have been answered so far, but I just wanted to follow up on -- again on the acquisition front.

Where are you seeing the most attractive pricing? Is it Panas or Capes and is that -- how do you weigh the price of the vessel here being an asset play versus the potential contracts that are out in the market right now?

Well, the asset play is a -- it depends directly on the possibilities that we ascribe on a ship which we have acquired, overseeing its value at relatively shorter period of time or the medium-term to go up. So at this point we don't know when values will go up because we don't know when they are going to bottom out first of all.

So we are very, very far behind in this process, unfortunately, at least a few quarters. So when we see prices low compared to historical values, we can be fairly certain that when we buy, we're going to buy a ship for the asset and value appreciation.

If we buy at a very high value we buy for the cash flow as Ioannis Zafirakis explained earlier. So now, knowing that we are not for sure at the upper part of the shipping cycle, we are at the lower part of the shipping cycle, any acquisition by definition is going to be asset play-oriented, which means that we will avoid, for sure, chartering the ship for long periods of time.

And what I was asking was, are Panas or Capes more attractively priced from an asset standpoint right now?

You understand that in shipping, market prevails. With such a fragmented market is that what you pay is what you get. The price of the Panamax and the price of the Capes today are highly correlated to the rates that you can charter them at.

Yes.

So basically there is no such a thing as a better-priced asset, because each one demands a different rate. What you pay is what you get.

What Stassi was saying earlier is that we don't feel that the time-wise, it's still the time to start buying assets. If I wanted to be more blunt about it, I would have said to you that it doesn't really matter what you buy when you buy cheap assets, what you buy meaning either Panamaxes or Capes.

Sure.

Because everything is included in the price that you pay at that time. Of course, technically, the vessel has to be of some standards, but the asset appreciation and the return that you are going to have, the IRR that you're going to produce on those vessels is going to be pretty similar.

Okay.

Of course, the volatility in the rates and the price -- the bigger the vessel is, the more volatile it is.

Right, right. And you seem to indicate no interest in Handys. Is that correct?

Not really. The only -- what we have said in the past is that whatever we do here in Diana, we have to be focused and we need a specific size to do it.

We wouldn't be interested in buying one Handymax vessel, but we need to have a fleet and most probably a homogenous fleet of Handymax vessels in order to do something there.

Right. Thank you.

You are welcome.

(Operator Instructions) Your next question comes from the line of George Pickral.

Hi, thanks guys. Stassi, I may have heard you wrong, but towards the end of your prepared comments, did you say you thought that if all this new capacity comes online, that used older vessels would get breakeven charters?

No, we're saying that the earnings of ships were going to quickly drop to breakeven levels, or even below that, which will at the same time cause their values to drop as well.

Okay, okay.

Because right now we are way above breakeven levels.

Right, right. Well, along those lines then, what do think the disconnect would be at least in terms of a daily charter rate between -- or what is the disconnect today and what will it be in a few years between a brand-new vessel and one that is maybe 5 to 10 years old?

Unfortunately I don't think I can answer that question with any degree of certainty because it all depends on how aggressive yards will be in pricing the sales of new buildings or the re-sales of ships that they have ended up owning through cancellations.

Okay, but from the shipper's side, you're not seeing any pushback from shippers demanding the newest vessel or looking for a discounted rate because it's an older vessel?

Well, for the time being, no. But as rates drop of course shippers will have a larger choice of tonnage, and they will go for the newer ships and ignore the older tonnage, or alternatively demand much lower rates. But if they can get a modern ship at a low rate, they usually don't bother with an older vessel.

Right.

To reach that point we have to be at pretty low levels, a fraction of what we're seeing now.

Okay, okay.

And very close to the running expenses of the ships.

Yes.

Okay, thank you for that. All my other questions have been answered, thanks.

You're welcome.

And there are no further questions at this time.

Before we go to the closing remarks with our Chairman and CEO, I would like to correct my tongue-slip during the financial overview when I said that in the second quarter of '09 we enter into a zero-cost-collar agreement, the valuation of which as of June 30, 2009, provided losses of $108 million.

Of course, this is not $108 million, but the material amount of $108,000, and that did not affect of course the EPS amounts of either the quarter or the six months ended June 30, 2009.

Thank you very much. And now we can go to the closing remarks with our Chairman and CEO.

Thank you, Andreas.

Thank you again for your interest in and support of Diana Shipping. We believe that our company continues to be a very strong position to take advantage of the opportunities that we see in our market.

We pursue those opportunities in a prudent, responsible, and selective manner. And we look forward to speaking with you next quarter. Thank you.

Thank you, ladies and gentlemen, for your participation. This does conclude today's conference call. You may now disconnect your lines.