Diana Shipping Inc (DSX) 2010 Q1 法說會逐字稿

Greetings, and welcome to the Diana Shipping Inc. 2010 first quarter conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Edward Nebb, Investor Relations Advisor for Diana Shipping. Thank you, Mr. Nebb, you may begin.

Thanks very much, Claudia. Welcome, everyone, to the Diana Shipping Inc. 2010 first quarter conference call. The members of the Diana Shipping management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios 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 news 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 a description of the risks, uncertainties and other factors that may cause future results to differ materially from what is expressed or forecast in the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission.

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

Thank you. Good morning and thank you for joining us today.

We are pleased that the results of Diana Shipping for the first quarter of 2010 continue to reflect our profitable performance, the sound management of our fleet and the strength of our balance sheet. We also have made steady progress in implementing our strategy to build shareholder value through investments in our fleet. In this regard, the following developments during the first quarter are particularly noteworthy.

In early March, we took delivery of the newly built motor vessel New York, a Capesize dry bulk carrier that has been chartered to Nippon Yusen Kaisha for a minimum 58 to a maximum 62-month period at a gross rate of $48,000 per day.

We announced contracts in April for the construction of two Newcastlemax dry bulk carriers of approximately 206,000 dead weight each for a contract price of $59m per vessel. We expect to take delivery of these vessels during the first half of 2012.

These events followed our earlier announcement in January 2010 of the delivery of a Panamax dry bulk carrier, motor vessel Melite. This vessel was purchased at a price of $35.1m. As a result, we have increased the size of the fleet to 22 vessels, plus the two new buildings on order. This clearly reflects our strategy of seeking to take advantage of market opportunities to expand our fleet in a disciplined and cost-effective manner.

As we have noted in the past, and depending on prevailing market conditions, we plan to continue this process over the next 20 months, in order to build our capacity to generate consistent revenue and drive increasing shareholder value.

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

Net income was $28.8m for the first quarter of 2010. Voyage and time charter revenues total $62.2m. Our average daily time charter equivalent rate was $31,982 for 2010 first quarter, which covers daily vessel operating expenses by a factor of nearly 5 times.

Diana's balance sheet has remained strong. Our cash position was approximately $298m at March 31, 2010. We have continued to operate with a relatively low amount of leverage, compared to our shipping company peers. Long-term debt including the current portion at the end of the first quarter was $327.7m, compared with stockholders' equity of more than $1b.

Our fleet deployment strategy continued to promote consistent and predictable revenue streams. Approximately three-quarters of our vessels are chartered for periods ranging from 2011 to 2015.

In conclusion, Diana Shipping has performed well across a range of economic and industry conditions. And we have demonstrated our commitment to building shareholder value through the prudent management of our business, the focused and disciplined expansion to our fleet and our reauthorization of the share repurchase program.

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

Thank you, Simeon, and welcome to all who have joined us today in our latest quarterly conference call.

The first quarter of this year started off with uncertainty for large bulk carrier earnings. It developed in the volatile manner and lower, but nevertheless on a very positive note. The Baltic Dry Index started the quarter at 3,140 and finished at 2,998. The bulk carrier Cape Index began the year at 4,197 and at the end of March stood at 3,425, while the Baltic Panamax Index went from 3,823 to 3,674 during the same period.

Since then, Cape earnings have moved significantly higher, proof of the market's ability to absorb the continuous and relentless flood of new buildings. The Panamax sector has shown more resilience, faced with a somewhat more modest new building delivery schedule, and the Baltic Panamax Index has moved about 20% higher since early April.

Looking at the macroeconomic picture, the world economy has shown clear signs of emerging from the most brutal and deep recession since the 1930s, with gross domestic product growth in both the developed and developing economies steadily improving. The IMF is forecasting world economic expansion of 4.2% during 2010, which is the fastest pace of growth since 2007.

US forecast for 2010 gross domestic product growth stands at 3.1%, which many economists consider very conservative. US manufacturing expanded in April at its fastest pace since June 2004, with the supply management factory index rising in April to 60.4 from 59.6 in March. China's gross domestic product is estimated to grow by about 10% this year, while for Brazil, India and Russia these estimates stand at 6.3%, 7.7% and 4.5% respectively. The only large economic block lagging behind in GDP growth terms is the euro zone, where growth for 2010 is estimated at an anemic 1.1%.

This is without doubt a rather positive overall macroeconomic background, within which the bulk carrier fleet will have to navigate financially.

Steel production. Given the above statistics and forecasts, it is not surprising to note the positive forecast on steel production, which has always been the prime moving force behind the transportation of the most important bulk raw materials, iron ore and coking coal. According to the World Steel Association, world steel production for 2010 is forecast to exceed 1.3b tonnes, a 10% increase compared to 2009. China's total 2010 production is expected to reach more than 610m tonnes, an increase of 8% on 2009 volumes.

Steel consumption in the BRICs countries is expected to increase in 2010, according to Simpson, Spence & Young, by 8% to 692m tonnes, while steel consumption increases by the mature economies will be led by the NAFTA region, where demand is expected to rise by 23.5% to 100m metric tons following a 37.4% decline last year.

Let's look at iron ore. The Clarkson Research Services estimate for world growth in the iron ore trade for 2010 stands at about 11% compared to 2009, which will bring the total imports to just over 1b metric tons. China's state-run trader, Sinosteel, sees China's iron ore imports rising by 55m metric tons in 2010 to 660m tonnes. In the meantime, prices have been rising sharply, with a spot price of Indian 65% iron ore content ore, reaching over $180 per tonne by the end of April. This was 22.4% higher than the month before and around 200% higher year on year.

In the month of April, iron ore exports from Brazil fell to 21.1m tonnes, a drop of 2.6m tonnes from March, where 23.7m tonnes were exported, and slightly lower than February's figure. The main cut in exports were cargoes to China and Japan. The most apparent reasons for this were the seasonal rainfalls in Brazil, on the one hand, and the at the time unresolved pricing of iron ore contracts on the other. As we know, the latter has been changed from an annual to a quarterly pricing system. Iron ore will be sold at CIS prices instead of FOB and transportation as well as other costs affecting the delivered product will be taken into account in the future.

Other factors which have been recently affecting prices and shipment volumes of iron ore have been the Australian government's proposed resource super profit tax of 40%, otherwise known as RSPT, and the West Coast cyclones in Australia which closed several iron ore ports during the first quarter of this year.

Looking at coal, total exports of coking coal for 2010 are forecast by Clarkson to reach 228m tonnes, an increase of about 8% from the year before. Chinese seaborne coking coal imports reached about 9m tonnes for the first three months of this year, an increase of 169% year on year. Coking coal imports to several European Union countries are now improving. Spain and France have imported significantly higher volume of this mineral during the first three months, compared to the same period last year.

More interestingly, however, Indian buyers of coking coal have been recently buying coal from Russia. This product has become increasingly more competitive, as demand and prices remain high at the traditional sources of this raw material.

Total exports of thermal coal are expected to reach 601m tonnes in 2010, an increase of only 2% from the year before. Australian exports of this mineral during the first quarter this year reached 30.8m tonnes, a decrease of 1% compared to the same period last year. The main reason for this was a strong cyclone which affected Australia's coal-exporting ports in mid-March. While exports to Japan were up by 11.3% year on year, exports to China dropped 25% compared to the same period last year.

On the other hand, BHP Billiton, Anglo American and Xstrata are shipping coal 10,000 miles through the Panama Canal, from Colombia to China. Cerrejon in Colombia, the world's largest open pit mine for coal, started shipping coal to China quite recently. The mine may also make its first sale to India this year and production from this jointly owned mine will reach 31m to 32m tonnes of coal during 2010.

Chinese imports of Indonesian thermal coal have been increasing steadily this year. Imports from South Africa, with a corresponding positive tonne-mile effect on demand, are expected to increase going forward. The reason behind this prediction is the completion of what has been known in the trade as the Phase 5 expansion project at Richards Bay Coal Terminal. This expansion will allow exports to reach 91m tonnes per annum.

Grain. Total exports of grain cargoes for 2010 are expected by Clarkson to reach 230m tonnes, a decrease of 7% compared to last year. The recent oil slick in the Gulf of Mexico has created fears that exports from the Gulf might be severely affected or even cease completely. This will have a negative effect on grain shipments, which will come on top of the anticipated fall by 23% or 6.3m tonnes of imports by Asian countries of the Near East and imports by African nations, which are expected to drop by 4.9m tonnes or about 13% year on year.

This might have an effect on the Panamax trade over the next few months. However, according to US-based Commodore Research, Panamax rates should be supported by an increase in coal shipments, as mentioned earlier, as well as from the predicted short-term surge in Asian coal demand.

Port congestion. Before we turn our attention to the supply side of large bulkers, we should not neglect to say a few words about port congestion. According to Galbraith's, the number of vessels waiting outside the major coal and iron ore ports to load or discharge reached a record high in late December 2009 and continued to sustain a high level through the first quarter of 2010, with the average number of vessels waiting reaching 377, a quarterly record. First quarter 2010 saw a record number of Panamaxes, 154 in number, as well as Capes, 152, being delayed, each representing 10% and 17% of their respective fleet totals.

We agree with the Galbraith assertion that overall port congestion is unlikely to disappear any time soon. However, it should be noted that even small reductions in queues from peak levels translate into a significant number of ships coming back onto the spot market, which could equal or even exceed the number of new buildings joining the fleet over any particular time period. This will obviously have significant influence on the freight market for these vessels over the next few quarters.

On an overall fleet basis, [Lorensen and Simoco] estimate that world port congestion currently affects about 9% of the world's bulk carrier fleet.

As regards port expansion and shore side infrastructure work, the most important development outside China is the anticipated expansion of the cargo utilization capacity of ports in Queensland between now and 2012, which is estimated by Goldman Sachs Research to reach an additional 25m metric tons per annum.

Tonne-mile demand, now. Here, the predictions vary about the future and shipping analysts Lorensen and Simoco are forecasting increases in overall dry cargo tonne-mile demand of 14.7% for 2010, 10% for 2011 and 11.3% for 2012. According to these analysts, this demand will help to absorb the influx of new buildings over the same period. We will return to this all important issue in a few minutes, once we briefly take a look at the order book.

According to Clarksons, on May 1 this year there were 765 Capesize bulkers on order of about 146.3m tonnes deadweight, representing 80.6% of the existing fleet. Deliveries are more or less evenly spread in 2010, '11, '12 and beyond. The same analysts see 845 Panamax bulkers on order of 68.1m tonnes deadweight, representing about 54.3% of the world fleet. Here, most of the deliveries, about 26m tonnes deadweight, have been scheduled for 2011, with 21.1m in 2010 and about the same from 2012 onwards.

According to a report from Worldyards, at the beginning of 2009 there were 142 Capes and 72 Panamax bulk carriers scheduled for delivery that year. By the end of the year, only 95 Capes and 64 Panamaxes have actually been delivered. Of the 795 bulkers which were scheduled for delivery during 2009, only 408 were actually delivered. Worldyards add 136 vessels not known to them at the beginning of the year which were currently delivered, possibly delayed deliveries from 2008, which brings the total number of vessels delivered in 2009 to 544, or 68.4% of the total scheduled delivery.

During the first quarter of 2010, out of the 86 Capes scheduled for delivery, only about 45 were delivered. As regards Panamax, Post Panamax sizes, 61 ships were anticipated to join the fleet and only 38 actually made it. On an overall basis, out of the 433 new bulkers on order, only 206 joined the fleet during the first quarter 2010. This total includes 36 ships delivered in the first quarter of 2010 which were possibly spillovers from the year before or unreported confidential contracts or exercised options.

If the data gathering Worldyards is indeed correct, actual cancellations or deductions from the order book were 16% for the first quarter of 2010, while slippage accounted for 42% of the scheduled order book in deadweight terms. Ordering, however, has become more popular recently due to the increase in the prices of modern bulkers by about 20% during the last six months or so. Many buyers have taken the decision to order new rather than pay a premium for second-hand tonnage. Korean as well as Chinese shipbuilders have been more than happy to sign new building contracts for these relatively simple ships today. This is not a good sign for the future and we will explain why soon.

Scrapping. Scrapping has always been notoriously difficult to predict because of the wild swings in the decision-making process of owners of all the bulkers, depending on the freight market and the predictions of future earnings. Therefore, from the plethora of different predictions for scrapping during 2010, we regard the most reasonable is that of Maersk Broker, who predict that about 18m tonnes deadweight of mainly smaller bulkers will be scrapped this year.

The supply and demand balance. Assuming all vessels scheduled for delivery this year actually deliver, then the dry bulk fleet will grow by 17% in 2010 and 15% for next year, in 2011, net of scrapping. If one takes into account the size distribution of the order book, which is heavily biased towards larger vessels, the forecast is quite fearsome and ominous for the future of earnings of these ships. Therefore, if dry bulk owners cannot rely on scrapping and further significant increases in congestion to come to the rescue, the only hope lies with huge increases in tonne-mile demand and large number of cancellations and slippage in the new building order book.

Maersk Broker foresee strong industrial production increases worldwide to lead to a 9% increase in world bulk trade this year. If the shift towards longer trade routes is taken into account, the anticipated increase in overall tonne-mile demand reaches about 12%. This is not much different from the optimistic forecast of tonne-mile demand increase of 14% provided by Lorensen and Simoco mentioned above.

A short-term bullish scenario presented by Galbraith is probable, even with the continued deluge of new building tonnage. If long-haul shipments, especially from Brazil to the Far East, pick up strongly over the remaining months of 2010, and Cape tonnage is in scarce supply due to continued high level of port congestion, we could expect Cape earnings to rebound and remain strong for the rest of the year. A similarly optimistic short-term scenario could develop for the Panamax and Post Panamaxes, underpinned by strong demand for the transportation of coal and lower fleet growth than the Capes.

In the medium term, Fearnleys provide a reasonable forecast which has their base case scenario showing net fleet growth in the Capesize sector of 17.3% in 2010 and 9.1% in 2011. This base case scenario assumes 50% rate of actual deliveries against the order book for each year and the doubling of scrapping from 2009 levels in 2010, '11 and '12.

For Panamaxes, the medium-term forecast is slightly more optimistic. The net fleet growth for 2010 is predicted at 7.7% and for 2011 at 5%. If the 2010 and '11 tonne-mile demand increases cited above are realized, then the medium term is quite optimistic for Panamax, but not so good for Capesize bulkers.

Longer term, however, it is hard to conclude anything other than the obvious fact that net fleet growth will eventually outpace even the most optimistic of demand forecasts. And until earnings fall to below operating expenses, many of the solutions to tonnage oversupply such as scrapping and further new building cancellations will simply not happen.

However, we must remember that we are going through one of the biggest industrial expansions in the post-war economic history of the world. Led by China and India, a host of developing nations are aiming to bring their people out of poverty and into prosperity. The requirement of raw material to achieve this role is essential. Plus the very long-term future of dry bulk is indeed bright.

This leads us to conclude that once we get over the problems created by excessive ordering, which could take a few years, hopefully less, dry bulk carriers will return to profitability until the next wave of speculative ordering leads to the next trough in the shipping cycle.

In conclusion, as mentioned by our Chairman and CEO on several conference calls in the past, our Company has chosen to face the challenges of the uncertain future in the large bulk carrier trade by maintaining a strong balance sheet and implementing a vessel acquisition strategy which will lead to steady growth of the fleet over time, without loading our balance sheet with significant debt. The long-term secure stream of earnings will ensure the timely repayment of the small amount of debt which we'll gradually build up on our balance sheet. And as more and more vessels become effectively debt-free, the equity and debt-raising ability of our Company will be enhanced accordingly.

Obviously, as we have said in the past, our investment policy will adjust to the point in the cycle that we feel we are in at any given point in time. We will try and take advantage of each stage in the cycle and optimize the cash flow generation of our fleet for the benefit of our shareholders, while maintaining relatively conservative levels of overall debt.

I will now hand over to our CFO, Andreas Michalopoulos, who will provide you with a summary of our financial highlights for the first quarter of 2010. Thank you.

Thank you, Stasi, and good morning. I'm pleased to be discussing today with you Diana's operational results for the three months ended March 31, 2010.

First quarter of 2010. Net income for the first quarter amounted to $28.8m and the EPS of Diana Shipping amounted to $0.36. Voyage and time charter revenues decreased to $62.2m, compared to $62.7m in 2009. The decrease is attributable to reduced average hire rates and increase of hire days during the quarter, which however was partly offset by increased revenues due to the addition in our fleet of the vessels Houston, Melite and New York in October 2009, in January and March 2010, respectively.

Ownership days were 1,894 for the first quarter of 2010, compared to 1,710 in the same period of 2009. Fleet utilization was 99.7% in the first quarter of 2010 and 98% in 2009. The daily time charter equivalent rate for the first quarter of 2010 was $31,982, compared to $34,898 for 2009.

Voyage expenses were $2.4m for the quarter. Operating expenses amounted to $12.5m and increased by 33%. The increase is attributable to the 11% increase in ownership days resulting from the delivery of the vessels Houston, Melite and New York, an increase in crew costs, stores, spares and repairs. Daily operating expenses were $6,606 for the first quarter of 2010, compared to $5,521 in 2009, representing a 20% increase.

Depreciation and amortization of deferred charges amounted to $12.1m for the first quarter of 2010. General and administrative expenses increased by EUR1m or 24% for the first quarter of 2010, to $5.1m compared to $4.1m in 2009. The increase was mainly attributable to increasing salaries and compensation costs on restricted stocks and in executive fees, and was partly offset by a decrease in legal fees.

Interest and finance costs increased by $0.2m to $1m for the quarter compared to $0.8m in 2009. This increase was attributable to increased average debt during the first quarter 2010, compared to 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.

Thank you. (Operator Instructions). Our first question is coming from Jon Chappell with JP Morgan. Please state your question.

Thank you. Good afternoon, guys. Stasi, one follow-up question on the supply side that you laid out. As this European situation continues to develop and given that the European banks are the major lenders to most of the shipping community, do you see any impact from, it's called the euro contagion, having any impact on lending and the ability for ship owners to take delivery of the ships that they've ordered?

Yes. The question I think has an answer which depends very much on how the European Central Bank and the European governments are going to tackle European government debt, which as we know is held in the tune of about $2 trillion in the books of several large European banks. Now, if that number is correct and we assume that such a default rate is going to take place as to shake the whole system, then we have to assume that ship lending is going to be affected.

Realistically, however, and looking at the track record of the European Central Bank to date, I find it hard to see a scenario where all this government debt which is held in the balance sheets of European banks is allowed to default at least to a large percent, or they take a large haircut on this debt which they hold. Maybe they will take a small haircut on government debt of countries like Greece, Portugal, possibly Italy or Spain, but nothing that is going to shake the financial status of these banks.

If this happens and develops as I've just described, I don't think that it will make any difference for ship lending because ship lending for the ships that are going to be delivered during 2010 and '11 is at levels which, as the market has developed, are not very far from the secondhand prices. Therefore, the banks, provided they have available funds, they will advance for these loans to be financed and the acquisitions to take place and deliveries therefore to materialize.

In short, I don't think that the future is so grim because of the problems that we hear. But if, however, the European Central Bank loses control of the situation, there is panic and there are large scale write-offs of government debt, then I will have to agree with your fears that many ships will not be able to be delivered because of lack of financing by the European banks.

Okay. Thanks very much. Very insightful. A question on Diana and your near-term use of capital and the strength of your balance sheet. Now that the share buybacks have been reauthorized, how are you looking at your share price today versus your net asset value? And then, how do you view the returns of the share buyback today versus what you can get either in the secondhand market or in the new building market?

Hi, Jonathan. This is Ioannis. As you know that we have never commented on our price compared to our NAV, we do not do this calculation ourselves here. So, we cannot comment on that. However, the reason why we have reauthorized this plan has to do with the volatility of the markets, especially the capital markets, but in addition to that the shipping markets. We want to be there to support the stock in case needed. But it's very, very simple.

As regards to our investment, our CEO stated in the press release that the preference that we have is to buy assets, i.e. vessels, instead of buying back our stock. But we have $100m on the side to do that if required. You understand that Diana Shipping Inc., by buying back its stock, it's like buying our vessels back.

Right. Okay. Understood. And then just two quick follow-ups for Andreas. In the operating expenses for the first quarter, a little bit higher than our forecast, was there some timing issues with purchases of stores or supplies there or is that the type of run rate we should use going forward?

And then, also, on the new builds for the Newcastlemaxes, are there any significant payments in 2010, down payments for those ships?

Hi, Jonathan. For the first part of your question, there were two events that happened during the first quarter that gave these operating expenses. The first event is the delivery of Melite and New York and this is -- has initial supplies for those vessels, which typically beef up the operating expenses. The second event is the dry dock of Nirefs and Calipso, which as you know, with US GAAP you basically OpEx your dry dock costs, or the big majority of it. So, that's also the explanation for the slightly higher -- the higher operating expenses.

Now, going forward, we have on this quarter, the second quarter, we have performed the dry dock of motor vessel Aliki, which is a Capesize, and as well motor vessel Clio. So, obviously, there you should see the operating expenses at around the same level as you had them during the first quarter. Together with that, there is a program of fuel tank separation between heavy fuel oil and low sulfur oil, which is a regulation that we follow, obviously, and therefore there is a cost associated to that. So, for your second quarter modeling, I would use the same operating expenses as you did for the -- as happened in the first quarter, so around $6,500 on average per day.

Now, concerning the second part of your questions and the Newcastlemax vessels, we have paid the contract signing installment, which was 14-million-500 per vessel, and that's it for this year. The next installment is steel cutting, which typically happens between eight months and 12 months from before the delivery of the vessel. So, we don't foresee anything else for 2010.

Great. Very helpful. Thank you all very much.

Thank you.

Welcome.

Our next question is coming from Justin Yagerman with Deutsche Bank.

Hey. Good afternoon and good morning, I guess. How are you?

Hi, Justin.

1Q, I guess [digging] in a little bit to talk on fleet deployment here because given Stasi's outlook on the market and it's somewhat uncertain, I guess, and given all of the different crosswinds that we've got, I don't blame you. I'm wanting to get a sense for how you're thinking about the vessels that you have open in seven months or so. How far in advance can you charter those vessels? How far would you be thinking about chartering those vessels, given the uncertainty in the market? And then, what kind of employment are you currently going to be looking for, for those vessels?

Well, Justin, I think you know very well that we have a very, very strong balance sheet. So, we can be the masters of our own destiny so we don't have to charter anything well ahead. Now, for the Panamaxes, you have to be as close to the delivery as possible. But for the Capes, you could be another two months further away. But I think the cover we have at the moment gives us enough flexibility to try and get the benefit of the market closer to the day of delivery of the vessel to the charterer. So, I think we can play it as we have done the last year or so.

I don't want to put words in your mouth, but should I take from that that you think that there is a near-term firming potential in the market or how should I be thinking about that? Because if I think about where rates are today, they are relatively strong. And if you have uncertainty on a go-forward basis, that I guess is the crux of my question, is would you be more apt to lock up now if you had the opportunity to?

Well, I think that, as I told you before, the balance sheet is strong enough and it gives us enough cushion to be able to come closer to the deliveries of the vessels from the present charterers to us, thus try and get the full benefit of the charter provided at the time. The next open vessel Panamax is going to be September time, thereabout. And the next opening for the Cape most likely will be again October. So, those two vessels are the next to focus on. Of course we can charter both of them today but the rates which we're going to achieve are not going to be the best rates. So, I think we can play it a little bit coming closer to the deliveries of those ships to us.

Justin, if I may add something, this is Ioannis. I've said in the past many times that having the strategy that we do with the portfolio approach to our chartering, this is exactly what Mr. Palios means, taking the benefit of the market. And regardless of the outcome, we can have a very good average for our vessels by having a vessel to fix every month or so. And the reason why we may fix ahead one of the Capes, because it's easier, that's one reason. The second may be because we don't have another vessel to fix at that time. We want to get the benefit of the entire market and a good average. We try to avoid taking this difficult decision and position whether the market is going to go up or down.

Okay.

We are happy with the average.

Guys, maybe you could comment a bit. Your last couple of orders have been new builds and then you've got this buyback that you've reauthorized. How do you feel about the vessel values of ships on the water currently? And maybe, if you could put that in context with what you think the time charter market is currently doing right now and how much liquidity is in those various charters out there.

As we have stated in the past, we have initiated an investment program which is going to last for 24 months that started at the end of the previous year, beginning of this year. We are going to be consistent in buying vessels in a staggered manner. We have proven that with the purchase of motor vessel Melite, the order of the two new buildings. You should expect Diana to buy another vessel or two in the months to come and then so on and so forth. We are going to continue for the next 24 months.

Again, this has to do with our plan to get a very good average as a guide to the prices of our assets that we're going to purchase. The thing is that there are vessels around to be bought. We are constantly looking but, as we have said also in the past, we are not prepared to spend a big portion of our dry powder, the liquidity that we have, in one shot.

The charter rates at the moment, they are rather healthy, I would say. What you buy is what you get, meaning that if you buy a vessel today the charterer tax that you can have justifies the price, at least for the next year, and we are fortunate to have this cash flow. On the other hand, if the market goes the other way, we will be buying assets cheaply. The cash flow may not be so good for those assets but we can afford to do so, based on our strategy.

Okay. Fair enough. Andreas, can you comment, I know most of what you guys do is dollar denominated but where in your P&L do you potentially have euro exposure that may either benefit or potentially hurt you guys?

We mainly -- hi, Justin. We mainly have euro exposure actually in our administrative expenses, in our G&As, with around 50% of euro exposure, actually. And we also have euro exposure in part of our crew wages, as well as stores and spare parts. So, that's where you could either benefit or not from the euro/dollar fluctuations.

Okay. Thanks a lot, guys. I appreciate the time.

Thank you, Justin.

Our next question is coming from Gregory Lewis with Credit Suisse. Please state your question.

Thank you and good afternoon.

Hi, Gregory.

I'm not sure who I should direct this question to, but regarding the container ship joint venture. At this point, it looks like container ship rates have sort of stabilized and it looks like we're beginning to see upward movements in pricing of assets. How should I think about Diana positioning itself in the container ship space over the next six months?

Well, as we have already announced, our $50m investment represents an interest of approximately 60% of the common share of Diana Container Ship Inc. This company was created to invest in containers over the next 12 to 18 months. Diana Shipping Services has entered into an administrative agreement with the new company and is expected to enter into vessel management agreements with every vessel purchased by the new company.

We are very excited to participate in that segment of the shipping industry and we strongly feel that this in the medium to long term will prove to be a valuable investment for our shareholders. Being a private transaction does not allow us to give any further information.

Okay. In terms of what you're seeing with asset prices, are asset prices sort of stabilizing here in the container ship space? And is it differing by vessel size?

Well, I think that we have to leave it to what I said before. But let me try and reply to your question. Yes, there is a marked difference between the 1,700 TEU vessels up to 3,000. From 3,000 onwards, I think the vessel values and the rates are much better.

Okay. Thank you very much for your time.

Thank you.

Our next question is coming from Scott Burk with Oppenheimer. Please state your question.

Hi, guys. How are you?

Hi, Scott.

I guess just a follow-up -- a few follow-ups. I guess one on the broader economy. We've seen a huge downsize in the equity markets in the last few weeks. In contrast, Cape rates have been telling a different story. What do you attribute the near-term movements in rates? Is that mostly congestion story or is it a change in pattern? And are you starting to see any changes based on the weakness in the broader economy?

Yes. Hi, Scott. This is Stasi. We haven't seen any negative, at least, changes due to an economic development and we haven't seen anything positive yet which we can attribute with certainty to economic performance around the globe. What we know is that the Chinese growth story is underpinning the demand for iron ore and coal, both steam coal and coking coal. And as I mentioned earlier on, the disturbances that we had in Brazil due to weather phenomena there during springtime, now being -- the shipments are being restored, so we have more shipments from further away places, like Brazil. So, this is one of the factors which is underpinning the Capesize -- demand for Capesize vessels.

Also, we have the queues, which don't seem to want to go away, of ships. And we have nearly 160 ships now, Capesize vessels, which is quite a lot of tonnage, being tied up in queues waiting to load or discharge. So, what we are seeing here is that there is a steady stream of new buildings joining the fleet. There are practically no scrappings of Capesize vessels. But these vessels seem to be going away or at least artificially being deleted from the supply side of the equation due to congestion.

So, for the time being, that's the only reasonable explanation we can see. Long haul shipments being restored. New buildings being balanced out by increased congestion. And therefore, on a utilization basis, we see ships which are available for charter and transportation of goods to be more or less steady rather than go up in numbers.

Now, this cannot go on forever, as you can imagine. And what I mentioned briefly in my little presentation is that when queues start becoming shorter and ships being released onto the market, greater the queues the greater the number of ships which are going to join the supply side of the equation. So, we have to be wary here and expect quite a lot of volatility in the large bulk carrier freight rate market.

Okay. And actually, I wanted to follow up on something you said during your presentation as well. You said -- talked about the transportation costs, on top of going to quarterly system they've gone to a situation where it sounded like the iron ore miners are now paying for transportation costs. Could you clarify that? And it seems like that would have a negative implication on day rate upside as well, if you have a more concentrated charter pool.

Now, when the calculation of the CIF price of each tonne of iron ore is taking place, the factors like the distance, the quality of the product and a few other things which are very, let's call them commodity related and specific, are taken into account and they set the price for each quarter. So, we don't have this general contract price that we had which was supposed to hold for a year and then the spot market going alongside it, very often with huge differentials. We're going to have a more, let's call it, market friendly and sensitive pricing system, which all in all we feel is going to help smooth these sharp increases and decreases of demand for the transportation of this commodity over the next few quarters. We have to see how it works, but we are quite confident it's going to work better than the old annual contract pricing system.

Okay. Okay. And then, let's see, I wanted to also ask -- it's been interesting to see where you've made your investments so far, so you've had the one secondhand vessel and then the two new builds. As you look -- as you compare the two options there, what looks more attractive now? New build prices have started to come back up a little bit but still obviously much cheaper than secondhand. Which way would you favor, currently?

I think both at the right price. And as Ioannis said before, I think you have to keep a discipline on the buying time of these vessels. I think the discipline in buying the proper space of time is much better than whether it's going to be a Panamax or a Cape. Both are useful vessels to have.

All right. Thank you.

Welcome.

Gentlemen, it appears we have no further questions at this time. I'll now turn the floor back over to management for any closing comments.

Well, thank you again for your interest in and support of Diana Shipping. We remain confident in our plans to deliver increasing shareholder value and we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and we thank you for your participation.