Diana Shipping Inc (DSX) 2010 Q2 法說會逐字稿

Greetings and welcome to the Diana Shipping Incorporated 2010 second-quarter conference call. At this time all participants are in a listen-only mode. A brief 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, IR adviser for Diana Shipping. Thank you, Mr. Nebb, you may begin.

Thank you very much, Rob, and thanks to all of you for joining us this morning for the Company's 2010 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. 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. 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 the forward-looking statements, please refer to the Company's filings with the SEC.

Now, without further ado, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping Inc.

Thank you, Ed. Good morning and thank you for joining us today. I am pleased to report that Diana Shipping has continued to successfully navigate a volatile period for the dry bulk industry. We face an environment in which, on the one hand, the improvement in world economies should lead to greater demand for dry bulk shipping services. Yet on the other hand, the supply side of the industry is likely to place continued pressure on shipping rates and vessel values.

At this time of unsettled industry conditions, we have reported increased earnings for the second quarter of 2010. Our ability to deliver this solid performance is a reflection of the strategies we have pursued consistently throughout our history as a public company. Specifically, we have moved forward with efforts to grow our fleet, to build a consistent revenue stream, and to maintain a fortress balance sheet.

In particular, I would like to point out the following highlights of our second-quarter financial results. Net income rose to $33.9 million. Voyage and time charter revenues totaled $68.7 million. Our average daily time charter equivalent rate was $33,105 for the 2010 second quarter, which covers daily vessel operating expenses by a factor of 5.5 times.

Diana has maintained a healthy balance sheet which is reflected in a cash position of approximately $298.2 million as of June 30, 2010. Also, we continue to operate with a modest amount of leverage compared to our shipping company peers. Long-term debt, including the current position, was $326.3 million at the end of the second quarter compared with shareholders equity of nearly $1.1 billion.

A major contribution to this solid performance has been our fleet expansion strategy. The Company's increase in revenues for the 2010 second quarter reflected the acquisitions of the vessels Houston, Melite, and New York, all of which were added to the fleet between late 2009 and early 2010.

We also have continued to manage all of our vessels in a manner intended to produce stable revenues across the industry cycle. For example, between June and July 2010, we announced time charter contracts for five vessels -- the Panamax vessels Dione, Oceanis, Naias, and Calipso and the Capesize Sideris GS. As a result of this activity, approximately 70% of our fleet is now chartered for 2011.

Looking toward the future, we continue to be enthusiastic about our opportunities to make strategic investments in the expansion of our fleet. By taking advantage of present market positions, we have increased the size of the fleet to 22 vessels as well as two Newcastlemax newbuildings on order for 2012 delivery.

We plan to continue this process and a focused in disciplined manner over the next 18 months, subject to market conditions, in order to further enhance our revenue stream capacity to generate consistent revenues and drive increasing shareholder value.

We are confident that Diana Shipping remains well positioned to continue to build shareholders value. We have a proven growth strategy, reliable cash flow, and a solid balance sheet to support our initiatives.

With that, I will now turn the call over to our President Stacey Margaronis for a perspective on industry conditions. We will then follow by our Chief Financial Officer, Andreas Michalopoulos, who will provide us a financial overview. Thank you.

Thank you, Simeon, and a warm welcome to all who have joined us in this midsummer conference call.

The second quarter was certainly one which reminded us all that volatility is the name of the game in the dry bulk shipping industry. Those who regard shipping as a steady cash flow business, providing a nice steady dividend suitable for retirement, ought to consider more carefully their investment philosophy.

At the beginning of the second quarter this year, the Baltic Dry Index stood 2,991 points and yesterday closed at 1,957. The Baltic Panamax Index was at 3,708 and yesterday stood at 2,607, while the Baltic Cape Index started the quarter at 3,429 and closed yesterday at 1,939.

The Baltic Dry Index posted a 60% decline over 35 consecutive trading sessions before recovering somewhat over the last few trading sessions. By now, the explanation of this rising rate followed by a steep drop and subsequent small recovery -- all within a space of four months -- is more or less agreed upon by shipping analysts and shipowners alike.

China's iron ore imports rose and then dropped significantly in May and June, while iron ore prices reach reached a low of about $100 per tonne before quickly recovering to around $130 per tonne. The all-in cost of having this raw material shipped from Australia came to about $155 per tonne. This led many steel mills to pull back on imports and focus more on domestic iron ore and stockpile drawdown.

While all this was happening in the demand side, the pace of vessel delivery was robust, to say the least. At the same time, easing of congestion in Australian, Brazilian, and Chinese ports handling core and iron ore further added to the overcapacity situation, especially in the larger bulk area sectors.

Through the first half of 2010, over 100 Capes have been delivered out of the total 220 vessels expected to join the fleet before the year is over. Needless to say, there has been no scrapping to speak of so far this year, with only two Panamax vessels and four Capes being scrapped thus far.

During the last two weeks, steel prices have begun to recover. The sentiment in China as regards real estate construction has improved with the acceleration of social housing construction, and economic growth seems to be stabilizing if not picking up. This has led to an improvement in rates about which we will talk again shortly.

Let's look at world economic growth. The International Monetary Fund expects the US economy to grow at 3.5% annual rate in 2010, to slow to around 2.9% in 2011, and grow at about 2.6% in 2012.

As regards China, the IMF has increased its forecast of gross domestic product growth to 10.5% for 2010, and adjusted downward its growth forecast for 2011 to 9.6%.

In July, European economic confidence rose to its highest level in over two years, with the Index of Executive and Consumer Sentiment in the euro area increasing to 101.3 from 99 in June. At the same time unemployment in Germany dropped for the 13th consecutive month during the month of June to 3.21 million. The OECD is forecasting that its 30 member nations will grow 2.7% in 2010 and about the same in 2011.

Therefore, as far as the health of the world economy as a whole is concerned, things look quite positive, even taking into consideration the possible sovereign debt issues, present and future, of some European nations. This should underpin the growth assumptions we will mention below over the next few quarters.

Let's look at Chinese growth in worker productivity. In a recent lead article in The Economist magazine, the author explains that the single most important change happening now in China is a combination of urbanization and protests over pay increases by Chinese workers.

The late Cambridge economist, Joan Robinson is quoted as having written that, quote, the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all. End quote. While this quote referred to the underemployment in Southeast Asia in the '60s, we ought to look back and recall that since then growth has come about with capital busily exploiting -- in inverted commas -- workers in that region and in China, much to those nations' benefit.

Now, the article concludes, capital has to invest in the creation of a skilled workforce to fuel further increases in worker productivity and the governments to encourage resettling of workers in the new cities built for them, thus giving the capitalists a chance to train them while at the same time increasing their salaries. This should create higher domestic consumption, which in turn would fuel further economic growth not only in China and Southeast Asia but also in the West.

According to The Economist, a 20% rise in Chinese consumption might well lead to an extra $25 billion in American exports. That in turn would create an extra 200,000 US jobs.

Let us now look at developments affecting the major commodities shipped in bulk. Latest news affecting the iron ore trade is that the Chinese government has discussed loosening real estate controls during the third quarter of this year, which [was] improve the economic expectations for the remainder of 2010. Some Chinese steel prices have started rising again in July, and iron ore buying interest returned in the last two weeks of July.

According to The Steel Index, specialist source of independent iron ore and steel price information, another reason for this development was that iron ore stockpiles had reached low levels at several steel mills. According to Clarkson's research studies, shipments of iron ore during 2010 should reach 961 million metric tons, an increase of 6% compared to 2009. This trade is expected to be dominated by China, which is expected to import 618.3 million metric tons in 2010, some 64% of the total market.

In the meantime, China's domestic iron ore production reached a new record of 101.5 million tonnes in June, according to China's National Bureau of Statistics. This represented an increase of 22% from the same market last year.

Iron ore stockpiles at Chinese ports were about 74 million metric tons, while steel mill stockpiles have been drawn down to the tune of about 30 million metric tons during the last few months.

According to [Westbroker], West Africa has become the new focal point for the iron ore industry. More than 20 potential projects are being developed there. It is estimated there are 400 million tonnes per annum of potential projects in the pipeline, making the region one of the very few so far untapped high-quality reserves in the world.

On a country by country basis, Maritime Strategies International Limited are estimating that in 2010 Australia will export about 418 million metric tons of iron ore; Brazil about 317 million metric tons; and India approximately 138 million metric tons.

Let's turn to thermal coal. Clarkson's predicts that during 2010 the seaborne thermal coal trade will increase by 5% compared to 2009 and reach 622 million metric tons.

Apparent European reluctance to import thermal coal due to stricter environmental regulations due to take effect around the middle of this decade has affected the imports of thermal coal by several countries. Examples are Portugal, Spain, and the UK, where the combined steam coal demand is set to fall around 18.2% year on year.

Conversely, the continued expansion of India's economy will be accompanied by increased energy growth, which according to Clarkson's is expected to be met largely by steam coal. Coal India, the world's largest producer of coal, mainly thermal, plans to invest in its first port terminal to handle steam coal to help meet the above-mentioned increased demand for this fuel.

Coking coal, now. Here the Clarkson's prediction for the seaborne trade of coking coal is that it will reach 262 million metric tons, an increase of 17% compared to last year.

Clarkson's consider coking coal to continue to present one of the strongest growth stories not only during 2010 but over the course of the next decade as well. New investments have been made in Australia, Canada, Indonesia, and Mozambique in the expectation of ever-increasing future demand. For the time being, Chinese imports of coking coal have not suffered the decline seen in Chinese imports of iron ore and thermal coal.

Looking at total coal exports, the largest exporters during 2010 are, according to Maritime Strategies International, Australia with about 303 million metric tons, followed closely by Indonesia at 250 million metric tons, with Russia in third place with 109 million metric tons.

Finally this year, we have seen for the first time Capesize shipments of coal from Colombia to China and other far Eastern destinations. Up to now shipments were destined for Europe and the US. The benefit in terms of ton-mile demand is obvious.

Grain trade. Total imports of grain products are expected by Clarkson's to increase 2% this forthcoming 2010-2011 season compared to the 2009-2010 season. As the new season begins the early signs are encouraging.

Furthermore, should concerns over global crop prospects persist, demand for seaborne wheat could increase further. Demand for high-grade wheat seems likely to grow in Europe, South America, and Central America.

Let's turn to port congestion. As mentioned earlier on, port congestion in both Panamax and Capesize ports dropped again in July, even though shipping analysts expect a marked increase in vessel arrivals over the next couple of weeks, a potential early indicator of a recovery in iron ore demand. By the middle of July there were about 135 Capesize bulkers tied up in congested ports around the world, while roughly 115 Panamax vessels remain caught up in congested ports.

Let's look at scrapping. Now during 2009 about 2.2% of the world dry bulk fleet was scrapped. During 2010 Clarkson's predicts that about 2.3 million metric tons of Panamax vessels will be scrapped and a mere 2.5 million metric tons of Capesize bulkers.

The total trading fleet of Panamaxes at the end of 2010 is predicted to be around 138 million tons deadweight, while 210 million tonnes deadweight of Capes are expected to be trading at the end of the year. Therefore if these projections materialize, scrapping will not be able to be of much help in remedying any future oversupply problems in the dry bulk industry.

Let's look at the supply side now. Looking at the order book during the last few quarters has been a rather scary exercise. And unfortunately, little has changed for the better as things stand.

About 60% of the existing bulk carrier fleet is on order, with the order book for Capes standing at just under 81% of the existing fleet and for Panamaxes around 58%. Clarkson's estimates that thus far this year the bulk carrier fleet has increased by 405 vessels or 37.6 million tons deadweight, net of scrapping, losses, and other reductions of tonnage. This represents 8.2% of the existing fleet by deadweight.

The bulk carrier fleet by the end of this year is expected to be around 536 million tons deadweight, representing about 14% rise from the end of 2009. Broken down by size, the Panamax fleet is expected to see a net increase of 8%, while the Cape trading fleet could increase by as much as 23% of the existing fleet. Even if we slashed the remaining 2010 order book by 50%, the fleet of Capes will grow by about 20% this year.

The VLOCs, the very large ore carriers, are a new player in the bulk carrier market; and the fleet of ships over 200,000 tons deadweight is scheduled to rise according to Fearnleys research by about 18% this year and 16% in 2011. Most, if not all, of these vessels will go into the Brazil-China iron ore trade and will steal a large part of the market from the standard Capesize vessels.

If the Clarkson's prediction of a 7% increase in dry bulk trading volumes materializes, then the potential oversupply, especially of Capesize bulkers, is quite obvious. Even if we make a generous allowance for slippage, take account of the inclusion of options in the newbuilding statistics that might never be exercised, as well as have some double-counting of shipyard slots, the Cape order book is daunting.

The problem is compounded by the fact that most of these vessels are now in the order books of established and well-capitalized shipyards who intend to build them and sell these at the best prices they can get. What is more worrisome for the medium to long term is that thus far in 2010 yards have accepted new orders for 417 bulk carriers for delivery from 2012 onward.

If this trend continues unabated, there is little doubt that eventually the dry bulk market will become flooded with tonnage, with insufficient new cargoes to carry.

To try and look into a crystal ball and predict the future has never been our favorite pastime here at Diana Shipping. Instead, we collect the market information, and follow the arguments presented by different shipping analysts, and then choose which view appears to make more sense than the rest.

Today, we wish to conclude this overview of dry bulk shipping by summarizing to you the views presented by Howe Robinson in their latest semiannual review on dry bulk shipping.

Two years ago, after five years when aggregate demand exceeded cumulative supply, fleet growth accelerated and now looks like outpacing increases in demand. The freight market is now two years into this downturn, and the distorting effects of the economic crash and then the recovery have worked their way through the production and transportation chain. However, the newbuilding book has not and is now of such a size that it will continue to be the primary driver of [road] market direction over the next two years or so.

Looking back at previous shipping cycles, the turning point is only likely to come when rates reach sufficiently low levels for a sufficiently long period of time to stimulate an aggressive scrapping program and to put an end to short-term ordering. Until we arrive at that point, Howe Robinson argues, the markets will continue their longer term cyclical decline, obviously, with considerable seasonal and short-term volatility.

As mentioned earlier on, the macroeconomic environment remains very favorable indeed for dry bulk shipping. There is every reason to look for further sustained increases in the shipment of key bulk commodities, and lower freight markets will themselves provides substantial impetus to further trade growth.

However, for the rest of 2010 and for the foreseeable future, trade growth will be constrained by the capacity of the world's supply chain of iron ore and coal.

First-half 2010 statistics show how the Panamax fleet has been hugely supported by the grain trade and also derived additional strength from the coal trades, particularly in the Chinese coastal market. However, statistics also show how fleet growth is poised to increase and that the mineral trades are under increasing stress from Capesize vessels.

As Panamax fleet growth begins to outpace effective trade growth rates are expected to come under pressure, particularly as Cape competition intensifies. The supply-demand balance in the Panamax sector will continue to be more favorable than for the Capes; but the sector is unlikely to be insulated from the continuing cyclical decline, even though it will continue to be moderated by stronger seasonal influences than those affecting the Cape sector.

As with the Capes, idle tonnage us likely to grow; and provided rates are sufficiently low, scrapping will accelerate. This trend, together with a reduction in the pace of newbuilding ordering, will lay the ground for the next long-term cyclical rise in rates.

This is the environment in which we at Diana have to make day-to-day operational decisions and, under the leadership of the Company's CEO, plan our investment strategy going forward. We hope that the Company's track record has proven that thus far we have pursued a policy of conservative expansion, maintaining a strong balance sheet and trying to take advantage of acquisitions and employment opportunities for the Diana fleet as they present themselves. This is exactly what we intend to continue doing.

I will now pass this call to our CFO, Andreas Michalopoulos, who will present to you second-quarter and first-half financial results for 2010. Thank you.

Thank you, Stacey, and good morning. I am pleased to be discussing today with you Diana's operational results for the second-quarter 2010 and six months ended June 30, 2010.

In April 2010 Diana Shipping Inc. invested $50 million in Diana Containerships Inc. in a private offering and owns about 55% of its common stock. Diana Containerships Inc. is being consolidated in the financial statements of Diana Shipping Inc., and the equity and financial results of minority interest are separately reflected in our financial statements.

Let us start with the second quarter of 2010. Net income for Diana Shipping Inc. for the second quarter of 2010 amounted to $233.9 million, and the EPS of Diana Shipping amounted to $0.42. Net income has been increased by $0.9 million of losses attributed to the minority shareholders of Diana Containerships Inc.

Voyage and time charter revenues increased to $68.7 million compared to $59.8 million in 2009. The increase is attributable to increased revenues due to the addition in our fleet of the motor vessels Houston in October 2009, Melite in January, and New York in March 2010.

Ownership days were 2,003 for the second quarter of 2010 compared to 1,729 in the same period of 2009. Fleet utilization was 99.7% in the second quarter of 2010 and 99.1% in 2009.

The daily time charter equivalent rate for the second-quarter 2010 was $33,105 compared to $33,073 for 2009. Voyage expenses were $3.1 million for the quarter.

Operating expenses amounted to $12 million and increased by 17%. The increase is attributable to the 16% increase in ownership days resulting from the delivery of vessels Houston, Melite, New York, and Sagitta, and increase in insurances, stores, and spares.

This increase was partly set off by decreased crew costs and repairs. Daily operating expenses were $6,006 for the second quarter of 2010 compared to $5,962 in 2009, representing an increase of 1%.

Depreciation and amortization of deferred charges amounted to $12.9 million for the second quarter of 2010.

General and administrative expenses increased by $2.6 million or 62% for the second quarter of 2010 to $6.8 million compared to $4.2 million in 2009. The increase was mainly attributable to increase in salary; compensation cost; unrestricted stocks; legal and audit fees; office rent; BOD fees; and brokerage fees.

Interest and finance costs increased by $0.3 million to $1.2 million for the quarter, compared to $0.9 million in 2009. This increase was attributable to increased average debt during the second quarter of 2010 compared to 2009.

Six months ending June 30, 2010 now. Net income for Diana Shipping Inc. for the six months ended June 30, 2010, amounted to $62.7 million, and the EPS of Diana Shipping amounted to $0.78. Net income for the period has been increased with losses attributed to minority interests amounting to $0.9 million.

Voyage and time charter revenues for the six months ended June 30, 2010, increased to $130.9 million compared to $122.5 million in 2009. The increase is attributable to the addition in our fleet of the motor vessels Houston, Melite, and New York and was partly offset by decreased average hire rates during the six months ended June 30, 2010, compared to the same period of 2009.

Ownership days were 3,897 for the six months ended June 30, 2010, compared to 3,439 in the same period of 2009. Fleet utilization was 99.7% in the six months ended June 30, 2010, and 98.5% in 2009.

The daily time charter equivalent rate for the six months ended June 30, 2010, was $32,560 compared to $33,983 for 2009. Voyage expenses for $5.5 million for the quarter.

Operating expenses amounted to $24.5 million, and increased by 24%. The increase is attributable to the 13% increase in ownership days resulting from the delivery of our vessels Houston, Melite, New York, and Sagitta and increasing stores, spares, and repairs. Daily operating expense were $6,297 for the six months ended June 30, 2010, compared to $5,743 in 2009, representing a 10% increase.

Depreciation and amortization of deferred charges amounted to $25 million for the six months ended June 30, 2010. General and administrative expenses increased by $3.6 million or 43% for the six months ended June 30, 2010, to $11.9 million compared to $8.3 million in 2009. The increase was mainly attributable to increases in salaries; compensation costs; unrestricted stocks; executive and BOD fees; office rent; audit and brokerage fees.

Interest and finance costs increased by $0.6 million to $2.3 million for the six months ended June 30, 2010, compared to $1.7 million in 2009. This increase was attributable to increased average debt during the six months ended June 30, 2010, compared to 2009.

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

(Operator Instructions) Jon Chappell, JPMorgan.

Thank you. Good afternoon, guys.

Stacey, you gave a pretty good, detailed overview of the dry bulk industry, but really no talk about containers, which seems to be the industry that you are investing in now. As you look at investments over the next 18 months, given your balance sheet strength, how do you see the balance between the timing of dry bulk investments versus container investments at current asset prices and given your outlooks on the market?

Yes, hi, Jon. Well, we have to first differentiate Diana Containerships, which is a private company, as you know -- for the time being at least -- and Diana Shipping Inc. The program in Diana Shipping Inc., which we have repeatedly stated in the past, is to stagger the acquisitions through the later stages of the downcycle, which is what we believe we are going through now. And the investment in Diana Containerships by Diana Shipping Inc. has not changed that program.

So we would be inaccurately guiding you by saying that we are focusing our attention now in the acquisition of containerships to the detriment of looking to acquire attractive bulk carriers. Truth be told, if rate market remains at or near the level that it is now, Capesize don't look particularly attractive.

But that is something that you don't need us to point out to you. The calculations and returns are quite obvious.

Panamaxes have remained roughly as attractive as they have been recently, because they suffered less in the downturn than the Capes.

So there is a possibly attitude of waiting a little bit to see where values will stabilize in the bulk carrier sector, but on the container sector the story is rather different because we are at a completely different point in the cycle.

Now, this is where you have to allow me to stop talking about containership acquisitions because the private company nature does not allow us to publicly disclose the information you have requested at this time, and therefore we would like to avoid discussing details as to the acquisition program. But I want to state again that we are not neglecting the investment strategy that we have declared [again] to follow as a policy in Diana Shipping Inc.

Okay. Fair enough. So then just to dig a little deeper on the timing of the dry bulk, it seems that the asset prices have held up pretty well. As you mentioned before, there has still been a surprisingly large amount of orders this year, which has to show some type of optimism in certain owner sentiment. And assuming a much longer lag, it looks like the opportunities may be pushed out further into the future because of that optimism.

As you look at your balance sheet, I know you just announced the buyback, and any update on the progress of that would be appreciated as well. It doesn't seem to me like acquisitions and some type of return to shareholders in the form of dividends would be mutually exclusive.

Have you changed your opinion on -- given the fact that maybe the acquisition timetable has been pushed out a little bit -- maybe balancing income with growth as you look over the next couple years?

Jonathan, this is Ioannis. We have not, as we have said during the conference call, stopped our acquisition program. We're going to continue to do that for the next 18 months. We are going to keep buying vessels in a staggered manner as we explained.

So we still feel that even at this environment, today's environment, we can purchase dry bulk vessels as we explained, in a staggered manner. We feel that we should not amend our strategy, which has a hedging nature, based on short-term events.

Certainly we cannot, as we have said, wait to find the absolute bottom of the market before we do anything. So we will continue our strategy, meaning that dividend is something that we are not considering at this moment in time.

Okay.

Jon, if I may add, I think Stacey was very explicit on the supply and demand situation. I think he explained it, as you said also, very explicitly.

We believe the Company, our Company, is very well positioned in our industry space with a strong balance sheet and a predictable contracted cash flow -- which is very important too -- therefore prepared to take advantage of opportunities that may arise in these situations.

So that is the key point, that we are prepared to take advantage of what we have in front of us.

Understood. I just have one more for Andreas. You mentioned a lot of the factors that drove the G&A higher both sequentially and year-over-year in the second quarter. It didn't seem to me like many of those factors would be considered one-time in nature.

What type of run rate should we be looking for, for the G&A in the back half of this year? Would it be closer to the first-quarter levels or the second quarter?

You have to take into consideration more close to the second-quarter numbers. And one of the reasons is the fact that in the second quarter, as you understand, at the moment Diana Containerships Inc, as we said in the first part of these financial results, is fully consolidated with Diana Shipping Inc. numbers. And therefore part of the G&As are also related to Diana Containerships Inc., setting up fees etc. and run rates.

So until Diana Containerships Inc. is consolidated in Diana Shipping Inc., I would rather go with the second set of numbers, i.e., the second-quarter numbers more than the first-quarter numbers.

The other thing that is worth mentioning in there is also some office rent that has increased that was foreseeable and that will remain that way. We have increased our personnel due to the increased fleet and therefore increased the office space; and so we have also increased office rent there.

Okay. Thanks, Andreas. Thanks, Simeon, Ioannis, and Stacey.

Justin Yagerman, Deutsche Bank.

Hi, everyone. It's Joshua Katzeff on for Justin. Good morning. Just a couple quick follow-up questions.

With regard to, I guess, a lot of owners and analysts thinking that spot rates are going to be materially stronger in Q4, is there any chance we will see increased spot exposure in Q4? I know most of 2010 is covered, but you have 30% of the fleet potentially open for the remainder of the year.

As you can see, about 70% of the fleet is fixed for 2011. The spot exposure is something that we have tried to explain to our shareholders many times.

We are having a spot exposure as long as we have a vessel to fix every now and then. And this is what we continue doing at the moment. So basically the only spot exposure that you are going to see of Diana is having to fix a vessel every month or so in 2011, basically.

We are prepared to accept a lower rate for our -- in case the market goes south in 2011; and this is the reason why we have fixed the remaining 75% of the Company. Again, where we have a hedging strategy that we should not deviate from, and this is why we should keep it like this and not get influenced by short-term events.

We strongly -- as our President said, Mr. Margaronis -- we are very cautious about the market, but we are not here to change everything and fix all of our vessels for the next five years because of that. We have to speak to our hedge strategy in chartering.

Great, thanks. Going back to acquisitions, is there any thought to expanding to different sizes? Clearly we see some large acquisitions in the Supramax and Handysize space, a sector you have no real exposure to. Is there any thought about expanding there?

I think we have said all along that we will be focusing on Panamaxes and Capes. Maybe we will go to the Newcastlemax, which are a little bit bigger than the Capes; they are about -- in excess of 200,000 tons. But we do not intend to go to the Supramaxes for the time being.

Okay. Just one final question, just with the -- given your and the industry's concern on the order book, is there any concern on the ordering spree we saw a month or so ago, a couple months ago, in the Kamsarmax and Panamax space?

Well, there is concern about all sorts of ordering that has been happening. There is no doubt that the Kamsarmaxes have been the favorites of people ordering in the Panamax size; and also the larger than Kamsarmax vessels, the 92,000, 93,000 tonners.

But these are unfortunately details, if I can call them, and should not distract us from the overall overcapacity which appears to be looming there in the future for the dry bulk market. In other words, we cannot envisage a situation where, because there are too many Kamsarmaxes on order, the Panamaxes will be doing significantly better than their larger sisters in the Kamsarmax side.

So any overordering unfortunately is bad for the future of the freight market and presupposes that we need even higher increases in demand for the transportation of the cargoes that these ships carry, in order to maintain -- let alone have higher -- rate on a medium to long-term basis.

I am excluding, as we said earlier, seasonal variations of rates which can come about because of the grain season, the harvest. Or because, like now in Russia, we are going to have a particularly poor harvest; we are going to have few exports from there. And we assume we're going to get exports from places which are further away than consumption, which might be good.

So excluding those short-term phenomena, which last about a quarter, maybe two, there is going to be an overtonnage in there, in the Kamsarmax and Panamax markets. And some of the mineral trades that these ships are serving are going to be stolen unfortunately by Capes, which will be desperately looking for tonnage of any kind in order to keep employment going.

Great. Thanks for the color.

Gregory Lewis, Credit Suisse Group.

Thank you and good afternoon. Stacey, I know you commented that you're not really going to talk about the containership segment of the business. But when I look at I guess the press release and you give your fleet detail, are we going to see the containerships consolidated in those numbers in terms of vessel operating expenses and time charter equivalent rates?

Hi, Greg. It's Andreas. They are already consolidated. Actually motor vessel Sagitta was delivered on June 29, so a few days before the end of the quarter. So they are already consolidated.

We must tell you that ask for the next quarter, and according to FASB accounting requirements, those numbers will be consolidated. But there will be a separate note in the press release explaining the nature of the numbers. So you will be able to be built up a model based on that.

It was not done for this quarter, because the first vessel was delivered only at the very end of the quarter. So the numbers in terms of revenues were not -- far from material. They were only two days' revenue.

I was going to say -- okay; go ahead.

So yes, it will be consolidated as it is already in the G&As, operating expenses, revenues. And you will have the minority interest shown, reflected in the financial statements and shown on a separate line as you can see them now.

So are we going to have to wait until Q3 to see if there has been any debt applied on the few containerships that were purchased?

Yes, you will have to wait. (multiple speakers) Unfortunately you will have to wait until Q3 answer for that.

But this is also -- we get advice from our lawyers on what we are allowed and not allowed to say as it is a private company, Diana Containerships Inc., as Mr. Margaronis said. So unfortunately I wish we could say much more, but we can't.

Is it safe to assume that it is probably in terms of how vessels are typically financed?

Yes, it is safe to assume that. And it is safe to assume that -- you know the prices of the vessel, you know how much money we had; it is safe to assume that probably there will be a loan associated to those vessels.

Okay, perfect. Then just one last quick follow-up question. A few weeks ago when the Cape market collapsed, there had been some speculation that maybe more than a few Capes might have been idled or temporarily removed from the fleet.

I guess could you comment on whether you saw that actually happening? Not with your vessels because they are on contracts; but in the spot market. And if it did happen, is it still going on today?

Well, I think it was said and it was written in the press that a particular owner had laid up some Capes, and I presume those Capes are still laid up.

Okay, perfect. Thanks for the time.

Fotis Giannakoulis, Morgan Stanley.

Yes, hi, gentlemen. Congratulations for a good quarter.

I would like to ask you regarding the steel movements, if you have seen any changes during the last few weeks, and what is your outlook for the iron ore trade.

A lot of people are very pessimistic -- were very pessimistic a couple of months ago, but think there are some positive signs. Have you seen them in the trade of your vessels?

No, I don't think, Fotis, the trade of our vessels is representative to any extent of the sentiment which prevails in the steel or iron ore trade, because of the nature of their employment and the pattern of their time charter contracts.

The thing that we have to admit is that on steel prices -- and you can see that as well from various reports -- there is an optimism that the drop in the prices has reversed itself.

There is a genuine willingness, it seems, by the government in China to start again encouraging the building of social housing and cities nearer where the rural population is, as opposed to now just in the coastal areas. This has created social problems. This has been well publicized in the popular press.

But the government is pushing on with those projects, and this has triggered, has acted as a catalyst, optimism as regards the price of steel. And it has spilled over of course into the iron ore trade, especially if we take into account the running down iron ore stockpiles in the steel mills themselves.

Before becoming too enthusiastic, of course, we have to keep in mind that the iron ore stockpiles in the major ports in China are around 74, 75 million tonnes as of last count. This means that we have plenty of iron ore to be moved to steel mills if there is a genuine increase and a long-lasting increase in the demand for iron ore.

So we're not running out of raw material by any stretch of the imagination. But there is a more positive now sentiment as regards the next couple of quarters for the price of steel, the price of iron ore, and the volume of both iron ore and coking coal shipments.

Can you also comment? About a week ago Vale reported a sharp increase in the number of vessels that they have scheduled during the next 30 days to reach Brazilian ports. Can you comment on that? Have you seen any pickup in activity or in inquiries from charterers regarding Capesize vessels?

There are certainly more inquiries and there has been inquiries than there had been a month before. But we haven't seen a flood of charterers trying to -- in a state of panic -- secure tonnage, because there is plenty of tonnage around to secure.

My last question is, you have mentioned in previous presentations that if -- you have been conservative for the last couple of years and you have ridden the crisis very successfully. But you have also mentioned in previous presentations that if the scenario of a sharp decrease in asset prices does not materialize by the end of the year, you might reconsider your strategy of investing.

What are the signals that you are expecting to see? What would be a confirmation of your current strategy, or the signal that will lead you to move to a different direction?

Well I don't think we said that we were going to change the investment strategy. We said that we might reconsider our views about the future trend of asset values and the ability of the markets to absorb in the newbuilding tonnage.

We set the end of the year as a tentative sort of mark, timewise, purely because we believe that 2010 will actually see -- will be the first year since for a long time that we've actually seen a huge number of ships being added to the market.

So the rationale is quite simple. There is nothing too complicated about it.

If the markets succeeds in absorbing about 75 to 80 million tons of dry bulk carriers without huge problems and we see that at the end of the year, very early next year, then we are not going to change completely our investment strategy. But our ideas about the prices of ships and where they will be going over the next few quarters might be adjusted upwards, obviously.

Does that mean that the ships can be considered expensive if they move even higher? Or it means that the prices will not drop, so it is a good investment opportunity? I am trying to ask in relation to potentially dividends or investments.

What we have said in the past is that if we see that we have entered the upper part of our business cycle, we see vessels earning thousands and thousands of dollars as we have seen in 2006 and '07 or even before that, then we will certainly adjust the investment policy, and start paying dividends again, and raising more equity, bringing down the debt level that we will have at that moment, and so on and so forth.

But we feel that we are very far away from that scenario still, Fotis.

Thank you, gentlemen.

Doug Mavrinac, Jefferies & Company.

Great. Thank you, operator. Good afternoon, everyone. I just had a few market questions.

You know, Capesize rates as we have seen have really come off here over the last couple of months. I think everyone acknowledges that is primarily due to a decrease in Chinese iron ore demand.

However, my question is -- over time, Cape rates are generally twice as high as Panamax rates, for example. And obviously right now they are well below Panamax rates and have been for the last couple months.

Is there something structural taking place that would cause such a disconnect away from that historical correlation and that may cause us to have to think about the individual asset classes a little bit different going forward than we have historically?

Good morning. It is not the first time that this has happened on the Panamaxes and on the Capes. We have seen it before.

So this is a matter of how much the merchants want to buy and whether the smaller [stamps] are there as opposed to the bigger stamps. So it is nothing that we have seen it for the first time. We have seen it several times that the rates on the Capes are less than the rates on the Panamaxes.

So in other words, there is nothing structural happening. We have seen something that has resulted, as you said very correctly earlier, by the drop in the iron ore import to the Far East and the continued flood of newbuildings.

Got you. Okay. Thanks.

But on the short-term, not on the long-terms, of course.

Yes, that is what it seems as though -- it sounds as though it may just be on a longer term perspective we should see the correlation return, and this just may be a smoothing-out event.

Indeed.

Okay, great. Thank you, Mr. Palios and thank you, Stacey.

Then my second question relates to, I guess Stacey, some of your comments in terms of the expectations for the order book. As you mentioned, even if we see a 40% to 50% shortfall in the actual number of ships being delivered, it is still a big number.

My question is in terms of potential surprises to that number and the impact to the market. How do you expect the existing port infrastructure to accommodate all those ships, even if it is a 40% or 50% shortfall to the order book?

Is there a scenario that plays out that the port infrastructure doesn't keep up with all the ships being delivered, and therefore you just have these new ships just piling up and adding to an already congested market whenever demand does come back?

Yes. I mean that is a point that has been made implicitly by Howe Robinson in their reports. It's that even if the world demand for the volumes that these ships require, the newbuilding ships which will be added to the fleet, required to be kept busy we are going to have problems not only at the discharging ports but primarily in the loading ports. Because simply the cargoes will not be there for the ships to be loaded.

So it is one thing if you get a ship which is laden queuing up to discharge, and another thing when the charterer knows that when his ship goes to the loading port there will simply be no cargo. The second is beneficial for the freight market, as we have witnessed in the past.

The second phenomenon is not, unfortunately. It is detrimental, because this means that the less attractive units as usually happens, not the newbuildings, are going to be left unchartered. Not because the Chinese or the Asian, European, or American markets do not wish to have those commodities shipped, but simply because there will not be enough of the commodities themselves to be loaded to the ships to be moved to the discharging ports.

Got you. Makes [double] sense. Great. Thank you very much for the time, guys.

Rob MacKenzie, FBR Capital Markets. George Pickral, Stephens Inc..

Good afternoon, guys. Thanks for the time. A question on the order book. When you look at the new orders that we've gotten over the past year, are these more from existing ship owners and existing dry bulk companies? Or are you starting to see any sort of speculative buying in the market?

I think we have seen speculative buying too. Even for new orders, yes.

Okay. Well then -- so my follow-up question to that would be -- and maybe this is a Capesize-specific question. But given where rates are, given the order book, and given where we are in the cycle, do you foresee a situation developing -- and maybe your crystal ball here would be nice -- maybe in the next year or next two years where you could start to see some of these companies failing that maybe bought near the top and now can't get the rates to justify the interest expense?

When I replied yes on the speculative purchases, was mainly on the Capes, not on the Panamaxes. On the Capes, we do not have people who are speculative buyers. We have more speculative buyers on the Kamsarmax and on the Panamaxes.

And yes, I think that we are going to have a problem in the long run for the people who are speculatively investing in those ships. But mainly on the Capes and -- sorry, mainly on the Kamsarmaxes and on the Panamaxes.

But nothing imminent? Nothing say in the next year where you could start to see some of these speculative buyers failing?

Well, I would question whether they will be in a position to fulfill the orders.

Got you.

When they are there to be delivered.

Okay.

The problem is that they might disappear. And unfortunately we have seen a number of original contracting buyers disappear. But the yards have the tendency of building these ships and trying to find somebody else to buy them.

So unfortunately the financial demise of the speculative buyer is not much comfort to us as regards the supply-demand equilibrium, as long as the yards decide to build the ship and either sell it to a local buyer, say a Chinese owner, or to a foreign buyer with enough liquidity which he has gathered through the last five years of good markets.

That makes perfect sense. Thanks for the time, guys.

Thank you. We have reached the end of our allotted time for a question-and-answer session. I would like to turn the floor back over to management for closing comments.

Thank you again for your interest in and support of Diana Shipping. We remain sharply focused on delivering shareholder value, and we look forward to speaking with you next quarter. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.