Diana Shipping Inc (DSX) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Diana Shipping Incorporated fourth-quarter conference call and webcast. 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 Advisor for Diana Shipping. Thank you. (technical difficulty) Mr. Nebb, you may begin.

Thanks very much, Melissa. Greetings. This is Ed Nebb, Investor Relations Advisor to Diana Shipping Inc., and I want to welcome all of you to the Company's 2011 fourth-quarter and year-end 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 today's news release. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. Such forward-looking statements are based on assumptions, expectations, projections 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 Securities and Exchange Commission.

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

Very good. Good morning, and thank you for joining us. Diana Shipping followed a consistent strategic course in 2011, as we have seen since the inception of the Company. We have navigated turbulent economic and market conditions by chartering our vessels in a balanced and conservative manner, while delivering a stable, reliable revenue stream and maintaining a sound balance sheet.

In addition, we have been prudent and forward-looking in deploying our strong cash position to acquire vessels at attractive valuations in a strategy designed to position the Company for the next industry cycle.

Turning to some highlights of the year, we increased the size of the fleet by adding two Panamax vessels -- the Arethusa, agreed to purchase in May 2011; and the Leto, acquired in November 2011. The fleet now stands at 27 ships, including the two Newcastlemax vessels, the Los Angeles, delivered in February this year, and the Philadelphia, which is scheduled to be delivered early in the second quarter of 2012. As we go forward, we will continue our program of selectively and gradually adding to our fleet as market conditions permit us to acquire vessels at attractive prices.

We continue to manage the fleet in a responsible manner that promotes a balance of time charter maturities and produces a predictable revenue stream. Currently, our fixed revenue days are 89% for 2012. The majority of our vessels are chartered for periods ranging from 2013 through 2015 and beyond. We continue to enjoy excellent relationships with many of the industry's strongest and most respected charters.

We have maintained one of the strongest balance sheets in our industry. Our cash position at December 31, 2011 was approximately $417 million, or about $71 million higher than at year-end 2010.

We continue to operate with a very manageable degree of leverage. Long-term debt, including current position, was $373.3 million compared to stockholders' equity of $1.2 billion. The Company also has good access to credit facilities, as demonstrated by our recent drawdown under our existing facility with the Export-Import Bank of China, which was used to partially finance the cost of the newly-built Los Angeles.

Now let me review some of the key aspects of our results for the fourth quarter and full year 2011. Net income to Diana Shipping Inc. was $20.2 million for the fourth quarter of 2011 and reached $107.5 million for the full year. Time charter revenues totaled $57.4 million for the fourth quarter of 2011 and $255.7 million for the full year. Time charter rates averaged $25,714 for the 2011 fourth quarter compared with $31,602 in the fourth quarter of 2010.

Looking ahead, we believe that the global economy will remain challenging for the foreseeable future, and that time charter rates will be under pressure for the oversupply of (inaudible) capacity. In this environment, we will continue to apply our consistent, prudent strategies to maintain predictable revenues and profitable operations. We will continue to invest opportunistically in the growth of our fleet to enhance our long-term revenue generation capacity. And we will use our faultless balance sheet to provide stability in a volatile market and to support our growth strategy.

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

Thank you, Simeon. The dry bulk market has made several negative records during the last quarter of 2011 and the first two months of 2012. We will attempt to explain what we believe are the main causes for this, and to look at future trends by comparing demand with the available supply of large-bulk carriers.

The Baltic Exchange Dry Index gives a pretty accurate picture of the dire straits of the dry bulk market. From a high of 2173 and an average value of 1549 last year, the Baltic Dry Index closed at 718 points last Friday. The Baltic Cape Index managed to reach 3725 in 2011, averaged out at 2237 during the year, only to close at 1504 on February 24. The Baltic Panamax Index went to 2132 in 2011, had an average value of 1749 and closed last Friday at 836. On February 4, the Baltic Dry Index closed at 647, which was probably its lowest level since 1986, and a bit lower than we saw it in 2008.

The world economy cannot be held as solely responsible for the poor earnings of dry-bulk carriers. Nevertheless, the IMF has unfortunately marked down global growth to 3.3% for 2012. This figure hides the certain marked regional variances which have an effect on world (inaudible) trade.

The United States is forecast, according to the IMF, to grow by 1.2%, which is 0.7% lower than the September 2011 growth forecast. The European outlook since the September forecast has been revised down from modest growth of 1.1% to negative 0.5%. Developing nations are still forecast to grow by 5.4%, but contagion from the poor European performance is clearly spreading. Japan's economy shrank at an annualized rate of 2.3% in the first quarter of 2011, due to weak exports, exacerbated by slowing global demand.

According to Citigroup Global Markets, in China, the domestic property market correction and the (inaudible) recession which they forecast, may slow growth to below 8% year on year during the first quarter of 2012. Furthermore, foreign direct investment in China fell 0.3% in January 2012 from a year earlier. This was the third monthly decline in spending by overseas companies in that country. The first decline since 2009 was seen in November last year, and the drop deepened to 12.7% in December. European Union companies reduced spending by 42.5% in January, while investments by US companies increased by 29%.

In the United States, there have been some encouraging signs. The housing market appears to be stabilizing, and recent labor market statistics show further improvements. Unemployment has fallen to a three-year low of 8.3%.

Let's turn to steel now. According to Fearnley's Research and World Steel, crude steel production reached 1527 megatons in 2011. This is an increase of 6.8%compared to 2010 and is a record for global crude steel production. Annual production in Asia was 988.2 million metric tons, an increase of 7.9% compared to 2010. China's crude steel production in 2011 reached 695.5 million metric tons, an increase of 8.9% compared to 2010.

Looking at the steel stockpile, Commodore Research claims that Chinese stockpiles have increased for seven consecutive weeks. This was partly due to the Chinese New Year, but also to the fact that Chinese steel demand remains low. However, we also express the hope that within a few months, steel production will see a sharp increase.

Commodore Research believes that additional monetary easing is likely in China, as the government appears to have shifted its focus to stimulating growth. The Chinese government's recent lowering of bank reserve requirements for the second time since December 2011 seems to signify a major shift in government policy.

As for iron ore, Chinese iron ore imports in December totaled 64 million metric tons, bringing imports for the full year to 665 million metric tons, up 11% year on year. According to Clarkson, China's a strong import growth is the principal driver of the 6% growth in global iron ore trade witnessed during 2011.

Looking at 2012, Clarkson projects world iron ore export growth to slow to 3%, mainly due to the slower expected growth of 6% in Chinese imports this year.

What is not very encouraging is that according to Commodore Research, approximately 99.3 million metric tons of iron ore are now stockpiled at Chinese ports. These stockpiles are very high in historical terms, and remain close to the 101.5 million metric tons that was set earlier this month.

Going forward, Chinese iron ore imports remain poised to come under additional pressure, mainly for two reasons. First, because of the large Chinese stockpiles of steel referred to above; and second, because Chinese mines continue to produce a large amount of iron ore.

Coking coal. Here, according to Clarkson, China's seaborne imports in the first few months of the year could be relatively low, as once again high stockpiles at Chinese ports have reduced buying activity in the first two weeks of January. A recovery in Chinese steel production would help to boost demand for coking coal, although the growth in Mongolian exports is likely to limit the benefit to the seaborne markets.

As for the year as a whole, the forecast for coking coal shipments is that during 2012, they may increase to 225 million metric tons. This would be 2% higher than the year before.

Thermal coal. Clarkson estimates that Indonesian exports of thermal coal are expected to have reached 308.6 million metric tons during 2011, an increase of 6% year on year. Also according to Clarkson, exports are currently expected to increase another 4% in 2012, to reach almost 320 million metric tons. Overall, world exports of thermal coal are expected to increase by 45 million metric tons, to reach 731 million metric tons.

As for the grain trade, the US Department of Agriculture estimates that exports of US grain in the 2011/2012 crop year are projected to drop 18% to 72.2 million metric tons compared to 2010 to 2011 crop year. According to the International Grain Council, however, other parts of the world, such as Argentina, Australia and the Ukraine, are expected to show positive growth in grain exports. Overall, grain shipments are estimated to increase by 5% during this crop year and reach 254 million metric tons.

The Chinese coastal trade, according to Howe Robinson, is the star performer as regards cargo volume increase during 2011. It rose by a staggering 120 million metric tons to reach 640 million metric tons. This is certainly not a self-contained (inaudible) trade. This is a trade which gradually employs larger and larger bulkers, and could create a pleasant surprise on the upside amidst the doom and gloom which the [supply of current] is creating across the size ranges of bulkers.

Congestion now has been reasonably stable over the last few weeks. According to Commodore Research, approximately 120 vessels are currently anchored outside major Australian coal and iron ore ports. About 25 vessels were anchored outside major Brazilian iron ore ports, five fewer than about a week ago. Of these 145 vessels (inaudible) about, approximately 85 are Capes, and most of the rest are Panamaxes and Handymax bulkers.

As for Chinese ports, earlier this month, congestion decreased to 11 days, down 14% from a week ago, but still above the trailing six-month average of 6.5 days.

Let's turn to supply now. The newbuilding order book continues to be a major concern for dry-bulk shipping. As of the beginning of this month, there were about 81.1 million deadweight tons worth of Capes on order, representing 32.4% of the existing fleet. Even more worrying, however, is the fact that 58.8 million deadweight tons of Panamaxes are on order, representing approximately 37.4% of the existing fleet. About 64% of this tonnage is scheduled for delivery in 2012.

Even if 30% of these ships are either delayed or even canceled, the Panamax market will be flooded with newbuildings over the coming months. These newbuilding deliveries are expected to result in a fleet growth of 17% this year, net of expected scrapping, according to Fearnley's.

Overall, 189.2 million deadweight tons of dry bulkers are on order, representing 30.5% of the existing fleet. Howe Robinson estimates that in 2012, the bulk carrier fleet will increase by 16.9%, net of scrapping. These newbuildings will have the capacity to carry around 650 million metric tons of cargo per year and represent an asset supply-side challenge.

The expansion of Cape carrying capacity in 2012 amounts to 175 million metric tons, a rise of 12.3% compared to last year. According to Howe Robinson, the Sub-Cape carrying capacity is expected to increase cumulatively by 378 million metric tons during 2012, or by 13.8%. Therefore, prior to deletions, the Capes' needs, according to Howe Robinson's model, 166 million metric tons extra cargo this year to maintain market levels in line with 2011, whilst the Sub-Cape fleet needs about 378 million metric tons of extra cargo.

Their headline forecast suggests overall dry-bulk cargo growth of some 301 million metric tons, or 7.3% compared to 2011. This leaves a shortfall of some 243 million metric tons, or 6.4% of available capacity.

Scrapping. The market falls which Howe Robinson anticipates in the first half of 2010 will result (inaudible) a substantial increase in the rate of scrapping. In 2011, 25 million metric tons deadweight of dry-bulk shipping were deleted from the fleet. It is anticipated by Howe Robinson that is very possible for this to double during 2012.

In the Capesize sector, there are 50 ships of about 9.4 million deadweight tons in excess of 25 years old that are natural scrapping candidates. There are an additional 64 ships in the small Cape category totaling about 9.6 million deadweight tons, which will find it increasingly difficult to trade in competition to more modern, economical and larger vessels. Howe Robinson estimates that it would take perhaps half of these scrapping candidates to be scrapped for the Capesize group to reach level of earnings seen in 2011. Therefore, demolition is very likely to increase.

Apart from the abovementioned ships, there are about 1852 vessels in the smaller sizes of bulkers which are already 25 years or older.

Let's look at the supply/demand balance for 2012 and beyond. In round numbers, Howe Robinson estimates that for supply and demand to balance in 2012, about 11 million deadweight tons of Capes and 25.8 million deadweight tons of Sub-Capes will have to be scrapped this year alone. These scenarios would deliver levels of earnings, as we said earlier, for the dry-bulk sector similar to last year.

This entire Howe Robinson forecast, however, is based on a fundamentally bullish approach to demand. It assumes the continuation of strong growth in Asia generally and China in particular. It expects very little from the US and nothing from Europe, but does not factor in the consequences of any catastrophic dislocation to either the world economy or the financial systems.

So in concluding, Howe Robinson predicts that if there is no sudden rush to the yards to place newbuilding orders, which would kill any recovery, and if the current demand cycle stays intact, there is indeed reason to hope that by late next year the dry-bulker cycle will turn. We find this (inaudible) credible, even though it seems that something always happens to disturb one or more of the assumptions and bring about quite different developments.

It is within this rather pessimistic climate for dry-bulk shipping that the equity markets have decided to push dry-bulk stocks higher and higher, apparently oblivious of all the risks mentioned above, and confident that we have seen the bottom in earnings for dry-bulk carriers. The popular belief in the investment community appears to be that things will improve from here onwards, and higher earnings and ship values are on the way.

This is a very rosy scenario indeed, which unfortunately lacks credibility in many respects. Companies in the public domain, who will probably face serious issues with their balance sheets by year-end unless earnings improved dramatically, have seen their share prices in some instances double in a matter of a few weeks, admittedly from very low levels. A few are even trading at huge premiums to their net asset values for reasons which remain a mystery to the observers of the real world of shipping, as well as a futures market for earnings, the [FFA].

It is indeed possible that in the short term, seasonal factors such as the start of the grain season may push earnings higher. This will probably serve to convince optimists that their forecasts are materializing and the party will go on. Unfortunately, unless we have an extremely pleasant surprise from the demand side, reality will suddenly sink in in the form of third- and fourth-quarter results, and then disappointment will set in exactly at that time that optimism for the medium- to long-term fortunes of dry-bulk shipping could indeed be more justified.

As mentioned in previous conference calls, the Diana Shipping investment strategy, backed by our strong balance sheet, will continue with ship acquisitions throughout the downcycle. These acquisitions will be financed by debt for as long as it is available, and cash until recovery is well underway. Once the market turns, we believe that our vessels' earnings and our investment strategy will justify the resumption of the payment of dividends and the renewal of our fleet through further equity issuances.

Our recent acquisitions are proof that we will not deviate from this plan, as it has served our shareholders well over the past six years or so and has helped create a Company with one of the strongest balance sheets in the shipping industry.

I will now pass the call on to our CFO, Mr. Michalopoulos, who will provide us with the financial highlights of the fourth quarter of 2011, as well as the full-year results.

Thank you, Stasi, and good morning. I'm pleased to be discussing today with you Diana's operational results for the fourth quarter 2011 and year (technical difficulty) 2011.

Fourth quarter 2011. Net income for Diana Shipping Inc. for the fourth quarter 2011 amounted to $20.2 million, and the EPS was $0.25. Time charter revenues decreased to $57.4 million compared to $73 million in 2010. The decrease is attributable to decreased average time charter rates that we achieved for our vessels during the period compared with the fourth quarter of 2010, and also decreased revenues due to the deconsolidation of Diana Containerships Inc. The decrease was partly (technical difficulty) by revenues derived from the vessels Alcmene and Arethusa, added to our fleet in November 2010 and July 2011.

Ownership days were 2208 for the fourth quarter of 2011 compared to 2251 in the same period of 2010. Fleet utilization was 99.2% in the fourth quarter of 2011 compared to 99.5% in 2010. The daily time charter equivalent rate for the fourth quarter of 2011 was $25,714 compared to $31,602 for 2010.

Other revenues for the fourth quarter of 2011 amounted to $0.4 million, and consist of revenue derived from the management and administrative agreements between Diana Shipping Services SA and Diana Containerships Inc. Haulage expenses were $1.9 million for the quarter. Vessel operating expenses amounted to $14.9 million, the same as in the fourth quarter of 2010. There was an increase due to increased crew costs and insurances compared to 2010, which was offset by decreases in the other operating costs.

Daily operating expenses were $6,734 for the fourth quarter of 2011 compared to $6,631 in 2010, representing an increase of 2%. Depreciation and amortization of deferred charges amounted to [$14.1] million.

General and administrative expenses decreased to $6.3 million compared to $7.1 million in 2010. The decrease was mainly attributable to the deconsolidation of Diana Containerships Inc., taxes and legal fees. The decrease was partly offset by increased salary, compensation costs on restricted stocks and annual meeting expenses.

Interest and finance costs were $1.3 million for the quarter compared to $1.5 million in 2010. This decrease is attributable to decreased average interest rates during the period and the deconsolidation of Diana Containerships Inc., and was partly affected by costs on increased average debt.

Gain from derivative instruments amounted to $0.2 million for the quarter compared to $0.3 million in 2010, and includes both realized and unrealized interest costs relating to our $100 million of notional-amount zero collar swap agreements terminating in May 2014. Income from investments in Diana Containerships Inc., the gain from our investments in Diana Containerships Inc. amounted to $0.2 million.

Year ended December 31, 2011 now. Net income for Diana Shipping Inc. for the year ended December 31, 2011 amounted to $107.5 million and the earnings per share was $1.33. Time charter revenues in 2011 decreased to $255.7 million compared to $275.4 million in 2010. The decrease is attributable to decreased average [high weight] during 2011 compared to 2010 and the deconsolidation of Diana Containerships, Inc., and was partly offset by revenues derived from the vessels Melite, New York, Alcmene and Arethusa, delivered in January, March, November 2010 and July 2011, respectively.

(technical difficulty) to date were 8609 in 2011 compared to 8248 in 2010. Fleet utilization was 99.3% in 2011 and 99.7% in 2010. And the daily time charter equivalent rate was $28,920 compared to $32,049 in 2010.

Other revenues amounted to $1.1 million. Haulage expenses were $10.6 million in 2011. Vessel operating expenses amounted to $55.4 million and increased by 5%. The increase is attributable to the 3% increase in ownership days resulting from the delivery of three vessels in 2010 and one vessel in 2011, offset by the days lost due to the deconsolidation of Diana Containerships Inc. The increase was also due to increased crew costs and was partly offset by decreases in all other operating expenses.

Daily operating expenses were $6,432 in 2011 compared to $6,299 in 2010. Depreciation and amortization of deferred charges amounted to $55.3 million in 2011. General and administrative expenses amounted to $25.1 million compared to $25.3 million in 2010. The decrease was mainly attributable to the deconsolidation of Diana Containerships Inc., office rent and taxes relating to the acquisition of the building in 2010 and legal fees, and was partly offset by increases in salary and compensation costs from restricted stocks.

Interest and finance costs decreased by $0.3 million to $4.9 million compared to $5.2 million in 2010. The decrease was attributable to decreased average interest rates during 2011 compared to 2010 and the deconsolidation of Diana Containerships Inc., and was partly offset by increased costs due to increased average debt during the period.

Loss from derivative instruments amounted to $0.7 million compared to $1.5 million in 2010, and includes both realized and unrealized interest costs. Income from investments in Diana Containerships Inc. amounted to $1.2 million, and represents our participation in the Company, which we account for under the equity method.

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

Thank you. (Operator Instructions) Gregory Lewis, Credit Suisse.

Thank you and good afternoon. I didn't catch the mention of the Houston on the pre-remarks. Could you sort of provide an update on the delay of payments for the Houston and sort of where that stands at this point?

Hi, Greg. This is Ioannis. As regards to that project, we have nothing material to report. If we had something, we would have reported it. You understand that there are some confidentiality issues there, so there is nothing for us to report to that respect.

Is it safe to assume the vessel is still operating on that charter?

Of course.

Okay, perfect. I guess my next --

I think, Greg, if it was not, this is something material, that I report it anyway.

Okay, and so in thinking about that, this is -- a delay of payment is just sort of normal course of -- is that sort of just normal course of operation?

No (inaudible). We have nothing else to report on that subject.

Okay, perfect. Then switching gears a little bit to newbuildings, it seems like Cosco just actually -- Cosco shipyard took -- secured newbuilding deliveries this week. When you think about deploying, clearly, you have a lot of cash on the balance sheet and are in an acquisitive mode. You're about to take the delivery of your last newbuilding.

How do you think about growing? Do you think it is going to be a combination of newbuildings? Where do you see more value -- on the newbuilding market or in the second-hand market right now?

Well, I think, first of all, you have to realize that we have not reached the bottom yet. We are approximately half -- the time charter rate today, either Panamax or Cape, is --(inaudible), the annual expenses are the same. So as long as there is still some profit to be made, we will be buying either resales or secondhand, but almost brand-new.

When the time charter rate goes up to the running expenses of the ships, then we will be ordering ships, or we will be ordering even today, provided the prices are good enough for us. So we are on the lookout.

Okay, perfect. Thank you for the time, gentlemen.

Justin Yagerman, Deutsche Bank.

A couple of questions. I wanted to get a sense on the share buybacks. It didn't look like we got anything in the quarter. How are you thinking about that as a means of deploying cash here? Obviously, Stasi addressed the run-up that we've seen in dry-bulk share prices so far this year. But curious to hear how you guys are thinking about deploying capital in that realm.

Hi, Justin. It is Andreas. We initiated a small share buyback program during the quarter, from which we basically repurchased -- and you will see that mainly in the 20-F that will come out soon -- so we repurchased 154,091 shares with the program that we put in place throughout the quarter.

So as we said at the previous conference call, this time around, we, if needed or if we feel like it is an opportunistic and an opportune time to use it, we will use the share buyback program.

Okay. Maybe you could comment a bit -- you took delivery of the first Newcastlemax. It is a ship that obviously isn't all that different than the Capes probably that you've been operating for a long time, but is a larger-size vessel. Curious to hear any thoughts or reflections on that vessel's performance thus far and how you are feeling about that size of the vessel as you think about further acquisitions going forward.

Justin, we are pleasantly surprised that the consumption and the speed is a little bit better than the existing Capes, which is exactly what we wanted to achieve. And I think that we have achieved that. Although the breadth of the vessel is 5 meters more than the usual Cape, I think the characteristics of the hull prove that they produce a better-performing vessel. So we are very happy there.

Okay.

Of course, for the new one, we will be using a different kind of engine, the long-stroke and the slow revolutions. And that is what we have in mind.

Okay, so as you think about acquisitions -- and obviously, you said that buying resales or modern secondhands is something you would consider in today's market. How should we be thinking about the pace of this as we go forward? Obviously, it is opportunistic as vessels come up in the market. But if you had your kind of perfect lineup of vessels to buy over the next three, four quarters, how should we think about that progressing if the way that you view the market plays out?

Well, I think every three months we will be buying something. And of course, we have always to look -- what we have are variable -- (inaudible) the prices we have are variable, and how the market is shaping up. I think that our safety net is the existing time charters with (inaudible). And from there on, we will be playing the market as it comes along. But approximately, we (inaudible) every two to three months we will be buying.

Okay, and typically stick to Panamaxes and larger, I would assume.

Yes, Panamaxes to Newcastlemaxes.

Excellent. Thank you so much for your time, guys. Appreciate it.

Thank you, Justin.

Fotis Giannakoulis, Morgan Stanley.

Good morning, gentlemen. Thank you. I wanted to ask -- you seem not to agree with the market analysis and Howe Robinson's predictions about the recovery of the market at the end of 2013. What I want to ask is what would be the surprises that they can accelerate this recovery or they can delay the recovery? How much scrapping do you expect -- do you think that is going to be required in order to see the scenario of Howe Robinson materialize?

I think, Fotis, if the market goes further down from, let's say, $12,000, $11,000 for the Panamax for two years or one year, we go down to $7000, then of course the scrapping will definitely accelerate. And I think that we all know that if the special survey is due and the owners have to pass the special survey and the money needed is $4 million or $5 million, then he has to think twice before he goes into passing the special survey.

And it depends, of course, how is the scrap price shaping up. If the scrap price remains as it is today, I think a lot of scrapping will take place, and especially to ships which are more than 15 years of age.

If I can add on the numbers, we need at least 40 million to 50 million tons of large bulkers to be scrapped to get some sort of balance, assuming that we get about 70% rate of delivery for the newbuildings.

And on the surprise front, as we mentioned, there is obviously demand which could theoretically be pushed up by excessive, let's say, loosening up of monetary policy in China and loosening up of bank loans, which we do not anticipate, but could conceivably happen for various reasons that only the Chinese government knows. And this will bring demand growth in China well in excess of 8%, maybe 10% or 11%, with the other pleasant surprises on the volumes, overall commodities which will be shipped to that country, and, to a certain extent, to China in general.

But pleasant surprises from Europe, we do not expect. But from the United States, possibly. As we are running an election year now, we could see something happening there better than what the IMF is anticipating. So there, we could get a little bit more demand. Nevertheless, we see that such demand will benefit more container vessels than bulk carriers.

What we are talking for, there is also another factor that we have to take into consideration, is how the banks are going to react, especially banks who have supplied the (inaudible) delivery finance. What are they going to do? Are they going to stick with their orders, or are they going to -- what is going to happen? Are they going to supply more capital to bridge the gap, or are they going to let it go? I don't know. And we haven't tested that. But there is a lot of pre-delivery finance.

Shall I assume that nothing has really changed on the financing side, on the banking side, compared to three months ago? Because we've seen all these newbuildings on order, that a lot of people have been speculating for a long time that they won't be able to be financed. But for the moment, we haven't seen many fire sales or many owners having difficulties or being forced to sell their assets. Have you seen any changes from that front?

I think every day that goes by, the difficulty of raising funds is very (technical difficulty). If there were six banks that used to lend money six months ago, I think today, there are not more than three. And so on.

Given the negative outlook that you have for the freight market, does this also include the asset values? We've seen asset values already having dropped more than 70% in certain ages compared to the peak levels of 2008. Do we think that we are near the bottom at least in asset valuations, or there is a further potential decline? And how low can the asset values go, given newbuilding Panamax looks to be around 30 or even below that?

Well, I think that the (inaudible) is directly proportional to the freight curve. The only thing is that there is a lag. And as we said before, at the moment, we are chartering (technical difficulty) twice the (technical difficulty) of the vessel. And we predict that -- although we should not predict -- I think that the market has quite some room to go down.

Is there a bottom in our view in asset prices, given your base case outlook? How long can we see (multiple speakers)?

Don't forget that in 2000, we had [ordered ships] of $19.6 million. We have ordered the Panamaxes. So today, to order a Panamax similar to that one, you have to pay $28 million, $30 million. So there is $10 million to go, or thereabout.

I just want to add, though, that steel prices at that time was something like $6 million less (multiple speakers).

The replacement cost is of no importance whatsoever. What is? No one is going to (technical difficulty) something because it is costing to someone a specific amount. If the numbers do not make sense, either the yard, they will have to reduce their cost of producing the vessel or they will not produce a vessel at all. But no one is going to buy something just because of the cost of that vessel being built. If the numbers do not make sense, no one is going to buy it.

Understood. And one last question. There is all this discussion across all asset classes about the fuel-efficiency, about new designs being able to deliver savings of 5 or even 10 tons per day with (inaudible) fuel.

First of all, I just want to ask your opinion, if you share this view, if you think that these savings are real. And that provided that the yard -- to the degree that these savings are real, how much of these savings can really pass to the ship owner in the form of higher charter rates?

Well, 10 tons, which you mentioned, is out of the question. Because for a vessel which consumes 50 tons, 10 tons is 20% and that is out of the question 100%. The maximum you should expect is a saving of approximately 3% to 4%, maximum 5%, the very maximum.

Yes, you can get some more efficient ships, and especially I think with the long-stroke (inaudible) G-type engine and the slow revolutions, which is 70 revolutions, I think you will be able, with special hull forms and co-efficient of -- the hull co-efficient to be [set] -- I think the maximum you can achieve is approximately 3% to 4%, nothing more than that.

3% to 4%, so practically -- it is not going to make any material difference. You are talking about (multiple speakers).

If it is 50 ton a day, 4% is to 2 tons; that's it.

So that 2 tons, you think you can get it to -- we were talking about $1500 higher rate on a Capesize vessel. Is that correct?

Well, yes. But if you have the same consumption, let's say, on the Newcastlemax you have an extra 35,000 tons of cargo that you are carrying, which is something, yes.

Okay. Thank you very much for your time.

Michael Pak, Clarkson Capital Markets.

A lot of my questions have been answered, but I do have one last question. Stasi mentioned in the earlier part of the call about the market outlook on steel inventories in China. Stasi, given where inventories are and even where steel price have been heading, what would you say -- or could you give us an outlook in terms of the near-term, given that we are already two thirds into 1Q, about the Q2 prospects of a pickup in the dry bulk market here, given sort of the underpinnings you went through.

First of all, as we said earlier, we avoid making a specific forecast. But what we see as a natural development in the marketplace is for some life to be injected in the Panamax market when the grain season, especially from South America, commences. And also, if there is possibly some work for Capes coming from Asia in spite of these high stockpiles in both iron ore and steel. But that will not be significant, in our view.

You have to keep in mind that, on occasions, we get a couple of weeks of strength, from the fact that newbuilding deliveries are not perfectly streamlined through the year. And if there is a gap somewhere and we have a lull, let's say, in deliveries, and therefore efforts of owners to fix their ships, which have remained unfixed and are imminent for delivery, then we could get some sort of life.

It is not difficult, you see, to push rates from where they are up by about 10% or 20%. The question is how long they are going to stay there. And our fear is that come summer, we are going to have again weakness setting in across the board of the large bulk carriers, because of the numbers of ships which will be delivered.

On the other hand, if we have pleasant surprises and they are not delivered for some reason -- they will not be canceled, because most of them, their building has commenced -- but (technical difficulty) into 2013, then the strength might last a bit longer. But eventually when these ships come, they have to find employment. And when scrapping is more or less happening at the rate that we mentioned earlier, of 30 million, 40 million tons deadweight a year, it is difficult to envisage that picking up significantly from such high levels.

So we are a bit optimistic for the medium term, but not -- for the short-term, but not for the medium-term.

Great. Just one last question. What are your thoughts on the trans-shipment development in the Philippines related to the [VE] locks.

Theoretically there, we should see -- and in practice -- picking up of demand for chartering smaller ships. But don't forget that you are talking now about a relatively small number of ships yet, which are not going to make any significant difference to overall figures. Until we get a large number of very large or carriers going to port and requiring trans-shipment, we don't feel we are going to see any significant impact in the balance between demand and supply.

Great. Thanks for your time, guys.

Brandon Oglenski, Barclays Capital.

Good morning, everyone. I just wanted to follow up, because when we look at some of the industry data, we actually see spot rates that look like they are below vessel op costs today. So is this an environment where you are able to get a better rate on a longer-duration charter?

As you have seen, we are chartering our vessels for periods of one to two years, and we can still find numbers in the vicinity of $10,000 to $11,000 or even more than $11,000.

What you are referring to are spot rates. What we are referring to are our time charter rates going to that level.

Okay. And if that is the case, are you in forward discussions on the seven or eight vessels that you could potentially be looking to place later this year, or is it too early on those particular vessels?

As we have said in the past, we will stagger the opening dates of those vessels in the future. And we would [place them] in such a manner that we will not have a lot of other vessels opening the next years. It is the simple staggering of our vessels. That is the way we do the physical hedging ourselves.

Okay. And then just very quickly on vessel OpEx, you said that you had an increase in crew costs but a decrease in other expenses. How should we be thinking about modeling that out for 2012?

I think it is a safe assumption to model a moderate increase for 2012 in the overall operating expenses for our vessels. And if you model an increase that would -- if you put in your model operating expenses around $6600, $6700, you should be all right for your model.

Okay. I know it has been a long call. Thank you very much.

David Beard, Iberia Capital Partners.

Good morning and good afternoon. Most of my questions have been asked, but I wanted to hear your thoughts relative to the capacity of scrap yards to potentially scrap 37 million tons a year.

The capacity of the world scrapping industry, unfortunately, is a rather vague number, simply because the market is not so, let's say, disciplined in reporting figures, for various reasons. But we hope that the world's scrap yards could potentially scrap 50 million tons deadweight of dry bulk carriers nowadays without great difficulty.

But we are not obviously sure, because a lot depends on how many other types of ships are going to go to the scrap yard. And we should remember that tankers, for example, are more profitable types of ships for scrap yards to deal with, for various reasons having to do, of course, with the tanks, (inaudible), et cetera, that they have on board. And also a refrigerated ship and fuel container vessels, chemical carriers, especially stainless steel tankers, are much, much more profitable.

So it is not only a matter of capacity. It is also a matter of preference when ships are competing for the same, let's say, slot in a scrap yard program for scrapping. So we would hope that up to 50 million tons of dry cargo ships could be accommodated, if there isn't significant pressure from other types of ships to go for scrap -- for scrapping.

Great. That's very helpful. Thank you, gentlemen.

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

Thank you again for your interest in and support of Diana Shipping. We look forward to speak with you (inaudible). Thank you.

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