Diana Shipping Inc (DSX) 2012 Q1 法說會逐字稿

Greetings and welcome to Diana Shipping Inc.'s first-quarter 2012 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, Mr. Edward Nebb, Investor Relations Advisor for Diana Shipping. Thank you, Mr. Nebb, you may begin.

Thank you, Louis. Hello, everyone, and welcome to the Diana Shipping Inc. 2012 first-quarter conference call. 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 is attached as part of the news release. 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.

Forward-looking statements are based upon assumptions, expectations, projections, intentions, and beliefs as to future events that may or may not prove to be accurate. For a description of the risks, uncertainties, and other factors that may cause future results to differ from what is expressed in the forward-looking statements, please refer to the Company's filings with the SEC.

With that let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer.

Thank you, Ed. Good morning and thank you for joining us today. During the 2012 first quarter Diana Shipping Inc. continued to produce a reliable revenue stream operated in a profitable manner and maintain a solid balance sheet at a time of volatile industry conditions.

We also made significant progress in our fleet expansion strategy, which is intended to position the Company for future profitable growth. In February 2012 we took delivery of the newly built Los Angeles, a Newcastlemax dry bulk carrier that was contracted in 2010. Today we also announced delivery of the Melia, a Panamax dry bulk carrier.

In addition, we recently announced agreements to purchase two Ice Class Panamax dry bulk carriers with delivery anticipated during the fourth quarter of 2013. In total, we have three vessels anticipated to be delivered in 2012/2013 -- the two Ice Class Panamax vessels, as I just noted, as well as a Newcastlemax newbuilding that is anticipated to be delivered in few days.

With these additions the size of our fleet will increase to 30 vessels. The fleet is increasingly diversified, including the vessels scheduled for future delivery. We will have 17 Panamaxes, one Post-Panamax, eight Capesize, two Newcastlemax, and two newbuilding Ice Class Panamax vessels.

Considering that we own 21 vessels at the time we announced our fleet investment strategy in 2008, this represents a very substantial progress in the expansion and diversification of our fleet. We are continuing to manage our fleet in a responsible manner that promotes a balance of time charter maturities and produces a predictable revenue stream.

Currently, our fixed revenues days are 89% for 2012. The majority of our vessels are chartered for periods ranging from 2013 through to 2015 and beyond. We are continuing to enjoy excellent relationships with many of the industry's strongest and most respected charterers.

Turning now to some of the highlights of our results for the first quarter of 2012. Net income to Diana Shipping Inc. was $20 million for 2012 first quarter compared to $33.1 million a year ago. Time charter revenues for the latest quarter totaled $57.6 million versus $69.4 million a year ago. Time charter rates averaged $24,276 for the 2012 first quarter compared with $31,592 in the same period of 2011.

We have maintained one of the strongest balance sheets in our industry. Our cash position at March 31, 2012, was approximately $442 million or about $69 million higher than a year ago.

We continue to operate with a very manageable degree of leverage. Long-term debt, including current portion, was $424.5 million compared to stockholders' equity of $1.2 billion. Our solid financial position helps to ensure stability in a volatile market and this is also support for continued growth initiatives.

While volatile conditions persist in the dry bulk shipping industry, we will continue to pursue the strategies that we believe will deliver stable and profitable results in the near term and will contribute to our growth for the long term. We will continue our program of selectively and gradually adding to our fleet as market conditions permit as to acquire vessels at attractive prices.

We will operate our fleet according to balanced and prudent chartering policies, and promote a predictable revenue stream and enable us to sustain profitable operations. And we will continue to manage our balance sheet to provide financial flexibility, provide the capacity to support growth, and maintain an acceptable degree of leverage.

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

Thank you, Simeon, and we welcome all the participants to this quarterly conference call.

The first quarter of 2012 was quite depressing for owners of bulk carriers and one they would sooner forget and hope will never return. The Baltic Dry Index started the year at 1,624 and stood at a mere 934 during the last trading day of the quarter. The Baltic Panamax Index moved from 1,619 to 1,051 during the quarter and the Baltic Cape Index fared worse starting the year at 2,955 and finishing the quarter at 1,412.

Second quarter, however, has given owners some good news, at least on the Panamax front. The Baltic Panamax Index moved from 1,051 mentioned above at the end of the quarter to 1,693 at close of business yesterday. Panamax rates have benefited from a resurgence in the number of coal and grain fixtures.

In China demand for imported thermal coal has surged recently caused to a certain extent by the ongoing maintenance to China's coal-dedicated Daqin railway referred to below. In the short term Fearnley Consultants see a lack of Panamax tonnage in the Atlantic, which could take some time to balance out. They cite increased coal being shipped from the US Gulf and the US East Coast.

For the past few weeks Fearnleys have also noted that coal business out of Indonesia and Australia has helped support the rates of Panamax and Supramaxes. Their fear, however, is that the record-high newbuilding deliveries this year -- more about that later on -- will put a cap on any further rate increases and then strength could be short lived.

Let's turn to macroeconomic considerations. In the United States, Maersk Broker saw growth coming at 3% for the last quarter of 2011 and are hopeful that this rate of growth will carry over into 2012. As for the euro zone, the European Commission is forecasting a contraction of 0.3% in 2012, which is down from their November forecast of 0.5% growth. The downgrade was mainly due to the projected contractions of 1.3% in Italy and 1% in Spain.

China has lowered its economic growth target to 7.5% from an 8% per annum rate, which has been in place since 2005. Maersk Broker believes that the Chinese leaders are determined to reduce reliance on exports and capital spending in favor of consumption. However, we are also forecasting that actual economic growth in 2012 will surpass that target, as it has done for seven years before that.

The Chinese government has begun to take more aggressive steps to stimulate the economy by lowering the bank reserve ratios twice since last December to 20.5%, while new bank lending has increased by 37% during the first quarter of this year compared to the last quarter of 2011. However, there is also another school of thought as expressed by economists at Citibank, which has indeed a certain degree of credibility.

Assuming that growth in China is slowing then house prices and inflation will go down, which will help redistribute wealth away from the rich and towards the poor. In other words, growth for growth's sake might not be the most important factor driving policy decisions now in China, and it might be the distribution of that growth which matters more.

Whatever form the distribution of wealth takes going forward, we agree with the view expressed by several analysts, including amongst them Wells Fargo Research, that continued Chinese economic stimulus could help drive demand for dry bulk commodities higher and in the long run help in the absorption of the huge number of newbuilding vessels scheduled to join the bulk carrier fleet this year and next.

As for India, its economy grew at the slowest pace in two years during the last quarter of 2011. Gross domestic product rose 6.1% in the three months to December following the previous quarter's 6.9% rate of growth. With the February rate of inflation accelerating for the first time in five months, the Central Bank has shown courage and taken the bold steps to cut key lending rates for the first time in three years in an effort to stimulate growth and boost investment. This move on the part of the Indian Central Bank comes after both Brazil and Indonesia eased liquidity.

Turning now to steel. During the first two months of 2012 work crews peak production totaled 241 million metric tonnes, an increase of just 0.6% compared with the same period in 2011. However, according to Commodore Research, in March global steel production shot up to 13 million metric tonnes, which was 11% more than was produced in February this year.

For the whole year steel production is expected by Maersk to reach 1.6 billion tons, an increase of 5% year on year, mainly on the back of strong growth in emerging economies. According to Commodore Research, Chinese steel mills will produce large amounts of steel over the next few quarters and demand for imported iron ore should remain firm.

While they consider that the recent decrease in steel prices should be monitored closely, they do not see any signs that steel production in China is poised to grow through a major correction. According to Maersk Broker, China and India together are expected to account for half the world's steel consumption in 2012. Construction of public infrastructure and housing, along with the manufacturing of consumer durables, support the strong consumption growth targets in both countries.

Now on iron ore, on a worldwide basis iron ore shipments are expected by Clarksons to reach 1.093 billion metric tonnes, up by 4% compared to last year. China is expected by Maersk Brokers to maintain d during 2012 its top position as the largest iron ore importer, accounting for more than 60% of total imports. In the full year Maersk expects that China will import 735 million metric tonnes of iron ore, up from 687 million metric tonnes in 2011, an increase of 7%.

According to Commodore Research, China continues to import a growing amount of iron ore from minor exporters such as kind Canada, Indonesia, the Ukraine and Mauritanian. According to Pareto Securities, India continues to restrain its iron ore exports and has raised iron ore export duties from 20% to 30%. Pareto expects that to reduce iron ore exports from India will most likely be replaced by Capesize cargoes, which could be negative for Panamax rates but should support Cape rates going forward.

According to Clarksons now, the projection of China's 2012 imports of iron ore remains subject to considerable uncertainty as evidenced by the different projections for steel production growth this year. These vary between 4% and 6.8%.

If steel demand increases in the coming months, the extent of this recovery in demand will determine the demand for iron ore. Assuming China sources 30% of its iron ore imports from Brazil in 2012, the total dry bulk ton mined demand growth will be 10.5%, everything else remaining equal.

Clarksons considers the main downside risk in Chinese import growth of iron ore to be the lack of growth in [seaborne] iron ore supply. If this fear materializes, the price of iron ore will go up and China will consume more domestically-produced iron ore.

According to Gibson shipbrokers, the major mining companies remain adamant that all the iron ore they produce is being sold. One major mining company said that although Chinese imports of iron ore will keep growing in the coming years, a fundamental shift in the Chinese economy away from a high degree of investment might lead to a peak of iron ore imports in 2015.

Let's look at iron ore stockpiles. During the second week of April of this year about 97.6 million tons of iron ore were stockpiled in Chinese ports. It is a near-record level; however, Commodore Research forecasts the stockpiles coming under pressure going forward as steel production continues to find support from industry and housing projects.

(inaudible) China produced 61.5 million tons of crude steel, which was a record monthly volume of production. On coking coal Clarksons expects that China's seaboard imports may increase by 9% this year to reach 26.6 million metric tonnes. On a global basis, Clarksons expects the 299 million tonnes to be exported which will be a 3% increase compared to last year.

On thermal coal, globally shipments are expected by Clarksons to reach 747 million metric tonnes, an increase of 4% from 2011. And looking now at a thermal coal stockpiles, the Chinese stockpiles of this commodity have fallen to critically low levels in April, that is about 5.5 million metric tonnes, due to maintenance to China's coal-dedicated Daqin railway.

This maintenance work came to an end on 30th April as peak summer demand season is quickly approaching which will cause electricity demand to continue to surge. With Chinese coal port stockpiles remaining low, Chinese coal imports should set a new record by July according to Commodore Research.

Now according to Clarksons, Indian imports of steam coal will be very strong this year and next as large coal-fired power stations are built and brought online to service India's increasing electricity demand and economic growth. Imports are projected to increase by 16% year on year in 2012 with much of this growth likely to be supplied from Australia and Indonesia.

Grain cargoes now. 2011/2012 is expected to be a strong season for grain exports. According to the US Department of Agricultural, global grain trade is expected to reach 299.57 million metric tonnes during the 2011/2012 grain season, up 6% compared to the 2010/2011 grain season.

The USDA has raised its grain trade forecast partially due to improved expectations for Brazilian coarse grain exports. Furthermore, weak exports from Argentina are expected to reach 9.3 million metric tonnes during the 2011/2012 season, up 22% year on year. Grain shipments from Argentina have increased over the last two years and should reach 28.2 million metric tons during the 2011/2012 grain season.

Let's look at supply now. According to Commodore Research, about 410 Panamax bulkers and 209 Capes are expected to be delivered in 2012. This staggering number of ships should put a cap on any upward move in the earnings of these vessels.

The only encouraging news is that next year the numbers drop significantly to 210 Panamaxes and 80 Capes. This, however, still means that in 2013 about four Panamaxes will be joining the fleet every week.

As for the countries building these vessels, China holds 55% of the dry bulk order book with Japan a distant second with 24%, followed by South Korea with 13%. The rest will be built in the Philippines, India, Vietnam, and a few in Europe. It is encouraging though to note that according to Clarksons so far this year only 62 vessels have been contracted compared to 1,311 during the whole of 2010 and 450 during 2011.

The total large bulk carrier order book, down by sector, is, according to Clarksons, as follows. 787 Panamaxes on order totaling 62.4 million tons deadweight, representing just under 39% of the existing fleet. Also, 388 Capesize vessels are on order with total deadweight capacity of 78 million deadweight tons, representing 30.4% of the existing fleet.

It is worth noting that according to Pareto Securities, assuming that all newbuilding orders have had about 30% front-end payments made. This would leave an unfunded requirement of $60 billion. This could create doubts as to the actual deliveries of the large part of the order book.

However, past experience has shown that somehow someone always seems to come up with the money to take delivery for each vessel which might be faced with financing problems. A number of analysts have therefore put the percentage of cancellations and delays for this year at about 30%, and for 2013 this is expected to drop to about 15%. If these slippage rates materialize, it would mean that about 100 million deadweight tons of ships would be delivered in 2012 and about 80 million deadweight in 2013.

As for excessive deliveries of newbuildings, a growing trend has emerged according to Commodore Research, more and more Chinese shipyards are being forced into owning vessels in order to combat the decline in orders. 2011 saw various Chinese yards, including the Yang Fang Group, place orders at their own yard. Commodore Research expects that such decisions will continue simply to keep some struggling yards alive.

Let's turn to congestion now. According to Simpson Spence and Young, congestion is either at or below long-term average levels. Iron ore port congestion in China in the middle of March stood at about 4.5 days with ships waiting for an average of 12 days to load all types of cargo in Australia.

As for scrapping, a review of shipping analysts at banchero costa is that if the market remains weak during 2012 there is potential for the pace of demolition to quicken. We saw 319 bulk carriers, over 20,000 deadweight tons, scrapped last year and already 99 [units] have been reported sold for scrap during the first three months of this year. There are over 1,000 ships which are already over 25 years and a further 400 which are between 21 and 25 years old.

What is not so discouraging as regards to scrapping of large bulk carriers, however, is that a mere 8% of the Capesize fleet is over 25 years old and no more than 11% of the Panamax fleet is in that age bracket. As of the end of this year, out of the 1,058 bulkers which will be older than 26 years 658 will be Handysize bulkers and 206 Handymaxes. Only 160 will be Panamaxes and Post-Panamaxes and a mere 29 will be Capes.

This, by definition, places a limit on the number of ships that are likely to be scrapped in the next three years to relieve the pressure created by the huge number of newbuildings being delivered this year and next.

So where does all that leave us? We at Diana Shipping Inc. take a cautious view of the short and medium term and are more optimistic on the earnings and asset values of large bulk carriers from the middle of 2013 onward. The reason is that the poor freight market over the next few quarters will make the decision to scrap aging tonnage easier. Once a reasonably large percentage of the fleet has been scrapped, the absorption of newbuilding tonnage joining the market will become that much easier.

In order, however, for these forces to play out and a balance to emerge time is required. The amount of time naturally depends on the world growth in general and more particularly growth in China, India, and the rest of the emerging markets. If that falters, for whatever reason, then we might be faced with a prolonged recession and the end of 2013 might not show the signs of recovery that we expect to see.

Hopefully, this will not happen. And, more importantly, owners will not get carried away and order ships once again in a speculative and reckless manner as they did in 2010. This will bring the market tumbling back down again just as it has regained the steady footing and begins to show decent earnings throughout the bulker size ranges.

Diana's investment strategy has not changed and the Company intends to continue acquiring ships through the down cycle and managing its chartering program in what we have been referring to as a portfolio of staggered maturity. We are still convinced that this is by far the best way forward, which would not only protect growth but bring this about in an orderly manner and without placing at risk the pristine balance sheet which we have strived so hard to create for our shareholders.

I will now pass the call over to our CFO, Mr. Michalopoulos, who will present you with the first quarter 2012 financial highlights.

Thank you, Stasi, and good morning. I am pleased to be discussing today with you Diana's operational results for the first quarter 2012.

Net income for Diana Shipping Inc. for the first quarter in 2012 amounted to $20 million and the EPS was $0.25. Time charter revenues decreased to $57.6 million compared to $69.4 million in 2011. The decrease is attributable to decreased average time charter rates that we achieved for our vessels during the period compared with the first quarter 2011.

This decrease was partly offset by revenues derived from the vessels Arethusa, Leto and Los Angeles delivered in July 2011, January and February 2012, respectively. Ownership days were 2,313 for the first quarter of 2012 compared to 2,106 in the same period of 2011. Fleet utilization was 99.8% in the first quarter of 2012, the same as in 2011.

The daily time charter equivalent rate for the first quarter of 2012 was $24,276 compared to $31,592 for 2011. Other revenues for the first quarter of 2012 amounted to $0.6 million and consists of revenues derived from the management and administrative agreements between Diana Shipping Services SA and Diana Container Ships Inc.

Voyage expenses were $2.2 million for the quarter. Operating expenses amounted to $14.7 million and increased by 19%. About 10% of this increase is attributable to the addition of new vessels in the fleet, which resulted in the ownership days to increase. Additionally, operating expenses increased due to increased crew costs but mainly increased stores, spares, and repairs and was partly offset by decreased average insurance costs.

Daily operating expenses were $6,337 for the first quarter of 2012 compared to $5,873 in 2011, representing an increase of 8%. Depreciation and amortization of deferred charters amounted to $14.6 million. General and administrative expenses decreased by $0.4 million, or 6%, for the first quarter of 2012 to $6.1 million compared to $6.5 million in 2011. The decrease was mainly attributable to the [consolidation] of our containership [fleet] January 18, 2011, and also decreased compensation costs on restricted stock, printing, and legal fees.

Interest and finance costs were $1.5 million for the quarter compared to $1.3 million in 2011. This increase is attributable to increased average interest rates during the period and increased average debt.

Income from investment in Diana Container Ships Inc. The gain from our investment in Diana Container Ships Inc. increased $2.3 million compared to $0.1 million for the same period in 2011. This increase was due to the increase in our ownership percentage of Diana Container Ships Inc., which as at March 31, 2012, was 14.45% compared to 10.9% at March 31, 2011. And also due to the increased earnings of Diana Container Ships Inc. in the first quarter 2012 compared to the same quarter 2011.

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 procedure for asking questions.

(Operator Instructions) Justin Yagerman, Deutsche Bank.

It's Josh Katzeff on for Justin. Stasi, just wanted to maybe start off with some macro thoughts. Appreciate the update and it sounds like you guys are still, I guess, negative over the next year. Does that mean you see further downside for asset prices?

Yes, we do, as a matter of fact, and we are witnessing this now as we speak nearly across all size ranges. If the strength in the Panamax sector continues, we might see a pause there in the erosion of values. But I think Mr. Palios, who has been monitoring asset values on a daily basis, will confirm that ships that he is looking at now on behalf of the Company are being offered for sale at lower prices than we were looking at during the first quarter.

What we have noticed, Justin, is that there are more buyers around, especially more Greeks, some Chinese, and a few Taiwanese. That concludes the prospective buyers. But they are a little bit more active than previously and the prices are a little bit lower than three months ago.

Are those buyers well capitalized? I mean do they have the firepower to really start purchasing assets, and maybe bank support?

Yes, but not on a continuous basis I think. They may buy the old vessel, but there are a few around.

Got it. And I guess on that note, we saw the newbuilding acquisitions and the one Panamax acquisition. I guess you guys have historically guided to a few purchases per quarter. Should we expect something coming in in the next couple months?

Yes, indeed or even [through now].

Got it. And I guess with regard to how you plan to finance those acquisitions, are you still looking at maybe 40% to 50% debt?

Yes, that is correct. Something like that. We have no problem in financing the vessels, not at all.

Just one last question before I turn it over. I guess still no update on the Houston. Can you maybe provide any commentary around that or also whether there are any other counterparty issues?

This is Ioannis. You know very well that when we have something to report we are doing that immediately and, therefore, having not heard from us about anything then there is nothing material to report. I suggest that you look at the numbers we have just signed to see what we have done with the situation of (inaudible) Houston.

Got it. Still have to try. Thanks for your time.

Michael Webber, Wells Fargo.

Good morning, guys. How are you?

I wanted to jump back on to the Shagang Charter. I know you guys haven't put out an announcement yet, but there is not a lot of detailed cash flow information provided either. So are they paying you still? I know you filed and I think it was in Q4 they hadn't paid you in 90 days. Is that cash flow actually coming in the door?

I have to repeat to the question the answer that I gave earlier. Look at the numbers and if they were not paying you would have heard from us.

Okay. So from an accounting perspective you wouldn't need to start stripping that out of your -- at what point would you start stripping that out of your revenue?

Certainly the number was bigger than the one that we had to file a press release for. Maybe the number now is zero, but there is nothing for us to report.

Okay, all right. That is helpful. Maybe we can follow-up off-line.

I wanted to touch on buybacks. You have got the authorization in place and it seems like you guys have been -- you nibbled at it a little bit last quarter and it doesn't seem like there is a whole lot done this quarter. And you guys are still kind of trading in decent proximity to your NAV.

How big a discount do you need to your NAV to really step in and start buying shares? Maybe you can talk a little bit about the value proposition you can see there versus what you are seeing in the market right now for new ships. Obviously you are spending more money on steel than stock at this point.

There is not a specific discount that we are waiting to see. It all depends on the current environment -- the discount, of course, to the NAV and where we stand on the cycle -- for us to decide to step in. We think that we have explained the reasoning behind the share buyback and when we are there to intervene. In a few words, we are there to buy some of our stock back when we feel that we are grossly undervalued.

Okay, that is helpful. Just a couple, I guess, quick modeling questions. Andreas, maybe this is a question for you.

But given the significant cash balance you guys are running in, can you talk a little bit about what instruments those are in and maybe what banking system? Just a little bit of color in terms of how you guys are actually using that cash while it's kind of sitting on your books.

The cash is there to be used to acquire vessels and that is why you see it in cash and cash equivalents. That means that we have it in no fancy stuff, straight forward because it's various banks.

We, of course, don't put all our eggs in the same basket. Try to be diversifying between top class banks, be it US or European or even some Chinese banks as well. So that is the way we manage our cash. Nothing fancy, very straightforward and that is it.

We have done -- we do sometimes because we have some need for euros in a very small amount, some dual currency deposits, but that is as fancy as we get.

Fair enough. Is it safe to say that money is going to be evenly spread between the US and Europe or is it more heavily allocated towards US banks?

No, I think it's evenly spread, maybe not evenly spread every time because we will change the mix. We are lucky enough to have cash increasing every quarter, but we work also, mind you, with the banks that we have big relationships with, this European (inaudible).

Fair enough, that is helpful. Andreas, also just one more and I will turn it over. Your G&A ticked down a little bit in the quarter, I guess sequentially. Can you maybe provide a little bit of guidance for the remainder of the year and where you think you are going to come out?

Not really guidance. I can tell you that around those levels it's down a little bit. I think around those levels it's fair to say that we are very close to our G&As, as we are for all of our expenses. One of the -- we are so to be point that one of the reasons we went down is that (inaudible) that have so many traveling during this first quarter.

I see that there are conferences coming up in New York (technical difficulty) next month, the month after we will have some traveling to be done. So you might see a little -- these levels are the levels, to cut a long story short, that you shall see for G&A this quarter.

Okay, that is fair. Actually I am going to have to ask one more and then turn it over.

Stasi, you spent some time earlier kind of going through obviously your market update and you answered some questions on growth. Clearly the acquisition base has picked up pretty hard in the first quarter. If we start looking kind of beyond acquisitions, I guess you guys have stated you are conserving cash and not paying out a distribution because you want to spend that on cheap assets.

What do you look for to kind of change that methodology or change that process, where you might get more comfortable actually paying a dividend again? I know we are not probably close to that point.

Is it pure asset appreciation? Do we need to start seeing assets move up 10% and 20% at a time before you guys start thinking you are going to start redistributing cash to shareholders? Or just how do you think about that?

This is Ioannis again. We have to see our industry, the business cycle of ours changing and moving towards the upper part of the cycle. We have to go through the bad periods and start moving upwards.

Usually there is a change in the charter rates first, then the psychology changes positively, and then you have the assets moving upwards. But as Stasi said earlier, we don't see that for the near future and this, the beginning of moving upwards, we expect it to be at the end of 2013 in the best case scenario.

All right, that is very helpful. Thanks, guys. I appreciate the time.

Fotis Giannakoulis, Morgan Stanley.

(inaudible) from Morgan Stanley on behalf of Fotis Giannakoulis. After a quite depressing first quarter we have seen Panamax rates move higher. How much of this increase is due to the grain season in South America and what is your outlook when it is over?

I think you are right to assume that it is for the grain season, and we do not expect a substantial change to the rates of the Panamaxes.

Okay. My next question is how do you see Capesize markets developing and why is rates seem so low? How many ships do you estimate the current [over] supply?

I think Stasi has given you a number which we are expecting to come from the yards. That is a possibility that these vessels, some of the vessels, about 30% will not be financed because the finance is very scarce today, but there will be substantial ships. Coupled with the fact that the age of the Cape fleet is not very old, I think there is a slight problem and we may see values and rates even lower on the Capes.

Okay, understood. How do you see newbuilding prices developing? We recently -- Capesize resales sold for $36.5 million. Given the current charter rates and lack of ordering, where do you see prices go both for Capes and Panamaxes?

From your discussions with yards, what kind of terms are now available? Do you see shipyards willing to drop prices further?

Well, the price is directly proportional to what vessel can earn. The replacement cost has nothing to do with the prices of the ships. If the vessel in unable to move cargo then (inaudible) and the price should be adjusted accordingly.

So the replacement cost has no bearing whatsoever. So if the rates are down and if the rates are at par to the running expenses on the ships then the vessels will be laid out, and that is the real bottom. We are not there yet and that is why you see that vessels are not laid out.

If you are fixing your Panamax day at $10,000 or $11,000 daily, you are paying [multiple to your running] expenses. And where the vessel rate will go, the freight rate will go will be -- the time charter rate will be the running expense of the ship which is around $5,500 to $6,000 daily.

Last question, given the current charter rates, many of your competitors are facing significant cash flow shortage and difficulties in repaying their debts. How will the bankruptcy of a company with a large fleet would impact dry bulk rates?

Well, there is an effect -- there will be a shock to the system but effectively the supply of ships to the world bulk carrier rate isn't going to change. It's just the manner that it will be chartered is going to be affected temporarily if there is a bankruptcy. So we don't see the supply/demand being affected too much by any bankruptcy.

Operationally, and on the chartering side, there will be disruptions no doubt. Some force majeure declarations might be made, charters canceled by some charters, but the ships will remain there to be chartered and to carry cargo. And that is what counts ultimately in the supply/demand balance.

Okay. Thank you for your time, gentlemen. I really appreciate it.

Erik Stavseth, Arctic Securities.

Good morning, guys. Just a question regarding your newbuilds. I know you have been through it before, but I want to touch upon the fuel efficiency question again. You noted that the vessels will be using roughly 28 tons per day at 30.5 knots, which is significantly lower than what other vessels that you have in your fleet consume at similar speeds.

However, I was speaking to Mr. Zafirakis and he said that there would be some increase in (inaudible) engines. But could you sort of pinpoint those to a daily savings number that you would be comfortable with?

I think there is a slight misunderstanding to what we have said. I think we were referring to ballast conditions and without the auxiliaries, and I think that has given some different thinking of what will be the next speed and consumption of the Panamax.

I have a feeling that the improved Panamax is not going to be all that different of what we have been facing today. It will be better, but not substantially, and certainly if fuel oil price drops that will have a different bearing on the whole issue again.

I remember several times before we had the same issue of increasing the speed and decreasing the consumption, but at the end it has not been improved immensely. So I think we have overplayed that game of better efficiency.

Okay, thank you. The reason I am asking is basically -- I am trying to look for a number here sort of and I know that there is an impact on the fuel cost, of course, the [bunker] price. But you have been talking it down quite strongly and it seems to me that several other players are embracing the fuel efficiency of -- I mean the percentages vary but it just seems to me that you are talking about but you buying the efficiency.

So I was just curious if you see any other players thinking the same as you are thinking?

Well, there is a lot of talk in the market from the ship builders and from different other people, but we have not seen it in practice as concrete as some they say that they are going to improve the efficiency of the ships.

Okay, thank you.

Brandon Oglenski, Barclays Capital.

Good morning and good afternoon, everyone. Just want to follow up on Simeon's comments about the incremental buyers that are entering the marketplace right now.

I mean is this just folks that are saying, hey, asset prices are low here and we are going to make a longer-term call on the cycle? Do you think that is what is occurring right now?

Yes, to a certain degree that is indeed the case and people with liquidity are taking a long-term view. I mean there is no other view you can take with today's rates unless you believe that the recent increase in the Panamax revenues and income is going to be a permanent phenomenon stay with us for the next few quarters. If you don't or if you doubt that this is the case, then, of course, you are buying ships, looking at the long-term like we discussed 2013 and beyond.

I think you should note also that the spot rates have increased but not the time charter rate. So the trans-Atlantic and the trans-Pacific indeed is for the Panamaxes have increased today at 13,677, but it was not reflected for the period. It was only for the spot rates, and that is why we take the position that this is short lived due to the grain season.

There is another very important issue that someone should understand as regarding potential purchasers around the market. Having the money on your balance sheet and the ability to be able to buy vessels that they are not going to be -- have profit-making from day one and it may take longer to start making some profit, can be done much easier by strong companies like ours where those vessels are going to be placed in the same balance sheet together with other vessels that they are producing money. The net effect is going to be still a positive number.

But other than the private ship owner or a fund that have just some cuts on the side and they want to put them at work and start making profit from day one, which is usually the case. This is something very important for our shareholders and you, as analysts, to understand and to realize the strong position that Diana Shipping Inc. is at today.

We definitely understand that but I guess what our concern is that if there is incremental capital entering the marketplace right now and I think you even quoted that maybe 30% to 15% of the order book over the coming years could get canceled or just never delivered. But if there is cash showing up, say, hey I want to get assets at these prices, maybe we actually see a little bit more of that get delivered and just prolong this process.

I mean how financially sound and are the incremental buyers more of those fun type owners that don't necessarily have the distributed portfolio? Or should we be thinking it's more like a Diana that is the incremental buyer right now?

You see the scenario of Diana, the portfolio of staggered maturities gives you the opportunity of not trying to spot the particular moment of entering. You are entering in a period of time which is substantially big, so you can make some purchases today and after two months you can make another one and so on. So you are not pinpointing the day, which is the proper day to get into the cycle. You have perhaps 2, perhaps 3, even 3.5 years to play with, and that is really important in shipping.

Now let's take a vessel which you would give to the charterer to be chartered. If this vessel is big and the rates are good, you give him the vessel between five and six minutes to reply whether he wants the vessel are not. You know what the shipping means that you have two or three or four years to play with. It's a huge advantage.

But most specifically about your question about the incremental buyers, there are a few players, even private ones, that are having this ability to sustain a bad environment. Not too many around. We feel that more are going to be private ship owners rather than funds. They are going to be the incremental buyers that you mentioned, but there are not a lot of those around.

And that appetite can soon be fulfilled.

All right. Thanks a lot, guys.

Sal Vitale, Sterne Agee.

Good afternoon, gentlemen. I just have a question regarding the comment earlier about Chinese shipyards essentially building vessels on speculation to maintain employment. If I could just ask for a few clarifications on that.

I guess the first question is how long has this been going on? Is it purely anecdotal at this point? Can you provide any detail on the number of vessels for which this -- for which steel has already been cut?

Short answer is no. The longer answer is that it has been going on since 2011. It is a trend which hasn't gained huge momentum yet, but adds another category of buyer to the question that was made earlier as to who are the buyers who are buying ships today. This is a category of buyer that nobody has expected would show up and start contributing to the increase in supply of tonnage over the next few quarters.

So it is not a flood of ships that is going to come from that category of purchaser or ship owner, but it is not a welcome trend, and we hope it will not gain momentum. The buyers are basically now people who have liquidity and take a long-term view, as we said earlier on the market. We believe that by historical standards prices today are not unattractive, even though they are not particularly cheap, and they start investing in the way that has been described earlier on, on tonnage either secondhand or resale.

It all goes back to the point where I said earlier that historically always someone comes up with the money to take delivery of a ship which appears to be in huge difficulty of the owner finding money to take delivery and finance, or delivery. Yes, there is money around and when the price becomes cheap enough the ship is sold to the person who has the liquidity, and that is what counts.

What counts is whether the ship will be added to the supply side of the chain or not. Regrettably, we feel that the risk is more that more ships will join than what we have been assuming will not. The 30% might be lower rather than higher, in other words, for 2012 and the 15% for 2013 again might be a lower number than might actually materialize.

Right, okay. So to what extent are you incorporating this new trend into your forecast of when the bottom is going to be? I think you said late 2013 in terms of the bottom with the understanding that you can't call the bottom.

We have structured our company such (inaudible) that we have eliminated that unknown, and that is the key issue here. To eliminate the frequency of (inaudible), which is the grain market. We don't know when it is going to go up or down.

We know when it's down for certain and we know when it's up also, but we don't know when it's going to take place. The beauty of Diana Shipping Inc. is that you are moving in the cycle knowing what you are doing and that this particular moment we have to increase the capacity of our ships. That is what we are doing at the low cycle of the market and it is below the regression line.

So we are at the stage that we can buy now and we have to buy and gear the Company in such a manner that at the end of the period we find ourselves with approximately 50% finance with bank lending. Not with equity finance but with bank lending and that is what we are doing. We will keep on doing it until the market starts picking up and then other things will take place. We will go back again to the capital markets and we will start again the dividend and so on.

Okay, that is very helpful. Then just a follow-up on that. Can you give us a sense of the economics currently at the shipyard level? I guess in terms of newbuilding price declines have outpaced the decline in steel prices.

I understand what you said earlier that asset prices are generally based on the supply and demand of ships and not steel prices, but do you think that there is a floor at some point at which the yard simply will not orders at uneconomical prices?

Prices for newbuildings have indeed been going down. Mr. Palios mentioned earlier and you, I think, noted that the replacement cost and the cost of construction is not directly related to the resale price of a newbuilding vessel. It is supply and demand and the income stream that people perceive the ship is going to have in her lifetime that determines her price.

So in a nutshell, we believe that prices for newbuildings have more to go on the downside and the same holds for the secondhand ships. Now if in the process the cost of building ships actually goes down as well, well, so be it. That is something that the suppliers of the machinery and the steel, as well as labor costs, are going to determine in their negotiations with each individual shipyard.

But the price that they will be able to sell the ship, i.e., is going to be determined by supply and demand, and yards don't have much influence over that.

Okay. Thank you very much.

There are no further questions at this time. I would like to hand the floor back over to management for closing comments.

Thank you, again, for your interest in and support of Diana Shipping. We look forward to speaking with you in the months ahead. Thank you.

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