Diana Shipping Inc (DSX) 2013 Q1 法說會逐字稿

Greetings and welcome to the Diana Shipping Inc. first quarter 2013 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 to your host Ed Nebb, investor relations for Diana Shipping. Thank you, Mr. Nebb, you may begin.

Thank you, Kevin, and welcome all to the Diana Shipping Inc. 2013 first-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. Ionnis 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. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. 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 from what is expressed in the forward-looking statements please refer to the Company's filings with the Securities and Exchange Commission.

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

Thank you, Ed. Good morning and thank you for joining us today. I am pleased to report to you on the performance of Diana Shipping Inc. for the first quarter of 2013. During the first quarter of 2013 we continue the strategic expansion and diversification of our fleet while also maintaining our traditional prudent approach to chartering.

Since the beginning of this year we have taken delivery of two Kamsarmax vessels -- the motor vessel Myrto and the motor vessel Maia. We also acquired the motor vessel Baltimore, a Capesize vessel that is scheduled for delivery by the end of this month.

In addition, yesterday we announced the signing of shipbuilding contracts for two new Kamsarmax dry-bulk carriers which we expect to take delivery during the second quarter of 2016.

Including newbuilding vessels on order and the recent secondhand acquisition currently scheduled for delivery our fleet consists of [37] dry bulk carriers. It is an increasingly diverse fleet including new Kamsarmax, Capesize, Post-Panamax, [Heinz] plus Panamax, Kamsarmax and Panamax vessels.

We continue to manage our fleet in a responsible manner that promotes a balance of time Charter maturities, producing a predictable revenue stream. Currently our fixed revenue days stands at 94% for 2013. The majority of our vessels are charted to periods ranging from 2014 through 2016.

In keeping with our practice of maintaining high quality relationships, our recent charterer agreements have involved such leading charterers as EDF, NYK, Morgan Stanley, Minmetals, Cargill, Glencore, Rio Tinto, ADM, RWE and others.

In another recent development we announced yesterday that Diana Shipping has agreed to loan up to $50 million to Diana Containerships, our former wholly-owned subsidiary, of which we currently own approximately 10.4% of the issued and outstanding common shares. The loan may be used by Diana Containerships to fund vessels acquisitions and for general corporate purposes.

Turning now to a summary of the financial results of Diana Shipping for the first quarter of 2013, time charter revenues for the recent quarter totaled $42.6 million. We recorded a net loss for the 2013 first quarter of $3.2 million. However, this included a loss of $3.3 million on our investment in Diana Containerships related to a non-cash impairment loss for the three of Diana Containerships older vessels which were recently sold.

We have maintained what we believe to be one of the strongest balance sheets in our industry. Our cash position at March 31, 2013, was approximately $412.3 million. We continue to operate with a very manageable degree of leverage. Long-term debt, that is including the current portion and net of deferred financial fees, was [$415.2 million] compared to stockholders equity of $1.3 billion.

In summary, Diana Shipping is continuing to pursue the strategies that have maintained our stability and financial flexibility in a volatile industry environment while investing in assets that will generate long-term growth.

We will continue our program of selectively and gradually adding to our fleet as much as conditions permit us to acquire vessels at attractive prices. We will operate our fleet according to balanced and prudent chartering policies, that promote a predictable revenue stream and enable us to sustain profitable operations. And we will continue to manage our balance sheet to provide the 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, Anastasios 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 once again welcome to those who have joined us in this quarterly conference call. The first quarter of this year did show some encouraging signs as regards the earnings of bulk carriers. This can be seen from the Baltic indices which moved generally higher.

On January 2 the Baltic Dry Index stood at 698 and yesterday closed at 830. The Baltic Cape Index started the year at 1237 and closed at 1321 on May 21. The Baltic Panamax Index started the quarter at 685 and closed yesterday at 899.

International Monetary Fund projects that global growth will be 3.3% in 2013, a downward revision from their previous estimates. For 2014 the IMF predicts that the world's economies will grow by 4%.

According to the World Trade Organization the world economy continues to run at two speeds -- for the OECD countries struggling to [avoid protection] while China and other Asian countries continuing to grow at healthy rates compared to other regions, although at slower rates than previously witnessed.

According to Clarkson's, Asia's growth has recently slowed with China in particular experiencing some relatively difficult months and Indian growth grinding to a halt. Fortunately, though, (technical difficulty) rate has behaved better than the world's economy. Dry bulk rate is expanding at a healthy 4% per annum in line with long-term trends, driven primarily by iron ore and thermal coal transportation demand.

However, Clarkson's believes and we agree with this view that the dry bulk market continues to look vulnerable with almost 100 million deadweight [tons] of deliveries expected in 2013 and demolition running at a much lower level of around 24 million deadweight tons per annum. So in 2013 supply growth will continue to forge ahead of demand.

In the United States, real GDP increased at an annualized rate of 2.5% during the first quarter of this year. Confidence among US consumers climbed with the confidence index going from 61.9 in March to 68.1 in April. In Japan the manufacturing index improved from 50.4 in March to 51.1 in April this year. Unemployment also dropped to 4.1% which was the lowest rate since November 2008.

The Chinese government is still trying to encourage growth. Therefore, in March alone Chinese banks issued approximately $100 billion worth in loans. This was 71% more than the loans issued in February this year.

This is not as encouraging news as it might appear if we take into account the recent downgrading by the credit rating company Fitch of China's credit rating. This was the first such move since 1999, and Fitch cites an all-familiar story as the reason for this downgrade. And that is the increased risk that rising debt problems may require a government bailout.

Meanwhile the Producer Price Index decreased 1.9% in March compared to the same month last year, indicating that in China at least inflation is not an issue that needs to be a drag to economic policy.

The Chinese manufacturing sector slowed down in April with the manufacturing index dropping to 50.6 from 50.9 in March. A troubling [story] for shipowners has been the fact that the evolving economic policies in China have a focus on consumption and pollution prevention. As such, they lack the resource intensive drive which characterize Chinese economic growth over the past decade. This, if continued, could indeed have a profound influence on the supply/demand balance of the bulk carriers industry going forward.

Just to fully appreciate the importance of the above, all we need to do is to note that an astonishing [51%] of growth in seaborne trade in the period 2001/2012 was accounted for by the Chinese economy. This leaves no doubt as to the major driving force behind the robust level of trade growth, at least as far as the demand side was concerned.

According to figures released by the World Steel Association, total crude steel production reached 1.5 billion metric tons in 2012. This was up about 1.2% compared to 2011. For the first two months of this year the same organization puts the world production of crude steel at 253 million metric tons. This is 3.4% higher than during the same period in 2012.

According to Howe Robinson, Chinese crude steel production in the first quarter of 2013 reached the annualized equivalent of 778 million metric tons. This represents an advance of 11.3% compared to the first quarter of 2012.

This counteracts some of the bearish comments which followed the announcement that Chinese GDP grew by 7.7% in the first quarter of this year. However, this surge in output may be outpacing consumption growth. This will enhance the sliding of steel prices which might lead to a further trimming in production during the subsequent quarters of 2013.

Let's turn to iron ore. Clarkson's predicts that in 2013 the iron ore seaborne trade will increase by 6% to reach a record 1.176 billion tons. Chinese iron ore production increased in March this year reaching 112.2 million tons. This was 9% higher than at the same time last year and 27% higher than in February of 2013.

For the first three months of this year total production of iron ore in China stood at 287.4 million tons, which was 12% more than what was produced there in the same time last year. However, according to Wood Mackenzie, China's ore import dependency, which now is around 60% of total demand, might reach 80% in 2017. The reason they cite for such a development is the un-competitiveness of the Chinese ore extracting industry compared to the three largest world producers of this commodity.

Approximately 69.1 million tons of iron ore is also stockpiled at Chinese ports according to Commodore Research. Although this marks the second straight week when Chinese iron ore stockpiles have increased, they remain at low levels not seen since April 2010.

However, Commodore Research concludes that Chinese demand for imported iron ore is likely to come under pressure in the short term. This they ascribe to the relatively high stockpiles of steel and the pressure on steel prices. Furthermore, they believe that until construction and domestic steel consumption in China increase, there is little chance of iron ore demand finding sustained support.

However, the price of iron ore could in the long run influence the demand for transportation of this commodity. According to Pareto Shipping Research, there exists a (technical difficulty) consensus in the iron ore market that prices will fall from current levels, possibly to below $100 per ton over the next two years. Such a scenario would probably be positive for the dry bulk shipping market, because Chinese iron ore producers would fail to break even, thus scaling down or even abandoning their production altogether.

Moreover, assuming that India and Iran would exit the export market entirely, (technical difficulty) the demand for shipments from Australia and Brazil will increase radically, leading to longer haul trade.

Let's turn to coal now. As regards coking coal, Clarkson's predicts that total seaborne exports will reach 246 million tons, an increase of 4% compared to last year. The main worries here is Mongolian exports which slowed down in January and February this year, but are about to resume at full capacity and may affect seaborne import volumes in the coming months.

As regards thermal coal, Clarkson's predicts also seaborne exports to rise by 5% this year and reach a record 846 million metric tons.

A positive factor for coal imports by China is the fact that (technical difficulty) of this commodity has the largest [trans] shipment port in China, Qinhuangdao, has come under pressure due to maintenance work on the coal-dedicated [Declan] railway line. With coal not reaching that port from the Chinese coal mines, China will have to import a large amount of coal mainly for power generation over the next few months, more than would otherwise have been the case.

Finally, stockpiles of thermal coal at major Chinese power plants are down 4% as of the beginning of April from a year ago, and 7% down from a month-to-month basis. Both these developments are positive for the demand side of the Panamax sector.

China, according to Howe Robinson, is turning its attention to coal deposits in Russia. Imports from that country nearly doubled from 2011 to 2012, reaching 20.2 million tons and thus far this year are running at an annual rate of over 40 million tons.

A brief look at grain now. Clarkson's are forecasting that during the 2012/2013 grain season total seaborne trade for grain products will drop by 5% to reach a total of 259 million metric tons. According to initial expectations of the international Grains Council global grain trade will grow by 1% in the 2013/14 crop year, according to the above mentioned 4% drop in 2012 to 2013.

Look at demand now and according to most shipping analysts overall demand growth of the dry bulk shipping industry 2013 should be around 5%, giving us a total of 4.3 billion metric tons, after having increased by about 7% in 2012.

As regards fleet growth, according to Clarkson's, growth of the bulk carrier fleet slowed in 2012 compared to the 15% growth seen in 2011. Nevertheless, it still grew at 10%. Plus at the beginning of March 2013 the bulk carrier fleet numbered 9568 vessels with a combined 688 million deadweight tons carrying capacity having doubled in capacity since the start of 2006.

More impressively, though, at the beginning of March 2013 the Capesize fleet comprised of 1513 vessels of a total 282 million deadweight tons, more than double the size at the start of 2008. Clarkson's continues that the significant oversupply of that was built up in recent years in the Capesize sector is expected to continue to affect the markets at least in the short term.

While the gap between growth in the iron ore trade and Capesize supply is expected to be small in 2013, projections for both are to grow [at] 6%. This is unlikely to lead to an immediate or significant market improvement as the existing overcapacity will take a while to absorb.

As for the Panamax sector, supply side pressure has recently been considerable and fleet growth is projected to remain strong in the coming years, 12% this year and 8% in 2014.

Overall, coal trade growth according to Clarkson's is expected at 5% in 2013. Should be mentioned, though, greater Chinese import growth than currently protected could help to reduce the large gap between projected Panamax supply as mentioned above and demand growth, at least for this year. However, the extent of the oversupply means that the market is still likely to remain weak at least in the short term and maybe well into 2014.

Let's look at congestion now. Congestion in the Brazilian rain forest has increased dramatically over the past two months. Howe Robinson estimates that nearly 100 vessels are now waiting in Paranagua alone to load soya bean.

And Commodore Research stated approximately 125 vessels are anchored outside major Australian coal and iron ore ports, so 20 less than a week ago, but still relatively steady in numbers for the year. Approximately 40 vessels are anchored outside major Brazilian iron ore ports.

Of the 165 vessels congested at major Australian and Brazilian coal and iron ore ports, approximately 115 of them are Capesize vessels.

Let's turn to scrap. So far this year 4.8 million deadweight tons of Capesize vessels have been sold for scrap, and a mere 1.8 million deadweight tons of Panamax tonnage have headed for graveyards. The likely figure is an alarming 48% drop to the equivalent quarter of 2012.

Clarkson's expects that this year about 10 million deadweight tons of Capesize bulkers will be broken up and about 5.5 million deadweight tons of Panamaxes. This is unfortunately an aggregate compared to the 29 million deadweight tons of Panamax tonnage which will be delivered this year, only to be followed by an additional 16 million deadweight tons in 2014.

As we have mentioned in past conference calls, the problem with scrapping is the age profile of the large bulk carrier fleet. For example, in the combined Panamax/Kamsarmax size range, only 11% of the fleet is over 20 years old. Even worse, in the Capesize sector, a mere 6% of the fleet falls into this age bracket. So the pool of scrapping candidates is unfortunately rather small.

Let's turn to the new building order book. After the latest statistics provided by Clarkson's, there are 49 million deadweight tons of Capesize vessels on order, representing 17.2% of the existing fleet. At the same time there are 45 million deadweight tons of Panamax and Post-Panamax vessels on order, representing about 24.5% of the existing fleet.

[So these] about 27 million deadweight tons are expected to be delivered this year and then additional 14.6 million deadweight tons in 2014. Just for the sake of reference it is useful to note that according to shipping analyst [Cyrus Plateau] during 2012 the total slippage amounted to about 28%. While only 9% of the order book included obviously in the slippage total figure were canceled, removed or converted into other types of ships.

Overall, newbuildings represent 17.9% of the existing dry bulk carrier fleet.

As regards to secondhand market, we agree with the observation made by ship broker Simpson Spence & Young that during the first quarter every size and age of dry-bulk carrier coming to market has attracted a large number of potential buyers. It has not been unusual to see upwards of 10 buyers per ship [inspected].

The relative lack of serious sale candidates combined with an increasing buying interest, possibly driven by a strong conviction that better times are just around the corner, are leading to firmer prices being paid than previously anticipated.

Let's turn finally to the outlook of this industry. We share the opinion of Gibson Shipbrokers that the massive fleet of recently built tonnage, indeed with more coming, will hang heavily over the freight market for the rest of 2013. An added factor of [a site] delaying recovery of the freight market for larger ships is a number of newly built 200,000-plus deadweight bulk carriers and ore carriers, which are creating extra deadweight carrying capacity in ore trades from Brazil and Australia as well as for coal trade from the Australian continent.

Many of these vessels are on contracts of affreightment or index-linked [employment deeds]. This at times lowers the amount of spot market cargoes for the conventional [170,000 to 182,000] deadweight bulkers.

To cite an example of this trend, Vale expects to have a fleet of 35 Valemax ships in operation by the end of this year. Of those ships, 19 will be owned directly by Vale. The rest will be owned by third parties and operated under fixed cargo contracts with that company.

Now demolition, unless it picks up dramatically from its present state, is unlikely to make sufficient inroads into the large tonnage basis year, and even a minor upsurge from 2014 is fast becoming questionable as some cash-rich owners are finding current eco engines and newly designed vessel prices too hard to resist, and are ordering more ships.

In short, we agree with the Clarkson's prediction that the shipping market is stuck in the trough of a recession and it will be 12, maybe 18 months before fleet growth slows sufficiently to allow demand to start up growth in the [investment] tonnage in a significant way. That suggests the shipping recession could drag on.

Nevertheless, none of this appears to be sufficient to dampen the enthusiasm of potential investors in both new building tonnage and shipping stocks alike. It remains to be seen how many will have the stomach to sit it out with a [different end] in order to reap the handsome rewards for their patience.

Within this bulk shipping industry environment, we at Diana Shipping are moving ahead with implementation of our investment strategy in quality tonnage at attractive price. Financing these acquisitions at conservative levels is not a problem, because the banks love opening loans to those who do not really need them.

Such reluctance on the part of the banks to lend even to reputable, conservative owners is not physically good news for the long-term development of the shipping industry. However, in the medium term it will at least restrained the expansion of supplier tonnage.

We are confident that when the recession is over our enlarged fleet will serve our shareholders well by producing extremely lucrative cash flows compared to the cost of ship acquisitions, over and above the significant depreciation in ship values. Although we can make no assurances that we will do so, we expect that we will therefore be in a position to restore the payment of dividends.

At this point I will pass the call to our CFO Andreas Michalopoulos, who will provide us with the financial highlights of the first quarter of 2013.

Thank you, and good morning. I am pleased to be discussing today with you Diana's operational results for the first quarter of 2013. Net loss amounted to $3.2 million and the loss per share was $0.04 as a result of a $3.3 million loss from Diana Containerships Inc. without which the results for the first quarter of 2013 would be a profit of [$0.1 million] while the loss per share would be zero.

Time charter revenue decreased to $42.6 million compared to $57.6 million in 2012. The decrease is attributable to decreased average time charter rate that we achieved for our vessels during the quarter compared with the same quarter of 2012.

The decrease was partially offset by revenues derived from six vessels delivered in 2012 from mid-January to November and two vessels -- the motor vessel Myrto and the motor vessel Maia delivered in January and February 2013 respectively. Ownership days were 2806 for the (technical difficulty) 2013 compared to 2313 in the same period of 2012.

Fleet utilization was 98.8% compared to 99.8% in the same quarter of 2012. The daily time charter equivalent rate was $14,398 compared to $24,276 in the same quarter of 2012. Other revenues for the first quarter of 2013 amounted to [$0.4 million] and consists of revenues derived from the management and administrative agreements between Diana Shipping Services S.A. and Diana Containerships Inc. until they were terminated on March 1, 2013.

Voyage expenses were $2.2 million for the quarter. Vessel operating expenses amounted to $18 million compared to $14.7 million in 2012. The increase was due to the enlargement of the fleet with six vessels during 2012 and two vessels during the quarter of 2013.

On average, the increase in operating expenses was mainly due to increasing crew costs and taxes, and was partly offset by decreased spares, repairs and maintenance costs.

Daily operating expenses were $6400 for the first quarter of 2013 compared to $6337 in 2012, representing an increase of 1%. Depreciation and amortization of deferred charges amounted to $15.5 million.

Effective January 1, 2013 we changed the estimated scrap value of all our vessels from $150 per lightweight ton to $250 per lightweight ton. This change was made because the historical scrap rates over the past 10 years have increased, and as such, the $150 value was not considered representative.

This resulted to a decrease in depreciation of approximately $0.7 million for the quarter, offsetting the increase from the enlargement of the fleet.

General and administrative expenses decreased to $5.5 million compared to $6.1 million in 2012. The decrease was mainly attributable to decreased expenses for bonuses, provisions for employees, indemnity, and traveling expenses. The decrease was partly offset by increased employees' contribution and legal fees.

Interest and finance costs were $2.1 million for the quarter compared to $1.5 million in 2012. This increase is attributable to increased average debt in the quarter of 2013 compared to the same quarter of 2012, and increased average interest rates from 1.52% during last year's last year's quarter to 1.72% in this year's quarter.

Loss from investment in Diana Containerships Inc. amounted to $3.3 million for the quarter compared to a gain of $0.3 million in the same quarter of 2012, which was due to a non-cash impairment loss recorded by Diana Containerships during the quarter.

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. Thanks a lot.

(Operator Instructions). Justin Yagerman, Deutsche Bank.

I noticed that in vessels under construction you guys now have two new Newcastlemaxes that you are building. Were those auctions? And what was the strike on those auctions? And I guess it confirms that you like the class of vessel in and of itself because you have been operating them for about a year. Can you tell us a little bit about how you came to that decision to buy the ships?

We are very happy with what we have already, and we have put a lot of effort to increase the efficiency of the newbuildings and we think that the price is very lucrative. We bought the vessels [$48,700,000]. We have an installment of 15%. A payment -- the first payment is 15%, which is [$7,305,000].

And the second payment will be not before 18 months before delivery of the ship. So you can understand that it is a very, very good option for us too. As you mentioned, it is good because we have operating the sister ships and we are very happy with them.

What yard are they on order at?

Pardon?

What is the yard?

It is Jiangnan Shipyard Group, Jiangnan.

Yes, in China. And then you guys had made some quick comments in the prepared remarks about your dividend, and that the idea that you would consider to reinstate it at a point in time where you were generating more cash flow on your vessels. Is there a threshold that you guys think about? Or is this more of a distress scenario determination in terms of how you think about putting the dividend back into place?

Justin, this is Ioannis. We are still generating cash flow, and we will intend to keep doing that. The dividend is going to start -- is going to be reinstated when we will feel that we are at the upper part of the cycle moving towards the next peak.

At the moment as Stacey explained thoroughly earlier, we feel that we are at the lower part of the cycle. And we still have some room to go and stay at this part. So dividend is going to be reinstated when we go to the upper part of the shipping cycle.

Justin, I want to mention to you that we have not changed the lower part of the cycle as yet. We have not seen the period neither on the Panamaxes nor on the Capes [of the running experience] of the ship. It is still above the running of the ship for at least -- for the one- or even two-year period.

So we have not seen the bottom of the cycle yet. There is still some room to go.

Okay, all right, thanks for the time guys. Appreciate it.

(inaudible) Morgan Stanley.

Thank you for that update. So I have one more question regarding the Newcastlemax as well. We had already talked about why you ordered it, but I was wondering why you -- [the arrival date] is so late. Why it is pushed back all the way to 2016?

This is Ioannis again. For us, as we have explained in the past, every vessel that we buy, among other things, is an option to be used in a better market. So the longer the option duration is, the better the option is for everyone, as you know.

So the fact that we have chosen 2016 doesn't mean that we expect the market to improve by that time. It may improve earlier than this or later than this. What we like is the three years ahead of us to have the option to do whatever we want with that order.

Okay. (multiple speakers).

As (multiple speakers) if the market changes and is picking up after a year, you can very easily sell the vessel at a profit and you have only invested [$7,305,000]. So the return will be much, much higher then. So you're not thinking that the market will change in April 2016, which will be reverse delivery of Kamsarmax. It could be one year or two years earlier and you still have the option of reselling the contract.

Okay, that makes sense. That makes sense. And so, most market systems agree that demand will outpace supply in 2015, if not earlier. Do you agree with this view? And what -- what do you think could potentially derail such a recovery, particularly on the demand side and more specifically with trade in iron ore or coal?

Well, indeed, the reasons that we went to the stock market in March 2005 was the elimination of the unknown which is the frequency of this curve. We could not in the past or even in the future see when the market will come up or down. So we would like to eliminate it -- to eliminate that unknown and that is what we have done. And we will stick to it.

Okay, but you were talking about earlier that things might still get worse. So do you still expect things to get worse until then? Or maybe there is some disruption? Or do you expect this recent value in dry dock to continue and stay at the level where we are right now?

This is not a rally because of the freight market. It is a rally because there is a lot of money in the system. But it is not driven by the fact that the market is changing to the better. It is driven because there is a lot of money and there is a lot of people who like to cover. But at the same time we are compelled to buy ships at a certain period of the time because that is how our -- principle from day one.

Yes, okay, great. That makes sense then I guess. That was it for me. Thank you so much.

Greg Lewis, Credit Suisse.

Stacey, when we think about the Newcastlemax, clearly eco ships are constantly in the press. When we think about these vessels is there any fuel efficiency gains in these vessels? Being as they are delivered out into 2016 or are these a standard design? Would you consider these vessels eco, and if they are not eco, why would you not opt to go that route?

We have a big question mark as to whether they will be much more economical than the vessels which we already have, and especially if the shipbuilder involved has found a proper hull for. The devices which they're using are not very efficient when you have a proper hull structure. If you have a bad hull structure, then there is a slight improvement. But it will remain to be seen on the water, not on the sales spread.

So we will be -- a little bit hesitating to see what will be the improvement, and especially at lower speeds. It will be marginal. It will be somehow better, but not all that better.

Okay, and then just -- so in other words I guess the Newcastlemaxes were ordered at the Shenzhen yard in China. If we think about ordering a similar Newcastlemax at maybe one of the yards that's doing an eco vessel type design, roughly how much more would that vessel cost?

No, no. It is not a matter of Jiangnan building a non-economical vessel. I don't think the other yards in Japan or in Korea will be building a better economical vessel than Jiangnan.

Don't forget that Jiangnan is the oldest shipyard in China. They have the experience. They are building the Navy vessels for China and they go back more than 150 years. So I don't think the Japanese or the Korean yards are older than Jiangnan. So I don't consider Jiangnan as an inferior yard.

Just to tell you very quickly, in order not to -- the vessels ordered are considered eco vessels.

Okay, perfect. And then just shifting gears a little bit, you touched on in your prepared remarks, Stacey, about the congestion in South America and in Australia. When we think about the market where it is today, clearly rates are hovering -- I guess for Supramaxes they are a little bit above cash breakeven, [okay] rate.

When we think about congestion, if we were to see -- how much -- I guess I would say how much rate increase are we seeing in the markets for some of the smaller vessels because congestion is in the system? And two things -- one is, is there a roadmap to alleviating this congestion over the next 2 to 3 to 4 years? And then, secondly -- well, actually, not -- I will just focus on that.

Let's start with the first question about the smaller bulk (inaudible). And the answer is that we don't know what effect the congestion has on their earnings. Firstly because nobody has actually done any accurate calculations. Secondly, because we don't [rate] these ships.

And when we say smaller we mean [60,000] deadweight and below. We suspect looking at other calculations that have been done for larger ships in the past that it could reach maybe 20% (technical difficulty) if all ships, for example, were released from the congested ports that rates could drop 20%. But this is not an accurate study and I wouldn't like to be quoted as putting such a percentage on any change in the earnings of these ships if congestion were to disappear.

Now if we look at the long-term plan that exists in order to eliminate congestion, we have been talking about these over the last 20 or 25 years or so. Reality is that as soon as the plans are implemented, new requirements come to the market in order to alleviate the new incidence of congestion.

So without wishing to be cynical, all we want to say is that we can see for the foreseeable future congestion in the -- at least the Panamax plus sizes remaining more or less where they are now with changes, for example, in specific trades which will last a few weeks or months like what we are seeing now in Brazil for soya bean.

100 ships is not an insignificant number of ships. That we are sure is not here to stay. We're going to have improvements which are going to release some of the ships which are waiting to load and enter the market. And that will affect the smaller bulk carrier market. But this is a short to medium term effect of congestion. It is not a longer-term.

As the longer term is concerned, we feel that there will always be between 100 and 150 ships waiting to load or discharge in the major iron ore and coal loading and discharging ports around the world. And no plan that we have seen is credible enough to convince us that these ships will eventually be released into the market.

Okay, guys. Thank you very much for the time.

Chris Combe, JPMorgan.

This is actually Nish Mani on for Chris. Thank you so much for the presentation and for answering our questions.

Just wanted to follow up on a point you guys had made earlier about secondhand acquisitions and the market heating up as you see it, such as seeing up to 10 buyers per vessel. I just want to get your thoughts on timing and structure and how active you have been in the space and investigating vessel opportunities as opposed to contracting out for 2016 deliveries on newbuilds?

We do both. We are very actively looking to purchase vessels. We are expecting a vessel every five days or so. As we have explained in the past, that we are here to keep buying vessels in a staggered manner, either ordering or secondhand or resale. And we will continue doing that for the next two years.

Okay, and that makes sense. Just given your comments on you think the bottom hasn't really been reached yet and you see maybe perhaps up to 18 months longer of prolonged low-end rates, is this an indication when you order newbuilds that you think the secondhand market may currently be overvalued?

If you start making such types of judgments, you are taking a position that the market is going to have a specific value after a while, something that nobody really knows. What we are saying is that the market may have some blips, moving upwards or downwards. But the general trend should be the one explained earlier that demand and supply patterns are such that we do not see a light out of the tunnel -- at the end of the tunnel before -- at least for the next year or so.

So on the other hand, you can never be certain about anything. And this is why we are in the fortunate position that we can average down our purchases so that basically we cannot be wrong.

Okay, that makes complete sense. Switching over to the balance sheet for one second, you guys have mentioned that credit is difficult to come by for many operators, but for operators like yourselves who have a strong balance sheet that really isn't the case. In looking at potential secondhand acquisitions as well as the two new Newcastlemaxes, what kind of leverage and debt opportunities are you looking at to finance these with, despite having a significant cash position?

Our strategy has not changed towards that and we are looking at every acquisition to have around 50% leverage on them. So now we try to group a bit the acquisitions, meaning that we tried to have two vessels or so to reach out to banks in order not to overwhelm us with paperwork and legal fees. But the strategy remains the same, 50% on every acquisition, be it secondhand or newbuilds.

Got it, very clear. And then just really quickly going back to the chartering market, you have a couple of handful of vessels coming due this summer and into the fall. Just wanted to get your thoughts and how you see Q4 shaping up relative to perhaps some summer weakness. Do you think there could be some at least incremental upside coming into Q4 ahead of stocking? Or do you see generally flattish rates for the rest of year?

Well, we will take whatever is on the offering. The first vessel which is happening is August from now. So we will take the best around that sort of time.

Got it.

And if we are wrong, then we have another one coming after 1.5 months. So, okay.

Very true. Great, thank you so much for your time, guys. Really appreciate the help.

Brandon Oglenski, Barclays.

This is Keith Mori filling in for Brandon. Just wanted to touch a little bit -- we've seen a lot of equity gains this year in the dry bulk space, and just wanted to get your view on what you believe is driving a lot of that positive sentiment at least year-to-date?

It is our opinion as Diana Shipping that basically we cannot justify the optimist that exists in the market. Usually the capital markets they are trying to be ahead of the actual [class] by six months or three quarters. However, we feel that the signs are such that an optimism in the capital markets is not justified by the demand and supply factors in our industry.

We do not share that optimism.

Okay, that's helpful. So I guess going back, I just wanted to touch one on of Stacey's comments earlier around scrapping and 20-plus, the shrinkage fleet around that 20-plus age. What do you guys see as the top one or two catalysts over the next 12 months that can soak up some of that excess supply as scrappage comes down here?

Basically we have to look at earnings which is the prime criteria. If they drop on 12 months for example, employment period toward operating expenses, that will dampen the existing enthusiasm and change the views of owners of all the tonnage as regards the possibility of scrapping them.

Now most of them take the view that it is worth [passing] the fourth or fifth survey and continue trading them. If the market weakens, and sentiment becomes weaker, then we think there will be a large increase in the number of ships going for scrap, but we should always keep in mind what we mentioned earlier about the age profile of the large bulk carrier fleet, especially on the Capesize vessels.

For us to see a significant increase in the number of Capesize vessels going for scrap, we have to see an even more pronounced drop in the earnings in order to make people even more pessimistic and convince them that they should scrap ships which are between 15 and 20 years old, not just 20 years old plus. And that will take, of course, some weakness in the market to accomplish.

On the Panamax sector and Kamsarmaxes and where we have about 11% of overage now, there are candidates there. But we should keep in mind they are not as many as we would possibly have liked to have. So you see that the pool is smaller and, therefore, the owners have to be pretty generally pessimistic in order to get a significant number of ships heading for the scrap yard.

That was very good color. Appreciate that. I will pass it on from here. Thank you guys for the time.

Kevin Sterling, BB&T Capital Markets.

Andreas, let me start with you, just a little housekeeping question. When I look at your G&A for the quarter as $5.5 million during the quarter. It is about $500,000 below the prior quarter and below your two-year average of about $6.2 million. How should we think about a run rate going forward? Should we use something similar to what we saw this quarter?

I think it is fair that you use something similar that you used this quarter. We have always said that the more that we increase the fleet the more our G&A per vessels decrease. Now we also have a decrease in the G&A in general. So I think you should use that rate or slightly higher for the next quarters. And you should be safe.

Got you, all right, thank you. And just -- I want to chat a little bit about your loan to Diana Containerships. I know we talked about that yesterday on the Diana Containerships call.

But as I think about it from a Diana Shipping perspective, the $50 million loan to DCIX and think about your cash balance and your growth, from a Diana Shipping perspective is that an indication that maybe you see were opportunity in the containership market right now versus the dry bulk market? I know you indicated earlier that you don't think we're quite at the bottom for the dry bulk market. So how should we think about the loan to DCIX versus maybe buying additional dry bulk tonnage?

What you should -- how you should look at it is, as a deposit, somewhere earning 5% plus another [1.25] per year as a backend fee, which gives back more than $3 million per year as a return, which covers a lot of the expenses of, for example of the management company. If it was a matter of our thinking that containers is a better opportunity than dry bulk, maybe that would have been in the form of an equity investment in a containership company.

But referring to it as a loan, you can also look at it as a deposit somewhere earning 5%-plus. What we would like to say to our shareholders is that this money -- are still ours, earning a very good return instead of being in a bank earning almost nothing. And they're going to be with us at the right time in the cycle again.

If we were to have a press release yesterday saying that we have placed $50 million between a bank account earning 5% for the next four years, I think that everyone would have taken that better.

Okay, so (multiple speakers). Go ahead.

Okay, I just wanted to add quickly that you should never forget that the Board (inaudible) look at the direct reward ratio of this loan that I will call it an investment. And if you think about it carefully you will see what I mean, how favorable this is for the Company compared to anything else that have been done with that $50 million over the next four years.

And in addition to that, there is the enhancing of the 10.4% that we still have as Diana Shipping Inc. as an investment in Diana Containerships Inc. With the prospects of bringing that to zero eventually when value is going to be created for Diana Containerships Inc.

Okay, so I think if I hear you correctly, just to sum it up, you have guys have got such a big cash balance you see this as an investment of that cash, if you will, to earn a greater return than which you could by putting it in a bank, because interest rates around the world are still low. Is that a fair way to look at it?

Not as an investment, as a deposit.

Okay. All right, thank you for your time this morning. I really appreciate it.

Urs Dur, Clarkson Capital Markets.

Actually my question was just asked in regards to the loan. I think you explained it very well. The one other question I had just reconfirming of the loss associated with the right down at Diana Containerships, how much is non-cash? Is it a full $3.3 million?

Yes, $3.3 million.

Perfect, and all of that is non-cash, great. Thank you very much.

We have reached the end of our question-and-answer session. I would like to turn the floor back over to the management for any further or 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.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.