Diana Shipping Inc (DSX) 2013 Q2 法說會逐字稿

Greetings, and welcome to the Diana Shipping Incorporated second-quarter 2013 conference call and webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Edward Nebb, IR Advisor for Diana Shipping Incorporated. Thank you, Mr. Nebb. You may begin.

Thank you, Devon, and greetings to all of you who've joined us today for the Diana Shipping Inc. second-quarter 2013 conference call. The members of the Company management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me summarize the Safe Harbor notice. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. The forward-looking statements are based on assumptions, expectations, projections, and beliefs as to future events that may not prove to be accurate.

For a description of the risks, uncertainties, and other factors that may cause future results to differ materially from the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission.

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

Thank you, Ed. Good morning, and thank you for joining us today. During the second quarter of 2013, Diana Shipping Inc. continued to strategically expand and diversify our fleet. At the same time, we further enhanced our financial capacity through new loan agreements that support our strategy of investing in growth while maintaining a strong balance sheet.

Among the highlights of our fleet expansion during the quarter, in May, we announced an agreement to purchase the motor vessel Shoyo, a 2006-build Panamax dry-bulk carrier of 76,942 deadweight. The vessel, to be renamed Artemis, is expected to be delivered during September 2013. Also during May we announced contracts for the construction of two Newcastlemax dry-bulk carriers of approximately 208,500 tons deadweight each. The Company expects to take delivery of these vessels during the second quarter of 2016.

In June we took delivery of the motor vessel Baltimore, a 2005-built Capesize dry-bulk carrier. As previously announced, the Baltimore is time chartered to RWE Supply & Trading GmbH, Essen, Germany, at a gross charter rate of $15,000 per day, minus a 5% commission paid to third parties for a period of minimum 36 months to maximum 42 months.

Including the vessels currently expected for delivery, or on order, Diana Shipping's fleet would consist of 38 dry-bulk carriers. It is an increasingly diverse fleet, including Newcastlemax, Capesize, Post-Panamax, Ice Class Panamax, Kamsarmax, and Panamax vessels. We continue 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 revenue days are 97% for 2013. The majority of our vessels are chartered for periods ranging from 2014 through 2015 and beyond. And we continue to maintain the relationships with high-quality, globally respected charterers.

We took several elections to expand the Company's financial resources, as I noted earlier. In May, we signed a new term loan facility for up to $30 million with the Export-Import Bank of China to be used to partially finance the acquisition cost of the two newbuilding Ice Class Panamax dry-bulk carriers.

In June, we obtained a term loan facility for up to $18 million with Deutsche Bank, drawing down the facility to partially finance the acquisition cost of the two previously announced Kamsarmax dry-bulk carriers.

Following these financial transactions, Diana Shipping continues to maintain one of the strongest balance sheets in our industry. Our cash position at June 30, 2013, was approximately $375 million. We continue to operate with a very manageable degree of leverage.

Long-term debt, including current portion, was $456.4 million compared to stockholders' equity of nearly $1.3 billion.

Turning now to a summary of the financial results of Diana Shipping for the second quarter of 2013, time charter revenues for the recent quarter totaled $40 million. The Company reported a net loss for the 2013 second quarter of $5.2 million.

In summary, Diana Shipping is continuing to pursue the strategy that enhances the Company's financial flexibility in a volatile industry environment, while investing in the assets that will generate long-term growth.

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 that 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 a warm welcome to all who have attended this conference call to listen to the financial developments of our Company and forecast for the bulk carrier shipping industry.

The second quarter of this year has definitely brought some exciting developments in the freight rates of large bulk carriers. These will be analyzed (technical difficulty) will try and establish the reason why they came about, and also the prospects that this trend could signal a long-term improvement in the earnings of large bulk carriers.

The Baltic Dry Index started the second quarter of this year at 896 points and closed yesterday at 1075. The Baltic Panamax Index stood at 1155 on April 2 and closed yesterday at 1090. The Baltic Cape Index started the quarter at 1229 and closed yesterday at 1864.

Let us try and look at the most important macroeconomic metrics affecting the bulk carrier shipping industry. According to the World Bank, world GDP growth is expected to reach 2.3% in 2013, increasing to 3% in 2014. The World Bank has cut its 2013 economic growth forecast for China to 7.7%, down from its previous projection of 8.4%. The slowdown in China's key export markets of Europe and the United States was cited as the main drag on growth. The Bank also warned that growth in the emerging economies of Brazil and India has slowed, with any short-term pickups likely to be modest.

According to Clarkson Capital Markets, China's HSBC PMI index hit a nine-month low of 49.6 in May, signaling a contraction in the Chinese manufacturing sectors. According to Maersk Broker, manufacturing weakness further tests how far the Chinese government is willing to go in sacrificing short-term expansion for a more sustainable, long-term growth. According to Fearnleys' research, during the last quarter ended March 2013, Indian GDP grew by 4.8% year on year, only slightly above the growth rate reported during the previous quarter. The Indian economy is expected to increase by between 5% and 6% this calendar year and next.

The European Central Bank has also adjusted downward its economic growth forecast for the Eurozone. It's projecting a GDP contraction of 0.6% in the full year 2013. However, Maersk Broker reports some encouraging news for the Eurozone. More specifically, [sentiments] among European manufacturers increased to minus 11.2 from minus 13. At the same time, consumer confidence gained to minus 18.8 from minus 21.9. Finally, the Index of Executive and Consumer Sentiment climbed to 91.3, from 89.5 in May. We have to wait and see if this is just the beginning of a favorable trend in the Eurozone.

Let's look at the trade rate (technical difficulty). [Dayrates] have shown, this last quarter, strong gains. According to Howe Robinson, this could be ascribed to the following factors. First, an [escape in growth] has run up just 2.6% relative to the end of 2012. Secondly, increased port congestion in China and long load port delays for VLOCs in Brazil. Thirdly, vessel supplies have been further tightened by super slow steaming. Fourthly, strong seasonal revival in iron ore shipments, mainly from Brazil to China, which have been further supplemented by the rollout of new capacity. And fifth, increased trans-Atlantic coal volumes, as well as coal shipments from Colombia and the Far East. The harder (technical difficulty) to accurately calculate just how much further this rising rate [has to run].

In this respect, the [Egyptian shipping entity] remains unconvinced that this rising rate could continue for much longer. They mentioned the following factors, which they find rather troubling. Firstly, there is relatively little interest in long period charters from the charterer side. Secondly, the FSA rate should remain quite stable. In June, for example, short-term time charter rates rose by nearly 300%, while the third-quarter and fourth-quarter 4 TC rate remains below historic levels.

Thirdly, the larger number of pictures from Western Australia should ease as the new financial year starts. As July is usually the month that mining companies close for mine and equipment maintenance, chartering activity should ease back from these ports. And fourthly, with credit problems in steel surfaces in China, the question becomes how much more restocking will actually take place. In this respect, we need to know (technical difficulty) the Central Bank of China has been quick to stress that liquidity remains reasonable. However, they also add that the period of easy access to cheap credit is now over.

Let's turn to steel production. According to Commodore Research, the world's steel mills produced a record 136.3 million tons of crude steel in May, which is 4.2 million tons, or 3%, more than was produced in April; and 5.6 million tons, or 4% more, than was produced in May 2012. The result of the large amount of steel being produced worldwide is that prices have remained, at least until recently, under pressure.

The latest reported price is around $535 per ton. According to Commodore Research, steel prices in China have finally started increasing, but remain about [13%] lower than where they stood a year ago. Steel/coke tons are also finally beginning to come down. However, they still remain about 9% higher than they stood a year ago.

Looking at iron ore now, worldwide iron ore imports are projected to increase by 6% this year, to 1.175 trillion metric tons. In April, imports of iron ore in China were up 15% year on year, driven by increased steel output and higher availability of iron ore supplies from Australia.

For this year, iron ore imports are estimated to reach 779 million tons, up 8% compared to 2012. According to Morgan Stanley research, modest capacity expansion and the new mining regulations in Brazil, where the paid tax for minerals would go from 2% to 4%, could hurt long-term growth of the long pole Brazilian iron ore supplies.

According to Commodore Research, after increasing for 9 out of the last 10 consecutive weeks, China's iron ore ports stockpile stood at 73 million tons. This is a relatively high level which we have not seen since January this year.

Now to coking coal. According to Clarkson, total seaborne trade in coking coal should grow by about 4%, to 245 million metric tons during 2013. Additionally, according to Clarkson, it has been reported that some mining companies have continued to produce high volumes of coking coal partly because they have long-term take-or-pay contracts with infrastructure providers, which means that it has been more expensive for them to cut output than to continue producing at lower price.

Steam coal now. According to Clarkson, total seaborne trade of steam coal this year will increase by 5% compared to last year, and reach 868 million metric tons. Chinese coal imports rose in April by 16% from the same month a year ago. That country's total seaborne imports of steam coal and lignite have grown rapidly in the last three years. Total volumes came to just under 200 million metric tons in 2012, which was up from a mere 17 million metric tons in 2008.

In this respect, the Chinese government announced that it intends to introduce a ban on imports of low-quality coal and lignite. After strong opposition from large domestic power producers, it appears that the ban will primarily have an effect only on lignite imports. According to [Vanterra Capital], Australia's thermal coal exports will increase to 189 million metric tons in 2013. It is 223 million in 2014 and 223 million metric tons in 2015. Most of the export demand for this coal is expected to come from China and India. Similar increases in volumes are expected for coking coal exports.

Let's turn to grain now. The United States Department of Agriculture has repeated its latest forecast for the 2013 -2014 global grain trade. It predicts that [315.9] million tons of grain will be exported worldwide during 2013-2014 season. This is 800,000 tons more than was predicted in May. If this increase materializes, it will mean that the grain trade will increase by 8% this grain season compared to the previous one.

At the end of May 2013, the price of delivered foreign wheat in China was CNY126 per ton lower than the price of domestically produced wheat. Naturally, if this trend continues, shipping will benefit from this increased trade. The USDA is forecasting that China alone will import about 69 million tons of soybeans during the current grain trading year, which will be a record number in itself. This appears to be a constantly rising trend.

Having looked at demand, let's turn to the supply side. Demolition, first of all -- according to Clarkson, so far this year approximately 13.8 million deadweight tons of bulk carriers have been sold for scrap, which is down 23% compared to the same period last year. More worrying is the fact that only 5.3 million tons deadweight of Capes have been scrapped, and a mere 3.2 million deadweight tons of Panamaxes. The latter figure is down 32% compared to the same period last year. On an overall basis, the bulk carrier of tonnage scrapped this year is 16% down from the same period in 2012.

Let's look at the age composition of the fleet. In trying to make a forecast on scrapping, we need to take into account that fact that according to (technical difficulty) only 8% of the Panamax fleet is over 20 years old. Similarly, in Capes, we need to take note of the fact that only 6% of the Capesize fleet trading today is over 20 years old. Therefore, as we have mentioned before, the age profile of the large bulk carrier fleet will strongly influence owners' decisions to scrap or lay up vessels. We should, therefore, be careful when reading forecasts for vessels to be sent to the scrapyard over the next few quarters.

Congestion now. According to Commodore Research, approximately 155 vessels are anchored outside major Australian coal and iron ore ports. Approximately 50 vessels are anchored outside major Brazilian iron ore ports. From the 205 vessels congested at major Australian and Brazilian coal and iron ore ports, approximately 150 of them are Capesize vessels.

Let's look at the fleet growth. Deliveries into the Capesize fleet have slowed in the year to date, dropping by 45% year on year to a total of only 12 million tons deadweight. Overall, Clarkson's predicts that the Capesize fleet may increase by 6.5% in the full year 2013. According to Fearnleys, last year the Panamax fleet grew by about 13%, and growth of about 9% is expected for 2013.

According to banchero costa, assuming that due to nonperformance and delays, 20% of the order book will not be delivered this year, then the total deliveries for 2013 should not exceed [65] million deadweight tons. This would imply a net fleet expansion of about 6%, which would be the lowest since 2008. This slippage assumption is supported by figures provided by [RS Flat Group], who claims that actual 2013 deliveries as of the end of June amounted to 84% of the scheduled order book. Howe Robinson expects that, depending on scrapping, net bulk carrier fleet growth for this year might be only 35 million tons deadweight, about half the figure we saw in 2012 of 66 million tons deadweight.

The problem of this is that these ships will be added to an already large fleet of more than (technical difficulty) competing for the only marginal increase in business of bulk commodity transportation. [DNV Markets] predicts that the supply of bulk carriers will increase in 2014 by 5%, net of scrapping, and by only 4% in 2015. According to Clarkson research, total Panamax tonnage has increased 4.5% to 177.45 million tons deadweight as of June 1. (technical difficulty) [stands at] 21.4% of the existing fleet.

(technical difficulty) [forty-seven four] million tons deadweight, or 16.6% of the existing fleet. Total bulk carrier order book stands at 124.3 million metric tons, representing about 17.8% of the existing fleet.

According to Commodore Research, it has been recently reported that the Chinese government is seriously considering implementing a policy that will provide Chinese companies with a 20% subsidy to build new vessels in Chinese yards, so long as (technical difficulty) also scrap vessels aged 50 years old or older. After development (technical difficulty) will be welcomed by dry-bulk owners around the world as a removal of a large amount of older ships will help the freight market recover. Let's wait and see if this policy (technical difficulty).

Contrasting now to new-building, according to Clarkson's, the three-month trend in contracting for bulk carriers has moved up 43% to 234 vessels. It is not a very encouraging sign as regards future fleet growth. On the other hand, DNV Markets is forecasting ordering of only 25 million tons this year and next. It appears that this estimate is far too conservative, as we have already seen contracting of about 20 million tons deadweight. Furthermore, Clarkson's reports that [space on] yards in China have already secured orders for more tonnage in the year to date than in the whole of 2012.

Keeping all the above in mind, let's turn to the outlook now of the industry. We find very plausible the outlook of the freight market provided by Gibson Shipping Energy, according to which, at least for Panamaxes, newbuilding deliveries remain daunting.

Looking out in 2014, Gibson's predicts that demolition will exceed newbuildings delivered, hence at least the Capesize fleet will probably shrink slightly. However, it predicts that it might take another year for this trend to make much of an impression to the current massive fleet size.

Logically, Gibson's predicts there should be no significant change in the freight market for Panamaxes for probably two years. However, the Panamax market is based on a wider amount of cargoes than Capes, so spikes in demand can arise rather suddenly. This is the environment in which we at Diana Shipping plan to continue implementing the Company's investment strategy, which we have presented and explained several times in past conference calls and presentations.

The fleet will grow with the acquisition of modern, high-quality vessels purchased at market levels. As we are unable to precisely pinpoint where we are in the shipping cycle, we will not adjust or in any way amend our policy of acquiring tonnage throughout the lower part of the cycle. We will continue financing these acquisitions with debt and equity from the Company's class reserves.

Meanwhile, we will be waiting for the upturn to come, at which point all the tonnage may be disposed of and replaced with younger ships with medium- to long-term lucrative time charter contracts attached. This policy will enable the Company to consider reinstating the dividend, which was suspended over three years ago.

I will now pass the call to our CFO, Andreas Michalopoulos, who will provide you with the financial highlights for the second quarter and first half of this year. Thank you.

Thank you, Stasi, and good morning. I am pleased to be discussing today with you Diana's operational results for the second quarter and six months ended June 30, 2013. Our second-quarter 2013 net loss amounted to $5.2 million, and a loss per share of $0.06. Time charter revenues decreased to $14 million, compared to $57.6 million in 2012.

The decrease was attributable to decreased average time charter length that we achieved through our vessels during the quarter, compared with the same quarter of 2012.

This decrease was partially offset by revenues derived from the vessels Philadelphia and Melia, delivered in May 2012, and completely delivered in August, 2012; Polymnia, delivered in November 2012; Myrto, delivered in January 2013; and Maia, delivered in February 2013. Ownership days was 2930 for the second quarter 2013, compared to 2472 in the same period of 2012.

Fleet utilization was 99.2%, compared with 99.6% in the same quarter of 2012. And the daily time charter equivalent rates were $12,939 compared to $22,266 in the same quarter of 2012. Voyage expenses were $2.1 million for the quarter. Vessel operating expenses amounted to $19.6 million, compared to $15.4 million in 2012, and increased by 27%. The increase was attributable to the 19% decrease in ownership days, resulting from [enlargement] of the fleet. The increase was also due to increased fuel costs; insurance risk factors; and other operating expenses; and was partly offset by decreased stores and spares, and repairs and maintenance costs.

Daily operating expenses were $6679 for the second quarter of 2013 compared to $6218 in 2012, representing an increase of 7%. Depreciation and amortization of deferred charges amounted to $15.9 million. General and administrative expenses decreased to $5.5 million compared to $6.6 million in 2012. The decrease was mainly attributable to decreased expenses for bonuses to additional restricted stock awards and continental motion.

Interest and finance costs were $2 million for the quarter compared to $1.9 million in 2012. This increase was attributable to increased average debt in the quarter of 2013, compared to the same quarter of 2012; and increased average interest rates, from 1.65% during the last year's quarter to 1.72% in this year's quarter. Lastly, investments in Diana Containerships Inc. amounted to $0.6 million for this quarter, compared to a gain of $0.4 million in the same quarter of 2012.

For the six months ended June 30, 2013, now. Net loss for Diana Shipping Inc. amounted to $8.4 million, and the loss per share was $0.10. This includes a $3.9 million loss, or $0.05 loss per share from Diana Containerships. Time charter revenues in 2013 decreased to $82.6 million compared to $115.2 million in 2012. The decrease was attributable to decreased average higher rates during 2013 compared to 2012, and was partly offset by revenue derived from the enlargement of the fleet in 2012 and 2013.

Ownership days were 5736 in 2013 compared to 4785 in 2012. Fleet utilization was 99% in 2013, and 99.7% in 2012. And the daily time charter equivalent rate was $13,653 compared to $23,229 in 2012. Other revenues amounted to $0.4 million and derived from the management agreements with Diana Containerships Inc., period ended March 1, 2015. Voyage expenses were $4.3 million in 2013. Vessel operating expenses amounted to $37.5 million compared to $30 million for the same period in 2012, an increase by 25%. This increase was attributable to the 20% increase in ownership days resulting from the [induction].

The increase was also due to increased fuel costs; insurances, practice, and other operating expenses; and was partly offset by decreased stores and spares, and repairs and maintenance costs. Daily operating expenses were $6542 for the six months ended June 30, 2013, compared to $6275 for the same period of 2012, representing an increase of 4%.

Depreciation and amortization of deferred charges amounted to $31.5 million in 2013. General and administrative expenses amounted to $10.9 million compared to $12.7 million in 2012. The decrease was attributable to the decrease in bonuses, compensation costs on restricted stock awards, and Company promotions. Interest and finance costs increased to $4.1 million compared to $3.4 million in 2012. This increase was attributable to increased average interest rates and increased average debt during the first half of 2013, compared to the same period of 2012.

Loss from investment in Diana Containerships Inc. amounted to $3.9 million, of which $3.3 million incurred from a non-cash impairment charge in the previous quarter. This compared to a gain of $0.7 million for the same period of 2012.

This concludes the financial overview. Thank you for your attention. We will be pleased to respond to your questions now.

And I will turn the call to the operator, who will instruct you as to the procedure (technical difficulty). Thank you.

(Operator Instructions). Michael Webber, Wells Fargo.

Hi. Good morning, guys. How are you? I just wanted to start with a question around asset values. And Stasi, you always give a good, thorough, overview of where the market is. And you mentioned the values inching up a little bit. And in Capes, new-build prices are actually a little north of $48 million, but not really supported by a move in longer-term rates. Probably more around newbuild speculation and the fervor around some private equity investment in the space.

When you think about that, that we're seeing pricing move up a bit that's not necessarily supported by a movement in long-term cash flow, does that augment the way you guys think about your purchasing patterns at all this year -- the fact that these values are moving a touch higher, without really being supported by cash fundamentals?

As we have said -- hi, this is Ioannis Zafirakis speaking.

Hi.

Hi. Mike, as we have said in the past, we are not influenced at all from the shorter-term events that are influencing the market. If we start taking the position that the vessel is a bit expensive by $1 million, or a big ship by $1 million, and we start introducing our way of thinking in the purchasing, then we don't have this targeting of buying the vessels.

What we said -- it is very clear. We take the agnostic view as with that to what is going to happen in the near- and to medium-term future; and, therefore, we would be buying of vessel every, let's say, a month or so without looking at the price as if it is $1 million, $2 million more expensive than it should have been.

Right. I'm not saying scrapping the model, I'm talking about maybe picking up or slowing down the speed at which you guys are acquiring. And that has varied over the last couple of years. Just curious as to whether that -- moves in that direction. Okay.

If you look at the purchases that we have done, the pace should keep being the same.

Okay. No, that's there. Stasi, again, running through your sector overview -- and it certainly seems like you guys are still pretty far on the cautious end, which makes some sense. You went through the supplier reviews for both Cape and Panamaxes and talked about the ages of the fleets, and the fact that it's relatively young, with pretty significant order books.

You guys have never really done anything in the smaller asset classes. Is that something you would consider in the future? And if not, why? Just outside of the fact that it's just not something you have ever done before. (Multiple speakers).

It is not a matter of familiarity. Here we have set a principal from day one, when we first were public in 2005. And we will stick to that policy. And we will be buying the ships which we have been buying all along up to now. So, just to make it more clear regarding our principle of how we buy -- from day one we said that we had to eliminate that unknown, which is when the market will go up and when the market will come down. And this unknown has very successfully been eliminated from day one, as of the day we went public.

To add something to what, very correctly, Mr. Palios has said, you know that we like the bigger size of vessels, both Panamaxes included. There are plenty of technical characteristics that we like. We like that the fact that you do business with the best customers, the bigger the vessel it is. And also we like the volatility of that type of vessel. So, it is not a matter of knowing how to operate smaller vessels. Our model works, at an optimum level, with the bigger size of the vessel.

Got you. No, no, that makes sense. Just one more for me, and I'll turn it over. And this is actually for Andreas. When you went through the three and the six-month results, you talked about OpEx, and it look like it inched up 4% to 5% quarter-over-quarter. Can you get a little bit more specific as to what drove that up from $6400 to closer to $6700? And then maybe what should we be using going forward?

We had an extra insurance, hull and machinery insurance, that we paid during the quarter that I don't foresee that we will pay the next one. We will go to a more normalized level. And that is one of the reasons, and some extra taxes at the management company here. These are the main reasons why our operating expenses picked up during the quarter. I foresee the next quarter to be more in the vicinity of the average that we had for the six months, that is in the vicinity of $6500.

Great. That's very helpful. All right, guys, thank you for the time.

Greg Lewis, Credit Suisse.

Thank you and good afternoon, gentlemen. Stasi, could you talk a little bit more about the coal trade in terms of what's going on in Asia and India, and how we should be thinking about that over the next couple of years in terms of this being a positive impact on the overall market?

Yes, well essentially what we are looking at now is the increased importation of primarily steam coal in China, which was in the past a pretty insignificant number. So that was one thing that we are focusing on. The other is that we are seeing now increased quantities coming out of Australia, both from new mines and new -- not call them ports -- but the logistics imports have been improving; improving, therefore, the quantities that can reach those ports from already existing mines.

And we are also seeing now coal being shipped from places like Colombia which we had not been witnessing before; and other producers, which are further away from most developing nations, primarily in the Far East. So, all in all, we have coal underpinning here demand for bulk carriers, especially Panamaxes. And the only thing that bothers us a little bit is what is happening in India, which unfortunately is not very encouraging, as we've got growth there.

And also, we are working carefully in development in Indonesia, because we have, as you know, huge exports from there. And we are getting various mixed signals there, as regards what exports are going to be doing over the next few quarters.

So, in balance, we are positive on coal transportation, both metallurgical and steam coal. But it's something that we need in order to absorb the enormous number of Panamaxes which are going to be added to an already very down trading fleet.

Okay, great. And then just one follow-up for me, and it's more just on the Capesize sector in general. At this point I guess you have two new Kamsarmaxes in the fleet on the water. Should we think about -- what types of premiums in general should we be thinking about the larger vessels earning over a modern Cape, if we were to look at a benchmark Cape rate? And then thinking about -- not that Diana has any VLOCs currently -- but in terms of thinking about what a premium is on a -- I guess the first question is, is there a premium on a VLOC?

And then secondly, as we move down to the Newcastlemaxes, should we just think about, when we're trying to model out those types of premiums, is it really just a function of the increased capacity? Is that probably the right way to think about it?

Well, that is a premium, but not so much actual premium. It's an indirect premium. The bigger the vessel, the better charterer you are attracting, as Ioannis said before. And this is a key issue; it's a very key issue. There is of course some savings by having a bigger vessel, and a more streamlined vessel in the water today. By increasing the beam of the vessel from 45 to 50, I think you have a savings there. But that is marginal. What is important is the type of charterer who are introducing for that ship, and that is very important for us.

From the start, that depending on where you are on the cycle, the premium differs. The higher the charter rates, the higher the market is, the premium is going to be higher percentage-wise, because of the economies of scale as regard to the amount of cargo that you are carrying. The lower the market, the less the premium is.

Okay. Perfect, guys. Thank you very much.

Justin Yagerman, Deutsche Bank.

Good afternoon. It's Josh Katzeff on for Justin. I just wanted to start off with some of the recent loans you guys have taken on in your balance sheet. You guys have almost $400 million of cash at the end of the quarter. And in the last call you guys stated that you may not ever burn through that whole cash amount of acquiring ships. So, my question is why then continue to increase the leverage and pay the interest expense, and maybe look to why not just acquire ships without any kind of debt attached? And then if the market's improving and you want to acquire more ships, why not then just seek to lever those ships for later in the cycle?

Because our investment strategy is for about two years, and nobody knows when the market will turn; and, therefore, you will increase the same way we increase. We buy a vessel, we put on the vessel around 50% leverage. This is part of the strategy. And we are hoping, because nobody knows, that at the end of this investment strategy, when we will have an over-levered for the Company of about 50% or even 60%, the market will show clear signs of recovery. And we will be able to go in the next phase of our strategy, which we have explained in the past.

Now, if we don't manage to do that; i.e., if the market were to turn tomorrow morning and we were left with a big amount of cash on the balance sheet that we have today, we would have to take a decision as to what to do with that cash. That's correct. But at the moment, the strategy is to gradually increase the leverage, together with the purchases we do, and to mortgage the vessels we have acquired (technical difficulty).

And you also understand that our lending ability, instead of a cut, is not the same thing. To have the ability to lend to -- to be borrowed, to lend money from someone is not the same thing as having cash in the bank. So what you are suggesting is to place the Company in a position where, without the ability to borrow, but we don't know whether that borrowing is going to be there available at the time. So, it's a good thing to leave maybe $100 million on the side, rather than having a $200 million borrowing capacity at the period where you don't know whether you can do that or not.

I get that argument, but if the market is improving, then, in theory, the lending environment should be improving. And if the market is weaker, then we should have lower breakevens on your acquired ships. Or you wouldn't have any amortization payments or interest expense on those ships.

That's one thing, provided that the market is going to turn sooner than later. Imagine an extreme scenario where we have a prolonged lull in the market where you start worrying about your [cut in shares].

That's fair. I guess maybe switching topics to the time charter market. You mentioned the continued lack of long-term charters available. Are you seeing charters being quoted for over two years in the Capesize market? And if so, what rates are you seeing there? Are there any being done, or is it just a modest actual amount being done?

There are some long period inquiries, even for 10 years. But I think that it's wrong for to go for 10 years. It's better to go and utilize the vessel as a vessel, rather than a financial interest size in the bank. So we will prefer not to entertain the 10-year periods or the longer periods for that charter of magnitude.

Got it. And just one more before I turn it over. Have you seen any kind of change in the actual secondhand S&P market, given the recent increase in interest for newbuildings?

Well, if you had asked me two months ago what is the appetite for the prospective buyers for the secondhand tonnage, I would say that it was huge. Today, it's a little bit less. For example, for a vessel two months ago, you had to compete with another 20 perspective buyers. Today, for the same type of sale, you are not going to find more than four buyers interested. That, of course, has not filtered out all the [patches] on the ship yet, but it will. So we think that we -- before I think I shall tell investor, we are going to see a slight reduction in prices.

Got it. I appreciate the color. Thank you for the time.

Fotis Giannakoulis, Morgan Stanley.

Yes, hello, and thank you. Mr. Palios, a few times in the past you talked about the risk of a new downturn in the market and the potential of seeing a new wave of layups in the dry dock market. How big is this risk today compared to the past? Have you become a little bit more optimistic on that perspective, that the worst for the dry dock market might be over?

Well, I think you understand that when the market is down, the charter rate is equivalent to the arrangements of the ship. Up to now, we have not seen that situation shaping up. So, up to now, the rates which are quoted in the chartering market are no different to the running expenses.

So, of course if you have bought the vessel very expensively, you are losing money. But if you buy the vessel today, you are not losing money. Therefore, the forces which are bringing the balanced equilibrium is not there. And I strongly believe that we are going to go through that before we see better times.

Take, for example, in 1958 what has happened; in 1974, what has happened; what has happened in 1985. They all resulted in layup. Since then, we haven't seen layups. So, I think it's time for layups to take place.

So, I guess from the investor's perspective, seeing rates moving back to levels over operating expenses might be a signal that the market is bottoming out. Is that correct?

Yes. That is when the market is down.

And then my second question has to do a little bit with Panamaxes versus Capesize vessels. Mr. Margaronis mentioned earlier that there is only 6% of the Capesize fleet about 20 years old, which means that the scrapping might be limited going forward for this asset class. However, we have seen the interest for newbuilding orders mainly focused on Capesize vessels. Why is that? And do you think at this point, after all these newbuilding orders, Panamaxes might be slightly more attractive compared to Capesize vessels?

No, I think the prices are shaping out directly proportionally to what all those forces are shaping up. I think that the market has a way of developing and setting the prices of the vessels. Or for the vessels, depending whether they are Capes or Panamaxes. I have a feeling that of the price of the Cape is the price that it has been paid the last time. Or the price of the Panamaxes, similarly the same; what has been done previously in the last 10 days or 15 days. So, all those criteria has been taken in when the price of the vessel is formed.

My last question has to do with the state of the shipbuilding market, and also the financing market. What are the terms that the shipyards are offering right now in terms of upfront payment and final payment? And also, what is the state of the financing market compared to the previous quarter? Have you seen banks have been more willing to provide debt to the ship owners?

I think the deposit which you have to place is not different. And it hasn't been so sensitive in the last quarter or so. A rule of thumb here is to 10/10/10/70 for newbuildings. And that was about three months ago, and that it is today. Obviously today you are only driving ship as a buyer, and that is certainly the case. And don't forget that you do not have the same number of yards today actively building ships. You have about half of what you had in the peak of the market in 2008.

Thank you very much for your time and your answers.

Chris Combe, JPMorgan.

Hello, guys. This is actually Nish Mani on for Chris. Thank you so much for the comments so far. Just had a couple of quick follow-up questions. In regards to growth opportunities going forward here, you guys have a mix of both secondhand assets you picked up recently as well as for newbuild delivery between year-end; and all the way, going out to 2015 and 2016.

How do we think about the mix between these two kinds of assets? Because there's obviously an implication of if you skew toward secondhand assets there's a near term boost or a near-term rate exposure. Whereas, the newbuilds, you are putting off any exposure for down the road. And wanted to get your thoughts on where you see the emphasis on growth being put.

This is Ioannis again. We have said in the past that different reasons why we like secondhand on the one hand, and newbuildings on the other. Our decision on whether to buy a secondhand vessel or a newbuilding, it depends on the availability, on the attraction that we have at that time in regards to what is available for sale, but mainly. So we cannot say that we have a specific policy or strategy in our minds as regard to the proportion or the ratio between one and the other.

Okay. And so you're saying that basically it's a limitation on quality secondhand assets that drives this decision?

If there is the time for us to buy something and we cannot find a secondhand that is equally attractive to a newbuilding at that time, we would go for the newbuilding. And then probably the next one is going to be a secondhand, but this is not written in stone.

Okay, got it. And then just thinking about the loan you guys made to DCIX over the quarter, just wanted to confirm that that, in fact, had closed; and wanted to see if this opens the door to future financial agreements between DCIX and DSX, and if there's something to be said there?

Nothing to be said. This has been closed as a loan. Not drawn down, otherwise you would have seen it in the financial statements. And there is no future plans for additional loan to be made.

Okay. Did you say that the loan has not been drawn down?

No, it has not been drawn down. It has closed as a loan, but Diana Containerships Inc. has not drawn down it yet. It has a period of six months to draw it down.

Okay, great. That's it for me. Thank you so much for the help.

Brandon Oglenski, Barclays.

Hi, good morning. This is Keith Mori on for Brandon. I'd like to go back to a comment that Simeon made regarding that he thinks that now is the time that layups should be occurring. What would that the timeframe be? Would you expect that to go on for maybe a year or two? And could you speak about some of the opportunities that you feel Diana could generate during that timeframe to drive long-term value for shareholders here?

There is no easy way to actually predict periods of layups. There never has been and never will be. Ships remain in layup; suddenly, something happens and they are reactivated, whether it's seasonal or more permanent. On the seasonality, we have seen the container ships being reactivated since the beginning of the year. And nearly half the ships that have been in layups were reactivated. While we have similar seasonality in the Panamax trade -- we are going through it now, more or less -- the season is drawing to a close.

So there were a lot of Panamax ships, we would have expected ships to have been reactivated around March this year; and then trade until summer, maybe fall; and then be laid up again if there are no opportunities for them to trade. Now what we're going to do in that environment, of course all depends on what opportunities will present themselves. But a ship is in layup doesn't mean that she's for sale, necessarily. So, we will be looking at ships which are trading and in layup; preferably trading, because those ships are usually in better condition, and bring up fewer surprises than laid up tonnage, which shows up various (technical difficulty) when the ship is being reactivated.

So it don't affect our investment decisions in any big way, whether ships are laid up or not. Of course, overall, values would be expected to weaken if there is a certain percentage of the fleet laid up, as opposed to not being laid up and trading.

When I was referring to the layup, what I meant is that the -- here you have supply and demand. So the whole thing is driven by supply and demand. And theoretically, you have the different equilibrium whereby it's the difference of one ship to make a go or a lull. So, the force which is exerted on this equilibrium is bigger when you have laid up vessels, because then the appetite for building new ships or to invest in shipping is gone. And then you have a weaker return to normality, then if you are dragging the weight we are dragging at the moment, and that is some cash generated at the loan market, of course. But there is still some cash generated. That's what I meant.

Thank you, gentlemen, for the color. One last question. Maybe, Stasi, your thoughts. It seems like the supply picture is going the way it we thought a few months ago. And maybe people were thinking that the recovery in dry-bulk could be later 2014, early 2015. However, it seems that demand in Asia maybe has been slipping here. What's your thoughts on maybe demand not meeting those growth rates that people anticipated earlier and driving this lull further out into maybe the back half of 2015 or even beyond?

We don't want to pinpoint when the recovery will take place. And indeed, this is our philosophy from day one in 2005, that we wanted to eliminate that unknown. It is an unknown that nobody would like to have a guess, because you would be wrong. If it is correct, it's a coincidence. So, let's not try and pinpoint when this will take place. But what I can tell you is a year ago from today, we were one year away from the recovery. Now we are one year closer. That is for certain. It will happen, but nobody knows when.

Okay, gentlemen. It's been a long call. I'll drop it here and move on. Thank you.

Kevin Sterling, BB&T Capital Markets.

Thank you. Good afternoon. Most of my questions have been answered. Andreas, I can't remember if you touched on it. How should we think about vessel operating expenses for the back half of this year?

The OpEx, you mean? The vessel operating expenses?

Yes.

Yes, we said that it was a bit high, and that it's going to be normalized in the next quarters. We feel like around $6500 per day per vessel.

Okay. Thank you. And then just one general industry question here. Are you guys seeing, as you look at the secondhand market, rational buyers? Or do you think guys are -- people coming in and bidding up prices for secondhand tonnage; or do you think the market is pretty rational right now?

This is Ioannis Zafirakis speaking. Probably you are referring to the inconsistency between the charter rates and the increasing the bracket of the secondhand vessels. This has always been the case, Kevin, in our industry. You have irrational investors sometimes, but in the medium to long-term, markets prevail. Someone should not be distracted or influenced big time by what he sees only in the numbers. He should look also whether this is a result of the psychology, together with the (technical difficulty). What we truly believe is that looking at the fundamentals, it shows to you the real trend. And psychology is something that plays an important role, but only for the short term.

So, basically, you are correct in implying that buyers today are at a level that nobody can really justify, as regard to the fundamentals that's looking only at the fundamentals. And this is why we said many times during this quarter that we expect the market to deteriorate; chartering-wise, and as regards the values of the vessel. That gives me the opportunity to mention here that we are not pessimists by nature. You are going to hear from us -- from the moment we see the fundamentals changing, you are going to hear it from us.

There is the kind of an investor comment, the rumor in the market, that we are always pessimistic about the future. This is not correct. But we are afraid that we cannot justify a thesis today that the market is going to improve in 2014. We cannot say that. And we don't have the time for that. At the end of 2013, we can discuss that again. But we do not see anything really positive as regards to 2014, in order to see the market turning big time.

Yes, that is absolutely correct. We would have a different view if we saw demand exceeding expectations. But, if anything, we see the demand is going the other way. And heaven forbid it becomes weaker or substantially weaker, the rate of growth in demand, than we are seeing now. Then we have to look again at the supply/demand balance. And unfortunately the result of revisiting this balance are going to be rather unpleasant. But we hope we won't have to do that.

Got you. Ioannis and Stasi, thank you very much. That was very helpful. That's all I have today. Appreciate your time.

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

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