Diana Shipping Inc (DSX) 2014 Q1 法說會逐字稿

Greetings and welcome to the Diana Shipping first quarter 2014 conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press Start 0 on your telephone key pad.

As a reminder this conference is being recorded. It is now my pleasure to introduce your host Ed Nebb, Investor Relations Advisor for Diana Shipping. Thank you sir, you may begin.

Thanks, Christine, and thanks everyone for joining us for the Diana Shipping 2014 first quarter conference all. Members of the 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, Chief Operating Officer and Secretary, and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me remind you of 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. Such forward-looking statements are based on assumptions, expectations, projections, and beliefs as to future events that may not prove to be accurate. For descriptions of the risks, uncertainties, and other factors that may cause future results to differ from what is expressed in the forward-looking statements, please refer to the company's filings with the SEC. And with that let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer.

Thank you Ed, morning and thank you for joining us today. In the first quarter of 2014, Diana Shipping continued to pursue our strategy of gradually expanding our fleet, while at the same time strengthening our financial resources to support long term growth.

During the quarter we took deliver of a newly built Ice Class Panamax Dry Bulk vessel, the model vessel Chrystalia.

Earlier this week we also announced delivery of an additional Ice-class Panamax, the model vessel Atalandi. Both vessels are time charter to Glencore Grain BV.

We also announced a shipbuilding contract during the first quarter for the construction of a Kamsarmax dry bulk vessel which is expected for delivery in the second quarter of 2016.

As a result of our fleet expansion activities, we have an increasing diverse and modern fleet that currently consists of 38 dry bulk vessels. We also have three dry bulk vessels on order, two new Kamsarmax dry bulk vessels, and one Kamsarmax dry bulk vessel with deliveries expected in 2016.

We continue to manage the fleet in a prudent manner designed to promote a balanced of Time Charter maturities and produce a predictable revenue stream.

Currently, our fixed revenue dates are 73% for 2014 and 21% for 2015. To further enhance our capital position we completed a public offering of 2.6 million shares of 8.875% Series B Cumulative Redeemable Perpetual Preferred stock during the 2014 first quarter.

The preferred offering resources balances that cash already one of the strongest in the industry. The company cash position at March 31, 2014 was more than $307 million.

We continue to operate with a very manageable degree of leverage. Long term debt including current position and net of deferred financial cost was $445.1 million compared to stock holders equity of over $1.3 billion.

Now let me refer our financial results for the first quarter of 2014. Time Charter revenues total $41.1 million for the period. The company reported a net loss of $6 million and net loss available to common stock holders of $6.8 million for the 2014 first quarter.

Looking ahead we will continue to pursue our strategies to strengthen our financial flexibility while expanding the productive assets of our fleet. We will continue our program of selectively and gradually adding to our fleet as market conditions permit. Also acquire vessels at attractive prices.

We will operating our fleet according to balance and prudent chartering policies and promote a predictable revenue stream and maintain relationships with high quality charterers.

And we will continue to manage our balance sheet and enhance our 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, Andres Michalopoulos, who will provide a financial overview. Thank you.

Thank you Simeon and a warm welcome to all the participants in this latest quarterly conference call of Diana Shipping Inc.

The bulk carrier market has certainly been through tough times during the first quarter of this year. In this respect let us look Baltic Indexes briefly to get a sense of the turbulence witnessed during the last few weeks and months.

The Baltic Dry Index started the year at $2,113 after having reached a peak of $2,337 on December 20th last year. Yesterday it closed at $982. The Baltic Cape Index started at $3,733, having peaked at $4,291. on December 12th last year and closed yesterday at $1,453.

Finally, the Baltic Pamamax Index stood at $1,780 on January 2, having reached a high of $2,096 on December 13, 2013, and closed yesterday at $933. All these indexes were today up between 20 and 30 points.

Let's look at macro economic considerations. The IMF forecasts global growth to average 3.6% in 2014. An estimate which is up from about 3% earlier on and an actual figure of 3% in 2013.

They are estimating an increase of 3.9% in 2015. This latest growth prediction is [markedly] down compared to the last one issued in January of this year. The IMF growth out look for the US economy remains unchanged at 2.8% for this year and 3% in 2015. Chinese growth forecasts remain at 7.5% for this year and 7.3% in 2015. Recently released data shows Chinese retail sales a marked increase by 13% compared to March 2013. consumer spending remains robust according to Commodore Research and is anticipated to continue growing this year and next.

According to recently released data China overtook the United States to become the largest economy in terms of foreign trade with exports and imports reaching $4.2 trillion during 2013. According to the IMF by the final quarter of last year, social financing, as the Chinese have already described debt financing, has reached 200% of GDP. Up from only 125% before the 2008, 2009 crisis.

The steep growth of debt in China has left the Chinese government according to a financial times commentator, with a dilemma. Either to allow debt accumulation to continue creating bigger problems in the future or implement rapid reforms and risk a fall in investments and the than planned slow down now.

The optimum path forward, the same commentator continues, is to accelerate adjustment in reform while sustaining aggregate demand through monetary and fiscal policies operated in the central government.

China's ability to postpone a crisis might lead the decision makers to choose to delay adopting the adjustment option described above.

That could prove a huge mistake. Growth cannot be sustained by increasing indebtedness indefinitely. Reform and re-balancing are essential. The Chinese authorities appear to understand that without such reforms the plans for liberalizing the countries capital accounts could be catastrophic for the economy.

Let us hope the right decisions are taken and soon in this regard.

Turning to steel now. The World Steel Association has released its steel consumption forecast for 2014. Global demand is expected to grow 3.1% compared to 3.6% in 2013. The crude steel capacity utilization ratio for the 65 countries that provide data to the WSA was 79% at the end of March this year. This compares with 78.6% in March last year. Production in the European Union was up 6.7%, while in Asia as a whole production in March was up 2.6% compared to the same period last year.

Chinese stockpiles of steel, according Commodore Research, have declined for seven consecutive weeks and are now down by 16% compared to the same times last year.

Simultaneously, however, Chinese steel production has recently risen to a record level and this is putting moderate pressure on local steel prices.

Iron Ore now, according to production during this year the total world iron ore imports will increase by 9% to reach 1.3 billion metric tons. A positive sign in the ore trade is the suspension the Indian Government of the existing restriction of mining in the [comataca] Angola iron ore producing states. This should bring more iron ore to the market but the shorter sea voyage to Chinese ports will not necessarily benefit the Capesize sector in way of increased ton/mile demand.

Looking at Australia. The official opening of the King's Mine in Western Australia in March, together with other planned mine expansion are projected according to Clarksons to lead to a 16% year on year increase in Australia iron ore exports for 2014. According to the Australian Bureau of Resources in Energy, iron ore exports should reach 687 million metric/tons in 2014 and 749 million metric tons in 2015.

According to Commodore Research at the end of April, Chinese iron ore stockpiles stood at 1.3 million metric tons. Commodore is encouraged by the fact that this figure was 300,000 tons less than a week ago and by the fact that port stockpiles have fallen during four of the last five weeks.

However, they also admit that iron ore port stockpiles remain at historically very robust levels and compared to last year, they are 32.7 million metric tons higher, a significant increase of 48%.

According to [Car Robinson] there is evidence that demand for construction related steel production has rebounded in March, so they expect the stockpiles of iron ore to come down in the coming months. The Chinese government announced a stimulus package to build 6,600 kilometers of new rail lines this year in the less developed Central and Western regions of the country. A further $178 billion as a fund is being dedicated to low cost housing to provide shelter to the rural populations moving toward towns for employment and to increase their standard of living.

Reports have recently surfaced though that China's banks will raise the deposit needed for financing iron ore purchases. It is not known yet by how much this deposit will be raised. It because effective on May 1. But is it possible that the short term disruption of purchases of both imported and domestically produced iron ore could occur. This is something that needs to be watched over the next few weeks.

Turning to coking coal now. Clarksons predicts that this year will see worldwide imports of coking coal by reaching 277 million metric tons an increase of about 5% compared to the volumes that were shipped last year. Total coking coal experts from Australia are expected to be the main driver of global coking coal trade growth this year and are expected to grow 6% year-on-year to 176.8 million metric tons in 2014. Meanwhile, Chinese seaborne coking coal imports are currently projected to increase 12% year-on-year to reach 67.1 million metric tons in 2014.

Going forward, much will depend on how the arbitrage between international and domestic Chinese coking coal prices develops this year.

To thermal coal now, according to Clarksons, total thermal coal exports on a world wide basis are expected to grow this year by 4%, reach 383 million metric tons. Chinese imports are expected to reach 327 million metric tons this year, up 8% year-on-year. Most of this growth, about 42%, is expected to come from Australia, Indonesia is expected to provide about 40% of all Chinese seaborne imports of coal this year.

In this respect it is worth noting that according to Commodore Research coal stockpiles in Qinhuangdao China's largest coal port and the loading port for about 40% of China's coast coal shipments, currently stands at approximately 4.5 million tons. This is the lowest stockpile seen since October 2011. These stockpiles are down 185 compared to this time last year.

Commodore Research anticipates that more coal imports will be needed to rebuild Qinhuangdao's stockpiles and the badly needed surge in Chinese thermal coal fixtures should soon materialize.

Recently released data shows that coastal coal shipments totaled a record 66.2 million metric tons in March this is 44% more than what was shipped in February this year and 18% more than what was shipped in March 2013.

Recently released data showed that as of March 20, thermal coal stockpiles at major power plants totaled 69.7 million metric tons. This marks a decline of 18% in the beginning of February and marks a year-on-year decline of 9%.

Future trade could be effected by recent plans announced by the Chinese government to shut down around 1,700 small domestic coal mines during this year. With an estimated total production capacity of approximately 120 million metric tons.

As regards grain now shipments, Clarkson's forecast for this year is that total imports could reach 290 million metric tons and that is for the 2013 grain season. If this materializes it represents a respectable 9% increase compared to last years volumes. Strong growth is also underpinned according to the USDA by the improved forecast for course grain exports from the United Sates.

The forecasts for Brazilian and Argentinian soybean exports also remain high and well above levels seen in 2013. China imported 15.3 million metric tons of soybeans during the first quarter of this year which was 33.3% higher than for the same period in 2013. However, for the near term, an unfortunately development is the expected cancellation of Chinese buyers of as many of 50 additional South American soybean cargoes. Such a cancellation places an even greater pressure on the dry bulk market, particularly the Panamax segment.

Stock Market rates now, according to RS Platou Economic Research] stop rates for Cape stood at the end of last month at around $11,000 per day and for Panamax's at approximately $7,000 per day. The average year to date figures are $17,300 per day for Capes and $9,600 per day for Panamax.

According to Commodore research Capesize rates have continued to come under pressure this year by a combination of iron ore, seaborne grain volume being lowered at the start of every year along with a disproportionately large amount of Capesize new buildings traditionally being delivered during the first quarter of each year. Commodore research believes that the Capesize fleet growth will decline during the rest of this year, which combined with the expected surge in iron ore export is likely to boost Capesize rates.

Our belief is that this prediction failed to take into account the surpluses created by the last two years by the huge increases in the supply of these ships and the effects that low Panamax rates can have on capping any upward movement on Capesize earnings.

As for Panamax's Commodore believes that South American grain cargoes have helped rates stabilized at the low level but pressures remain due to the very large number of new buildings being delivered.

During to the over-age profile of the bulk area fleet. The low-age profile of the bulk area fleet remains a concern to scraping and the controlling the supply of tonnage. Only 10% of the Panamax fleet is over 20 years old. If we include the younger post Panamax's in these statistics, the percentage of over-age ships falls to under 8%. A mere 7% of the Capesize fleet falls into this age category.

Scrapping now, according to banchero e costa, unfortunately demolition has been slowing down since its peek in 2012. With 20.6 million deadweight tons sold for scrap in 2013 across all vessel sizes, this was 35% lower than in 2012. And only 50 units of 3.4 million deadweight tons were sold for scrap during the first quarter of this year. This includes one VLOC, eight Capes, no post-Panamax's, and four Panamax's. This scraping figure was 60% less than in the same period of last year.

Now supply, overall according to Clarksons a total bulk area order book at the end of March this year stood at 157.8 million deadweight tons which represents 22% of the existing bulk area fleet. Panamax order book stood at 34.5 million deadweight tons representing 18% of the existing Panamax fleet and the Capesize order book was at 65.4 million deadweight tons which was at 22% of the existing Capesize fleet.

According to banchero e costa in the first quarter of 2014, 189 bulkers of 15.9 million metric tons were delivered, which total included three VLOC, 30 Capes, 10 post-Panamax's, and 55 Panamax's. Total deliveries in 2014 in accordance with the order book are expected to be about 64.6 million deadweight tons including ships already delivered in the first quarter. Assuming a 15% slippage as was the case with the last few years, on average, the total actually delivered should not exceed 55 million deadweight tons.

New building contracts, according to banchero e costa during 2013 there have been at least 930 reported new building orders. Which is almost three times the level seen in 2012. This activity included into the first quarter of 2014 with a reported 120 Handi-max's, 56 Panamax's, 51 Capes, and 9 VLOC's ordered for delivery over the next 2.5 years. A total of 295 bulk or new buildings were ordered during the first quarter of this year alone.

Let's turn to supply demand projections now, according to Clarksons the bulk area fleet and the dry bulk trade area expected to grow at an approximately similar pace this year. At 4.9% and 4.4% respectively. While complete growth in the Panamax sector is expected to remain strong at 7.1%. The Capesize sector should see growth at around 4% which is considerably slower than the projec5ted 9% increase in the seaborne iron ore trade for 2014.

With Australian iron ore projection surging during the second quarter of each year for seasonal factors, Commodore Research expects shipments to increase significantly. They also expect that Capesize fleet growth will decliner from the robust level seen during the first quarter this year. The market should also benefit, they argue, from when the Atlantic Basin activity returns in earnest, their concern is centered around the very large number of Panamax vessels that continued to be delivered in the market and Panamax fleet growth that is set to remain the highest out of all for major vessel classes.

The problem here is with the past record deliveries of Capes which has created a fleet with an average age of only 7.3 years, making it the youngest sector of the dry bulk fleet . More than half of the Capesize fleet in terms of deadweight is currently under five years of age.

However, it is difficult to be overtly optimistic about the medium term health of the bulk area market, when one looks at firstly, the very high number of deliveries during the past and also the next two years. Secondly, the record Panamax deliveries this year. And thirdly, the huge contracting appetite which owners have appeared to have and which has been translated into the new building orders referred to above.

Within this environment, we at Diana Shipping will continue purchasing goods second-hand tonnage and very selectively placing new orders for large bulkers with the latest technology.

We are confident that the market will eventually improve, significantly, and reward this consistent policy and investment strategy. It will also help us maintain the strength and integrity of our balance sheet.

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

Thank you Anastasios and good morning. I am pleased to be discussing today Diana's results for the first quarter 2014. A gross amount of $6 million and cost of commerce amounted to $6.8 million and the share of 8%.

Time Charter revenues decreased to $41.1 million in the first quarter] (inaudible) 2013. The decrease was partly attributable to (inaudible) Time Charters which we received for our vessels during the quarter compared to the same quarter 2013.

This was partly upset by revenue derived from the vessels we thought were being generated (inaudible) in February 2013.

Baltimore delivered in June 2013, (inaudible) delivered in August 2013, (inaudible) delivered in October 2013, (inaudible) delivered in December 2013, (inaudible) delivered in February 2014.

Ownership debts were $3,280 for the first quarter of 2014 compared to $2,806 in the same period of 2013.

(Inaudible) was 98.8%, the same as in the first quarter of 2013. And the daily Time Charter equipment rate was $11,820 compared to $14,398 in the same quarter of 2013.

(Inaudible) expenses were $2.4 million for the quarter.

Operating expenses amounted to $20.7 million compared to $18 million in the first quarter of 2013. An increase by 15%. The increase was attributable to 17% increase ownership [delay] resulting from the enlargement of the fleet.

On average daily operating expenses decreased due to decreased crew costs and insurances. Daily operating expenses were $6,298 for the first quarter of 2014 compared to $6,400 in the same quarter of 2014. Representing a decrease of 2%.

Depreciation and Amortization of deferred charges amounted to $16.9 million.

General and Administrative expenses increased to $6.2 million compared to $5.5 million in the first quarter of 2013. The increase was mainly attributable to the increase number of employees and salaries and employees [indebted] compensation.

Interest and Finance costs were $2 million for the quarter compared to $1.2 million in the first quarter of 2013. The decrease is mainly attributable to increased capitalized interest and decrease average debt in the first quarter of 2014 compared to the same quarter of 2013. Partly upset by increased average interest rates.

Interest and other income amounted to $2.9 million compared to $2.2 million in the first quarter of 2013. The increase was due to the interest and finances deriving from our loan with Diana Containerships, Inc. Thank you for your attention, we will please respond to your questions now and I will turn the call to the Operator who will instruct you as to the procedure for asking questions. Thank you.

We will now be conducting a question and answer session.

(Operator's Instructions)

Thank you our first question comes from the line of Gregory Lewis of Credit Suisse, please proceed with your question.

Yes, thank you and good afternoon.

Hello Greg.

Anastasios, you provided a lot of color around iron ore, around coal, around grain. Maybe I missed it, you didn't really touch on to that third of the market that is the minor bulk sector. Do you have ay thoughts or insights on how we should be thinking about that segment of demand over the next one to two years? Is it just going to be a derivative of coal, is it going to be a derivative of iron ore? How should we think about that just as it is simply a driver of the overall market?

Yes, well there are two reasons why we haven't expanded on that at all. First, it is for the interest of time and to avoid boring you with too many numbers and second is as far as the size sector we are involved in they are not as major as they are in an overall basis. Those minor bulk commodities are shipped primarily in Handi-max's and Super-max's and some of them, admittedly, are shipped in Panamax's and practically none in Capes and Newcastlemax's.

On an overall basis, while I have been reading the material, it looks as if there is going to be a growth there. Estimates range anywhere between 4% and 7% depending upon which report you want to read and how optimistic the people collecting the numbers want to be. But there is going to be support from growth in the shipment of minor bulk cargoes, which primarily will effect, like I said, the smaller size ranges than those that we are being invested and in which we trade.

OK. And then just piggy-backing on this general theme. The outlook that you laid out on iron ore, on coal, in 2014 it looks pretty attractive. Yes it is not really translating into higher pricing, higher day rates, higher PDI, whatever you want to call it. What do you think is really-is it something that we are seeing these demand expectations being reduced or is it just something that we think this is a second half story?

No, the problem that we have with the assumption is not that we don't agree with them, we take demand as being more or less than we have presented. Which is quite strong. We have a small problem with translating this increase demand in an increase in ton mile demand, because there is a lot of uncertainty as to where most of the cargo will come with. And you see a lot come from and you see a lot of cargo coming from Australia and some cargo coming from India, Indonesia. And those increases that we witness that I have mentioned during the short presentation, are not as important as increases from places like South America, shipping goods from there either from Europe or to the Far East.

So that is what bothers us a little bit. And the other main thing that is of concern, of course, are the deliveries of ships starting from the second half of next year and onwards. Even the first half as well, but particularly the second half of 2015 going into 2016. There we are going to see, again, new ships coming through, we have very little scraping to speak of and with out any technical obsolescence, making ships unable to trade for whatever other regulatory reason one can think of, we feel that we are going to have too many ships in the market over the next 18 months to 24 months to ship the volumes that we have described in our presentation.

OK, great. And then Andreas I was actually having a little trouble hearing from you and I apologize if you said it and I missed it. But I guess I was wondering when I look at the depreciation line, it looked like, as I think about it, that number held flat at about 1$6.9 million, even though I guess the ownership days in the fleet went up about 40 days. And I am just trying to back into why depreciation wasn't up sequentially?

We had some dry docking amortization as well. That was the depreciation basically.

OK, so it was just related to dry dock. OK. I guess I will follow up off line to get those numbers. Alright guys, thank you for the time.

You're welcome.

Our next question comes from the line of Taylor Mulherin of Deutsche Bank. Please proceed with your question.

Good morning guys, how are you?

Fine thanks, how are you?

Good thank you, I just want to start off talking about the acquisition side of things. You guys are up over $300 million with your cash balance now so you are clearly in a position to expand the fleet.

You touched on this in the presentation but just if you could give a little but more color around how you are thinking about second hand vessels compared to-I know going out to 2017 deliveries and new buildings isn't what you want to do but just maybe compared to resales that my have a little bit more near term delivery.

How you are thinking about those potential options?

We have explained, hello this is Ioannis Zafirakis, we have explained in the past that we consider our market to be a mature market that the vessels values are based on the market conditions and basically the market prevails and therefore what you pay is what you get. So basically, the difference between a sale or a second-hand vessel as regards the profit capabilities or the upside when the market is going to turn, are already embedded into the price of the vessel. So basically to cut a long story short, what we say is it doesn't really matter whether you are going to be buying a resale or a second-hand vessel of three, four, or five years of age from the moment you are paying a different price for that.

As we have explained also in the past, our investment strategy states that we will keep buying a vessel or two every two months or so for the next year and a half and we should not change the pace of our purchase based on short term events.

As we have also explained, of course, if we end up as a part of the market, the cycle where we consider that to be a non-growth phase for the company, we will stop buying vessels and we will start paying dividends and try to modernize the fleet and do what we have explained in the past we were going to do.

Make sense and I also just want to follow up on something that you talked about in the past. That is availability at shipyards. I think it is very interesting from a market standpoint. Something that you had said was there were some, in your opinion, slots for more near term delivers if you were willing to pay up for it. Obviously, if we are talking about years, anything in 2015 will be pretty difficult at this point. But when you are talking about 2016 do you still think there are still slots that are being held back by the shipyards waiting for people willing to pay up? Or is that almost out the window at this point?

We have said in the past that there are a few empty slots available and also the ability of the yards to change the contracts from a tanker to a dry bulk vessel and vise versa, from the moment they have not started building the vessel. This is what we are saying. The fact the yards are full building dry bulk vessels is something that we explain thoroughly that we don't like. We regret to say that we were once again correct in our way of thinking on the previous conference call where everyone was over optimistic about the market and we said to you, read the signs better and see that the market, that things are not so good as they were presented to you being. And we will say the same thing. But the numbers of vessels that there are in the water, there are too many, we have still vessels coming into the water. We don't have vessels going out of the water, scrap. And at the same time everyone is considering demand to be very, very strong. Something that we are not disputing.

Makes sense. OK. I will leave it there. Thanks for your time.

You are welcome.

Our next question comes from the line of [Mathias Dechin] of Morgan Stanley, please proceed with your question.

Good morning gentlemen and thank you for the update. I want to ask you a bit about, I mean you already talked about how you want to deploy the capital but what I wanted to ask you about was how the asset values have reacted to this weakening in rates? And I mean, you said it might get worse before it gets better and now we see that it is getting worse. Could you talk if this is the correction you were talking about or if it is something that you see as seasonal? And if this has had an effect on asset prices at all, from the observations you have seen in the market?

The asset prices have not moved downwards as with other rates. The psychology is still there, what we say is that people don't want to admit defeat, yet as regards the potential of the market and there is still a kind of an optimism around. People are not prepared to share their vessels without a premium based on the previous optimism that existed. That takes, usually, time and when that comes and people see the market staying at the lower level than anticipated, then you will see the values of the vessels going further down as we have explained.

There is certainly a disparity between the values of the ships and the types of the rates that we are seeing today. And this disparity is simply because people who own vessels have psychology which seems to be positive that the market will be higher than what we have seen. But we haven't seen it yet an it remains to be seen.

OK, so what do you say that within your strategy you would want to hold out so that asset values come in line with rates?

No, no we cannot do that, we do not have a crystal ball in front of us so we can be certain 100% that this is going to happen. Our strategy is made exactly for that, not be amended. And therefore we are prepared to pay today's inflated price if necessary. Knowingly that the next vessel we are going to buy ks going to be cheaper. But we have to stick to our position in the company. Investing at particular points in the cycle regardless what is happening from the moment we have not moved to a different part of the cycle.

So you will see us buying something rather soon, although we do not expect the value of that vessel not to be inflated, a bit.

OK, that is very helpful, thank you again gentlemen.

You're welcome thanks.

Our next question comes from the line of Keith Mori of Barclays. Please proceed with your question.

Good morning gentlemen.

Morning Keith.

Anastasios I would like to come back to some of your comments at the end of your prepared remarks. If I understood you correctly, you kind of began to tell us that the markets have improved or are going to improve over the next few years and you are going to see some acceleration there. And then as we have gone through the call we have come out of, I heard you speak about over supply fundamentals going on there. Can you help me tie those two points together? Do you see the market remaining in a lull over the next 12 months to 18 months and then an acceleration? Just could you help me out tying those comments together?

Yes, even though we never become entangled in making detailed forecasts, I can tell you what I was trying to express in the presentation as being opinions of analysts which were reasonable. So the first opinion we found reasonable, and we still find reasonable, was that we believe that for seasonal factors rates could improve over the next few weeks and months. And those seasonal factors, rates could improve over the next few weeks and months . And those seasonal factors have to do with the South American trade increasing, the reduction in the pace of deliveries of Capesize vessels. Those are the main reasons that we some improvement taking place and there are other less important seasonal factors. Going toward the end of the year, though, we feel that any upside momentum especially on the Capesize sector will be tempered. Firstly by the opposite season factors, that are going to be pushing Capesize rates higher and by the continuous increase in the supply of Panamax vessels, which we feel are going to form a cap on the upside for rates both in the Panamax sector and also the Capesize sectors. Therefore, over the next 18 months to 24 months, which are going to include the period of high deliveries, rate numbers of ships joining the fleet again. Unless we get an extraordinary number of scrapping tonnage coming through, which will not happen unless rates drop as you can imagine, we are going to have soft markets. That is, in effect, is the reasonable prediction without as Ioannis explained earlier, placing bets on this by refraining from buying ships now because of this anticipation as regards the markets.

Therefore, even though we are sure the markets will improve eventually, and it will improve significantly from the level that we are now. We are not very optimistic about the next 12 months to 24 months as regards rates. That does not exclude spikes in rates, especially spot rates, due to seasonal reasons or other disruptions in the supply stream of ships.

OK, that is helpful, thank you. And maybe something here for Simeon. You have a large capital base now, over $300 million. We talk about markets remaining soft here, do you expect to deploy this capital into expanding of the fleet or maybe some other opportunities are out there like share repurchases or dividends over the next 12 months to 18 months. How should we think about capital deployment where we are in the cycle?

As we have repeatedly said, this is Ioannis Zafirakis again, we expect to deploy he capital slowing in the next year-and-one-half, that is one. Secondly we do not expect to pay dividend if we do not end up at the part of the cycle where we consider it to be a non-growth part for the company, a non-growth phase for the company and that is the after part of the cycle as we say, where we see inflated [science] rates and deflated values of vessels. So we have been very, very clear on that and we keep saying that we will not change our pace of purchases. Now, if you were asking if we were prepared to do a merging or an acquisition of another company, again, if that entails spending large portion of that dry powder that we have, we are not there to do it.

We are not prepared to take any kind of bet which is sizable at any particular point in the cycle. We want to do it slowly and we have kept doing that the last year-and-a-half and we intend to do that for the next year-and-a-half.

OK, thank you gentlemen.

You are welcome.

Our next question comes from the line of Kevin Sterling with BB&T Capital Markets. Please proceed with your question.

Thank you good after noon gentlemen.

Hello, good morning.

You were chatting about asset values and gave some good color there, so how long does it take for sellers to become more rational when asset prices begin falling as we are seeing now? Is it a couple months or longer?

Well it all depends on psychology and anticipation. It certainly takes a few weeks, a couple of months at a minimum and if in the meantime something happens to change the sentiment for the better then they usually don't come through. These adjustments and the ideas of sellers. And that is why we follow the policy that was described earlier of buying a ship when we find the right ship, regardless of whether in a few weeks or a couple of months, its price goes down. Because we are not sure it will. Psychology is something that nobody, unfortunately, can foresee. And it has a stronghold on the bright ideas, particularly of sellers. Buyers saw well. But mainly sellers.

And you factor that presenter into the picture that Anastasios describes is the big chance of money that they are coming into the picture from private investors, and other with the capital markets, that they have extorted the way of thinking and they could create the kind of not normal optimism about the market, but influences everybody.

[Deflate] or not there is the very low cost of the money. If you have interest rates very low then the equilibrium between the value does not come quickly. It takes longer. So the plentiful money that Ioannis has described, plus of course, the very low interest rate, is too factors which make the owners resilient to keep their prices higher and adjusted prices after a longer period then a shorter one.

Are you still seeing or are we still seeing a lot of private equity money coming to the market, or has it slowed some.

It has slowed down a lot, but not to the point where psychology should be. There is still a kind of an optimism as we explained earlier. But certainly, people slowly are realizing that the very well much anticipated, quick, and sustainable recovery on the Charter rates is not there to come soon.

OK got you and thank you. And one more question it is more of a housekeeping question, I think it is for Andreas. Andreas, how should be think about daily vessel operating expenses going forward? $6,400, $6,500 a day a good range to use?

Yes, I think it is a good range. This quarter has been better at $6,198 per day per vessel, but I think if you use what we have said which is $6,400 you will have a good number there.

Got you, OK, thank you for your time today, appreciate it.

Thank you.

Our next question comes from the line of Michael Webber of Wells Fargo. Please proceed with your question.

Hello guys, this is Donald McLee on for Michael Webber, all of my questions have been answered, but thank you for the time.

Thank you Donald.

Our next question comes from the line of Herman Hildan of RS Platou Markets. Please proceed with your question.

Good after noon gentlemen. I just have one question really in terms of how you define what the market which is a non-growth part of the cycle. Take for example the Capes, the rate level on the Charter market? How do you think about that?

Definitely this is something that we will have to consider and read the signs. It certainly cannot be described with only two numbers like special price or other rate, but it has also to do with the psychology and with the existing trends at this time and basically it is a kind of feeling that we get when you have the experience that we do and not feeling comfortable growing the company any more at that time.

We cannot be particular but if we were to draw a regression line for the last 50 years or so and before that you have taken out the values extremes you may have a very good idea about that fact of the cycle.

You understand that this is a moving target always and this is why I said to you that a lot of factors are coming into play when we decide that.

But of course, what Ioannis has explained is a rule of thumb and this rule of thumb we have explained since the day we started the company in March 2005 and it is pretty good idea provided you take numbers going back more than 20 years rather than the last 10 years. And taking away the extremes. Like extremes based in 2008.

Because if you take the 20 arbitrates and you take out peak earnings in 2008 you are around $30,000 today, which is the level that we briefly touched upon on the 1-year Charter rates, recently. So that is why I am kind of interested in how it goes...

You see you used the world briefly, that is the point. That is exactly what we meant earlier. It has to be not briefly, that is the point. It has to be something that looks sustainable.

OK, so when you are going to pass the period of those rate levels would you define the market as being...

And you know what else. When everybody is going to be talking saying that the market will never go down again. That is the point.

That is interesting, because I think you know, at least market perception is tough. Even through the market is down now and there is some seasonable explanation for that it seems that people are very, call it, not really buying into their long term recovery of the market. They are saying that the market is going to be good for the next could of years but if you look [forward to ] 2017 and 2018 that is getting a bit dangerous, while on the other hand its sounds like you are a bit cautious next year-and-a-half in terms of the market. But you are more optimistic about...

Provided a blood bath has occurred during that period you said. The first-year-and-a-half. If a year-and-a-half passes and we are neither here nor there, then the recovery is going to take longer to come.

OK, if we can put the discussion to a benchmark in terms of example (inaudible) they have gone from say $45 to $60, how much down do you think they are going to go? What do you think the low point will be from here in the next year-and-a-half.

No, no, we cannot predict this type of... You know that, nice try.

OK, nice try. Thank you very much guys.

Thank you.

You are very welcome, good bye.

We have reached the end of the question and answer session, I would now like to turn the floor back over to management for closing comments.

Thank you for your interest in support of Dianna Shipping, we look forward to speaking with you next quarter. Thank you.

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