Diana Shipping Inc (DSX) 2014 Q3 法說會逐字稿

Greetings, and welcome to the Diana Shipping Third Quarter 2014 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ed Nebb, Investor Relations Advisor. Thank you, Mr. Nebb. You may begin.

Thanks very much, Rob, and thanks all of you for joining us for the Diana Shipping Inc. 2014 Third Quarter Conference Call. The members of the Diana Shipping management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Operating Officer and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice. Certain statements made during this conference call which are not statements of historical fact, are forward-looking statements 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 and other factors that may cause future results to differ from what is expressed in the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission.

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

Thank you, Ed. Good morning, and thank you for joining us today to discuss the results of Diana Shipping Inc. for the 2014 third quarter. During the recent quarter, Diana Shipping delivered positive net income, while also utilizing our strong capital position to enhance shareholder value by expanding our fleet and repurchasing our common shares in local markets under our share repurchase program.

To review our financial results, the Company's net income was $7.7 million and net income available to common stockholders was $6.3 million for the third quarter of 2014. This compared to a net loss and net loss available to common shareholders of $3.2 million in the third quarter of 2013. The results in the 2014 third quarter included income from the Company's investment in Diana Containers Inc.

Time charter revenues increased to $45.1 million for the third quarter of 2014, from $41.9 million for the same quarter of 2013. The 7.6% increase over the year-ago period was mainly due to the enlargement of our fleet, partially offset by decreased time charter rates.

The Company ended the 2014 third quarter with a solid balance sheet, reflecting cash and cash equivalents of more than $201 million. Long-term debt, including recurrent portion, was $452.2 million, compared to stockholder's equity of over $1.3 billion.

Our solid capital position enables the Company to take advantage of the share repurchase plan previously authorized by the Board of Directors in May 2014.

Specifically, Diana Shipping repurchased and retired 1,038,645 shares at an aggregate cost of approximately $10 million during the recent quarter, reflecting an average repurchase price of $9.65 per common share.

As a result, the Company's issued outstanding shares as of September 30, 2014 decreased to 82,352,725. Additionally, the Company has deployed its financial resources to continue the strategic expansion of its fleet. In August 2014, we took delivery of the motor vessel, G.P. Zafirakis, a newly-built Capesize dry bulk vessel of 479,492 tons deadweight.

Including this vessel, Diana Shipping Inc.'s fleet now consists of 39 dry bulk vessels, 2 Newcastlemaxes, 11 Capesize, 3 Post-Panamax, 3 Kamsarmax and 20 Panamaxes.

As you may recall, we also expect to take delivery of two newbuilding Newcastlemaxes dry bulk vessels, and one newbuilding Kamsarmax dry bulk vessel during the second quarter of 2016.

We continue to manage the fleet in a manner that we believe reflects a prudent balance of time charter maturities, and produces a predictable revenue stream. Currently, our fixed revenue [base], are 99% for 2014 and 35% for 2015.

Our recent time charter contracts reflect our emphasis on doing business with highly respected partners. For example, the G.P. Zafirakis was time chartered to RWE Supply and Trading GmbH, one of our Kamsarmax dry bulk vessels the motor vessel Maia; as well as a Panamax, motor vessel Dione also were chartered to RWE.

The motor vessel Leto, a Panamax, was time chartered to Cargill International S.A. during the quarter. Glencore Grain chartered the Panamax Triton. And Bunge S.A. chartered the Panamax Naias in July.

These relationships underscore the Company's ability to serve the needs of some of the industry's most prominent charterers.

We are pleased with the Company's financial and strategic progress during the latest quarter, and we look forward to continuing to pursue our efforts to strengthen and maintain our financial flexibility, to grow our fleet, and to deliver long-term shareholder value.

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

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

During the last few months, we witnessed extreme volatility as regards to large bulk carrier earnings. On June 30, the Baltic Dry Index closed at 850, and on the last trading of September it stood at 1,063. Yesterday the index closed at 1,317.

The Baltic Cape Index started the third quarter of this year at 1,871, and yesterday closed at 2,975, having reached a peak of 3,781 on November 4th of this year.

As for the Baltic Panamax Index, on June 30th it closed at 423, and yesterday stood at 1,059, having reached a peak of 1,241 on November 3, 2014.

Sentiment played a large role in these wild movements, and from euphoric it became pretty negative within the space of a few weeks. Capesize average earnings for 2014 stand at 14,089 per day, while on October 31, they had gone up to 24,625 per day.

For the Panamaxes, numbers were less spectacular with a typical average of $7,705 per day for 2014, and $9,650 per day on October 31st.

Let's try to explain these movements, and look at the forecasts made by some of the most reputable dry bulk shipping analysts.

The world economic growth, according to the IMF, is forecasted to grow at 3.3% this year, and 3.8% for 2015. This was primarily caused by downgrades in their outlook for the Euro Zone, Russia, the Middle East and Japan.

For 2015 the rate of growth is estimated to be 3.8%. This represents a slight downward revision for the forecast given in July, which was 4%.

The US economy is expected to grow by 2.2% this year. The IMF forecast for growth in the Euro Zone as a whole is 0.8% for 2014 and 1.3% for 2015. They also warned of a downsized risk to growth projections as prices are allowed by the European Central Bank to drift lower.

According to Braemar ACM, China's industrial output rose 7.7% in October from a year ago, while retail sales grew 11.5% in the same period. Economists were expecting growth of 8%, and 11.6% respectively. Sluggish factory production in recent months and the weakening housing market have been putting the Chinese government's annual growth targets of 7.5% at risk.

According to the World Bank, growth in China will hold to 7.4% this year, and 7.2% in 2015. A further drop to 7.1% is envisaged to 2016. Chinese gross domestic product grew 7.3% during the third quarter of this year, compared to the same period in 2013.

The Euro Zone saw a marginal upturn in the growth of business activity in October, with October's PMI rising to 52.2 from 52 in September. However, the German government announced its growth forecast for this year to be 1.25%, down from an earlier estimate of 1.8%. For 2015, the forecast is now down to 1.3%. These downward revisions were the result of a slowdown in growth in the Euro Zone, which has affected German exports to the region.

Let's look at steel production now. According to the World Steel Association, global steel use will increase by 2% to 1.562 billion metric tons in 2014, following growth of 3.8% in 2013. For 2015, world steel demand is expected to grow by another 2%, and will reach 1.6 billion metric tons.

As for Chinese steel demand, this is expected to grow by only 1% to 748.3 million metric tons this year, mainly due to the cooling down of the real estate sector, and the government's efforts to rebalance the economy. The weak growth momentum will probably continue into 2015, and the WSA forecast of steel use will grow by 0.8% in 2015 and reach 754.3 million metric tons.

Iron ore now; as regards to iron ore, Clarkson's forecast an increase of 7% in the volumes shipped worldwide. The main factor in this increase is as usual, Chinese demand. The forecast imports to China to reach 994 million metric tons, which will be 8% higher than this year's total. Clarkson's cite, however, the Chinese government's intention to reduce both pollution and overcapacity in the country's steel sector as a downside risk to growth next year.

Large miners, such as Rio Tinto, Vale and BHP Billiton, all plan for production increases in their 2015 financial year, which ends in June 2015. They also wish to improve supply-chain productivity. This will ensure ample supply of this commodity over the next few months, which will probably keep prices in check.

Additional growth in overseas production will accelerate imports of iron ore to China, as iron ore prices will continue to be pushed down below Chinese mining companies' breakeven cash cost.

Howe Robinson reports that Chinese iron ore production will decline 15% to 339 million metric tons this year, compared to 2013, and drop to 236 million metric tons in 2015.

As regards to iron ore ports stockpile; these have been declining recently and now stand at approximately just over 100 million tons. However, they still remain at near record levels, and are 24% higher than at the same time last year. Strange enough though, these high stockpiles have not, at least for the time being, restricted Chinese iron ore imports.

Coking coal now; Clarkson's are forecasting an increase of about 2% in the total shipments of coking coal in 2015, for them to reach 223 million metric tons. This year Clarkson's cite a newly imposed import duty on imported coking coal in China and the general decline in imports as the main reasons for a drop in 2015 Chinese imports of coal to 45.6 million metric tons, compared to 48 million in 2014.

However, according to Commodore Research, China and Australia have finalized their free trade agreement talks, and the tariffs on Australian coking coal imports have been removed. This is in contrast to the tariffs on thermal coal imports from Australia, which will remain in place for another two years.

Meanwhile, according to Clarkson's, Indian steel output capacity is expected to continue to expand, which is likely to support Indian imports of coking coal in 2015. Currently, India's coking coal imports are projected to rise 9% year on year to 46.2 million metric tons in 2015. The main downside risk to this forecast is the Indian government's promotion of domestic coal production, which already started last year and is expected to continue for the foreseeable future.

Thermal coal now exports are expected by Clarkson's to reach 960 million metric tons, which if materializes, will be a 2% increase compared to last year. Clarkson's expects that in 2015 growth in Indian steam coal imports will slow to 7% from 11% projected for 2014. The reason is again, the Indian government's pressure on domestic miners to raise coal production. Against this trend, comes the fact that power plants profiled in India are in need of urgent restocking of they're only 8.4 million metric tons. This should work in favor of coal imports to India, at least in the near term.

Chinese steam coal imports are projected to soften in 2015, by the current introduction of restrictions on the quality of coal the Chinese allow to import, and a 6% tax on imports will limit trade next year. Coal stockpiles in Chinese ports have been rising recently. But more importantly, power plant stockpiles remain stably high at 93.5 million metric tons. A possible explanation for this is the fact that China has seen large year-on-year increases in hydropower production, which may have limited thermal coal derived electricity production, and allowed power plant coal stockpiles to rise to a very high level.

The next quarter, Indonesia is expected to remain the largest supplier of steam coal, with initial projections indicating that exports will rise by 1% to reach 421 million metric tons in 2014.

Turning to the grain trade now, unfortunately, wheat trade is not expected by Clarkson's to provide much support to the bulk carrier earnings during the 2014-2015 grain season, as total imports are expected to go down to 299 million metric tons, which if materializes, will be 5% lower than the previous season.

A couple of factors may have contributed to this gloomy forecast and they are first, an anticipated recovery of China's wheat crop during the 2014-2015 crop year, leading to a decrease in wheat imports. And secondly, imports of [maize] are anticipated to decline to very high stockpiles in China, which have reportedly built up this year due to slower growth in Chinese domestic demand, and increased government purchases of corn.

The combined wheat and coarse grain exports from the United States are currently projected to decline 9% to 71.9 million metric tons in the 2014-2015 crop year, partly reflecting the expected reduction in import demand for wheat by countries such as China, referred to earlier on.

A quick look at slow steaming now. According to Clarkson's in the bulk sectors, operating cost gains from slower steam are less dramatic than other sectors due to their location at the shallower point on the steam consumption curve. This means that with lower bulk prices and improved markets, operating speeds will probably increase again quite quickly. This might bring more tonnage to the market.

These things do not hold for other types of ships, such as container vessels, which require tanker prices to drop quite a bit further in order for them to operate again at higher speed.

Let's turn to contracting activity. According to Clarkson's, contracting activity indicates that sector has slowed somewhat this year 114 vessels ordered, down 11% year on year in terms of deadweight. However, in the first nine months of 2014, the Capesize order book grew 3.6% in terms of deadweight to stand at 377 vessels of a combined 74.9 million deadweight tons. During the same period, 22 vessels were scrapped.

As for Panamaxes, from January to September this year, 108 vessels were ordered, mainly Kamsarmaxes, while 45 ships were scrapped.

Let's look at the newbuilding order book. According to Clarkson's the bulk category order book at the end of October this year stood at 2,092 vessels, with a combined 174.5 million deadweight ton capacity, representing 23.1% of the existing fleet.

The Panamax order book consisted of 436 vessels of a combined 35.4 million deadweight tons, which represented 18.3% of the existing fleet. The standard Panamax vessels on order represent a near 3.95% of the existing fleet. Most ships on order in this size category are in the Kamsarmaxes.

Again, according to Clarkson's, the Panamax fleet is expected to grow by 6% this year, and by a further 4.3% in 2015.

As for Capes, at the end of October there were 371 vessels on order, representing a total of 73.4 million deadweight tons, and 23.9% of the existing fleet. The Capesize fleet is expected to grow by 5% this year, and by a further 5% in 2015.

According to RS Platou, slippage was around 28% last year. And so far this year it has been running at an annualized rate of just 13%.

Demand now; according to Clarkson's, this year total dry bulk carrier trade will reach 4.525 billion tons, an increase of 4% compared to last year. In 2015, they see this number going up to 4.69 billion tons. If this materializes, it will be an increase of a further 4% from this year.

What does the supply now look like? According to Clarkson's, as the order book runs down, [still] growth will move into more realistic territory. And they project 5.2% growth in 2014, and 4.6% in 2015. This is much more in line with the growth in demand discussed about. Suggesting that over the next two years, the total surplus bulk carrier capacity will mark time as the volume in deliveries continues to hedge lower.

This shows the importance of new contracting, or rather the lack thereof, to the arrival and longevity of healthier bulk carrier earnings.

Capesize deliveries in 2013 ended at less than one third of 2012 deliveries according to Fearnley. However in 2014, deliveries of Capes were higher than in 2013. And unfortunately in 2015, they are expected to be even higher. The Capesize fleet is expected to grow, as we said earlier, by 5% this year.

The Panamax fleet grew by about 12% last year, and is expected to grow by a further 7% this year.

Demolition; according to Clarkson's, only 20 Capes and 36 Panamaxes were sold for demolition thus far in 2014. These numbers are 33% and 25% lower than last year, respectively. As a whole, the dry bulk fleet has seen only 184 vessels scrapped so far this year, compared to 434 in 2013.

According to Fearnleys, about 21 million deadweight tons of bulk carriers were scrapped in 2013, down from 33 million in 2012. This year, scrapping is expected to be no more than about 16 million deadweight tons.

One of the factors which is discouraging, known as the (inaudible) vessel, is the low average age of the fleet, which for standard Panamaxes is 11.5 years, with the Kamsarmaxes and Post-Panamaxes are included, this is much lower than that. And for Capes, just 7.6 years.

The market will need to deteriorate much further for such young vessels to be scrapped. This becomes even more obvious if we take into consideration the fact that only 8.5% of the bulk area fleet is over 20 years old. Most of these vessels are in (inaudible).

Let's turn to the supply-demand balance. According to RS Platou, China is the largest importer of dry bulk commodities, accounting for 40% to 50% of demand for seaborne transportation of dry bulk. Consequently, the recent signs of a slowdown have caused serious concerns. Add to this the more pronounced shift to high-pollution to imposing a ban on polluting coal, import tariffs mentioned above, and finally Vale ordering more of its own tonnage to haul long-distance iron ore, and the dry bulk markets have taken a hit, which RS Platou believes will continue for a while.

They expect the result of demand growth being close to expected supply growth to be volatility. And further, expect average time charter rates for next year of about $18,000 per day for Capes, and no more than $11,000 per day for Panamaxes.

According to Commodore Research, the Panamax market continues to show signs of severe oversupply. Expansion of the Panamax fleet is expected to slow to 6.5% in 2014, and 4.3% in 2015.

However, unlike the Capesize fleet, very large growth has continued in the Panamax fleet again this year, up until the last few months. It will still take time for the Panamax sector to truly recover from robust fleet growth that has only recently began to [recede].

As for Capes, Clarkson's believes that continued strong Chinese iron ore import demand, in conjunction with a reduced base of fleet growth, could provide some upside to Capesize quarter and in coming years. However, as mentioned below, cumulative buildup of oversupply in the sector could still take some time to be fully absorbed.

As for the bulk carrier sector as a whole, Clarkson's sees the fleet growing in line with demand for at least a couple of years ahead, and probably longer. Given the size of today's order book, it could be quite a few years before the accumulated surplus is totally clear.

As we have mentioned on several occasions in the past, our cautious view of the future does not affect the repeatedly announced investment program and ship acquisition plan of the Company. We're always on the lookout for quality tonnage. And the ships we have purchased thus far have proven their superior technical standards and high construction quality through their [claims] records.

The market will undoubtedly recover in due course, and will find the Company ready to take advantage of improved earnings with a large fleet of quality bulkers with characteristics attractive to charterers with whom we have been working closely for many years.

I will now pass the call to our CFO, Andreas Margaronis, who will present us with the financial highlight and results of the third quarter and first nine months of 2014.

Thank you Stacey, and good morning. I'm pleased to be discussing today with you Diana's operational results for the third quarter and nine months ended September 30, 2014.

For the third quarter of 2014, net income amounted to $7.7 million, and income to common stockholders amounted to $6.3 million, and the earnings per share was $0.08.

Time chartered revenues increased to $45.1 million compared to $41.9 million in the third quarter of 2013. The increase was attributable to the revenues derived from the vessel Artemis, delivered in August of 2013; Myrsini, delivered in October 2013; P.S. Palios, delivered in December 2013; Crystalia, delivered in February 2014; Atalandi, delivered in May 2014; and Naias, delivered in August 2014.

This increase was partially offset by decreased revenues due to the decrease in average time charter rates that we achieved for our vessels during the quarter, compared to the same quarter of 2013.

Ownership days were 3,547 for the third quarter of 2014, compared to 3,072 in the same period of 2013. Fleet utilization was 99.7%, the same as in the same quarter of 2013. And the daily time charter equivalent rate was $12,295 compared to $12,990 in the same quarter of 2013.

Voyage expenses were $2.6 million for the quarter. The vessel operating expenses amounted to $22 million, compared to $19.7 million in the third quarter of 2013, an increase by 12%. This increase was attributable to the 15% increase in ownership days, resulting from the enlargement of the fleet.

Despite the increase in total operating expenses, daily operating expenses decreased, mainly due to the decreased crew costs, taxes and other operating expenses. This decrease was partially offset by increased repairs and maintenance and environmental costs.

Daily operating expenses were $6,219 for the third quarter 2014, compared to $6,424 in the same quarter of 2013, representing a decrease of 3%.

Depreciation and amortization of deferred charges amounted to $18 million. General and administrative expenses increased to $6.2 million, compared to $5.4 million in the third quarter of 2013. The increase was mainly attributable to increased number of employees and salaries.

Interest and finance costs were $2.2 million for the quarter, compared to $2.1 million in the same quarter of 2013. This increase was mainly attributable to increased average debt and average interest rates in the third quarter of 2014 compared to same quarter in 2013.

Interest and other income amounted to $0.9 million, compared to $0.5 million in the same quarter of 2014. The increase was due to interest income and finance fees deriving from our loan agreement with Diana Containerships Inc.

Income from investment in Diana Containerships Inc. amounted to $12.5 million, and was mainly due to our additional investment of [$40 million] during the quarter. After this acquisition, our fair ownership in Diana Containership Inc. increased to 26.34%. This compares to a loss of $0.1 million for the same quarter of 2013.

Turning to the nine months ended September 30, 2014 now; net loss for Diana Shipping Inc. amounted to $4 million. Net loss to common stockholders amounted to $7.7 million. And loss per share was $0.09. Time charter revenues increased to $129.4 million, compared to $124.5 million for 2013. The increase was attributable to the enlargement of the fleet, and was partially offset by decreased average time charter rates.

Ownership days were 10,234 compared to [8,808] for 2013. Fleet utilization was 99.4% compared to 99.2% for 2013. And the daily time charter equivalent rate was $12,079 compared to [$13,942] for 2013.

Voyage expenses were $7.2 million for 2014. Vessel operating expenses amounted to $64.6 million, compared to $57.3 million for 2013, an increase by 13%. The increase was attributable to the 16% increase in ownership days, resulting from the enlargement of the fleet. The increase was partially offset by decreased insurance costs.

Despite the increase in total operating expenses, daily operating expenses decreased, mainly due to decreased average crew costs, insurances, and other operating expenses. This decrease was partially offset by increased repairs and maintenance and environmental costs.

Daily operating expenses were $6,311 for the nine months ended September 30th of 2014, compared to $6,501 for the same period of 2013, representing a 3% decrease.

Depreciation and amortization of deferred charges amounted to $52.2 million for 2014. General and administrative expenses amounted to $18.7 million compared to $16.3 million in 2013. The increase was mainly attributable to increased number of personnel salaries, and employee's retirement indemnity.

Interest and finance costs amounted to $6.3 million, compared to $6.1 million in 2013. This increase was mainly attributable to increased average debt and average interest rate during the nine months ended September 30, 2014, compared to the same period of 2013.

Interest and other income amounted to $2.7 million, compared to $0.09 million in 2013, and the increase was due to interest income and finance fees deriving from our loan agreement with Diana Containership Inc., partly offset by decreased interest income due to the reduction of our average cash balance.

Income from investment in Diana Containership income amounted to $12.4 million. This compares to a loss of $4 million in 2013.

Share repurchase program; during the third quarter, we initiated a share repurchase plan under which until September 30, 2014 we repurchased and retired 1,038,645 shares at an aggregate cost of approximately $10 million.

Subsequently, in October 2014, we also repurchased and retired an additional number of 1,760,488 shares at an aggregate cost of approximately $15 million.

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

(Operator Instructions) Fotis Giannakoulis, Morgan Stanley

Yes. Hello and thank you. It seems that the market has been developing the way that you have been expecting and telling us for quite a long time. But looking forward and without time to ask you to make any forecast; at this point, what do you see being better opportunities for investing your excess capital that you have, given the fact that you made-- you have now a stock buyback program, and you acquired some shares. How does this influence your investment decisions vis-a-vis your share buyback program?

Hi, Fortis. This is Ioannis speaking. The share buyback program is there, as we have said in the past, to buy shares to invest in our Company. At the moment, where we do not find a vessel that technically fits our needs, and certainly we're there to invest as we have said, a particular amount of money every two months, let's say, either by buying A, a vessel or two. Or buying back our shares from the moment they are priced attractively.

So the share buyback program by itself does not seem to [end] at all our investment strategy. Don't forget also that it is the same for us to buy back our shares or by investing, regardless of what we think about the market. As we have said in the past, we are here to keep the investment program intact, and don't change our investment strategies.

Meaning that we will keep investing particular amounts of money every two months, as I said earlier.

Thank you, Ioannis. That's very clear. And regarding the different asset classes, I know that you have mentioned many times in the past that the dry bulk market moves the same direction. But you mentioned earlier that the order book for Capesizes next year is going to be around 5% higher than what it is this year. We know that Panamaxes this year, they have significantly underperformed the other asset classes. Do you see this discrepancy between Panamaxes and Capesizes in that rate of performance to be normalizing next year? And how do you view the comparability by asset values?

As we have said in the past, we feel and we know, because we have seen that in the past that in the medium to long term, the pricing is similar for every type of vessel in our sector. In the short term, and while there is an optimism around for a particular sector, you may see these discrepancies. But eventually market prevails, and the pricing goes to the same direction for every sector in our part of the world.

The fact that the vessel cost today, a Capesize costs $50 million and a Panamax $25 million or $30 million is reflecting the charter rates and expectations. But in the medium to long term, it's going to be purely on market conditions. And the pricing is going to be better. By better I mean more appropriate as it regards Panamaxes and Capes.

And you can understand. You know better that this is going to happen, because if for example, people see a sustainable rate for a Capesize which is more than 2 or 3 times than a Panamax, the charterers will change their [charterings] to go for Panamax instead of paying expensive charter rates for a Cape, and it will be opposite. But this can only happen in the medium to long term.

Thank you, Ioannis. And regarding the drivers for next year, I understand that according to your expectation you see that there is an oversupply and that the demand and supply, they will move very closely to each other. But what kind of drives the demand higher? There is a lot of discussion about increasing iron ore imports from China. But given the point that you mentioned that the steel production growth in China is not going to be that high, is going to be around 1%, do you think the decline of domestic iron ore production will be a sufficient driver? And what other drivers do you see ahead that they can surprise to the upside on the demand? And if you can give us some timing of the potential increase in iron ore imports next year that a lot of discussions have been made about.

Fotis, we strongly feel that we should not rely on demand factors for the market to improve. We should not rely our business on demand getting much better for the market to improve. The trick-- what should happen is on the supply side of the vessels. The demand is already very, very, very strong as I have said in the past. And expecting something which is really, really strong to become stronger, much stronger, is not an easy bet to take.

What we should concentrate on is to look at the supply of the vessels, the newbuilding orders, the laying up of vessels or the scrapping of the vessels in order to have faith about the market. Making the bet for demand to become more than what it is today, higher than the market improving on the demand side.

And if you were asking for iron ore, to be particular about iron ore prices or production; it's something that we are not in a position to say. We read the same reports as you do. And we are not here to predict something like this.

And in terms of supply and how is this going to be used in the industry, the size of [street] corners being, in terms of the ordering and there is some discussion about the potential cancellations of last year's orders, issued with letters of credit. It is something that is real, and how do you view the ordering activity going forward?

What is real is that we recently heard analysts, bankers, private investors saying that they don't like what they see. This is a good starting point. You remember that we were the only ones that we were talking about something like this. Now that people start seeing clearly that things are not so good that will make the market better. And on the supply side, as you are saying, we are seeing a better attitude from the investors from the ship owners toward newbuildings, towards putting more and more vessels into the water.

We are on the right direction as regards thinking about the market not being so well for the near future. This is, I know that it sounds contradicting. But it's a bad thing when everyone-- it's a good thing rather, when everyone thinks that the market is really bad. And we are going towards that direction. Because that's the way the market is going to turn positive, a turning point.

Thank you, Ioannis. One last question is probably more for Andreas. Just trying to understand your income statement. There is a significant contribution from the Diana Containership at $12.5 million. Can you elaborate on this, please?

Yes. This is basically an accounting issue, and we are (inaudible) better, as we have from the beginning. And this is why you see with our share of $40 million that Diana Inc. had increased in Diana Containership, and at a value of $2.51 per share, you see a positive effect on the income statement.

All right. Thank you, Andreas. And congratulations for the good quarter.

Amit Mehrotra, Deutsche Bank

Yes, thank you. Good afternoon, and let me just reiterate congrats on a very good performance in a tough environment. A couple of macro questions to begin with you. First, I just want to follow up on the earlier commentary, vis-a-vis demand. And I completely agree with you, given how demand has been so strong, it's hard to make the case of it going stronger, and talking about the risks to the upside or the downside. But my question has really more to do with sort of the-- are there any sort of structural shifts in the demand side of the equation?

And so there's clearly restructuring going on in China's economy. India seems to be as much of a risk as it is an opportunity. So I'm curious in terms of not just what the outlook next year or the year after that for demand. In your view, how are you seeing the structural implications of all the different moving parts on the demand side of the equation?

[Constructionally] we tried to touch upon the most important element, on the demand side in particular, and those are things that are happening in China and India. The rest are moving so slowly compared to these two that really will not have any significant effect on the supply-demand balance.

What worries us a lot is the realization now in China that the country cannot continue on the path that they have been following up to now, as regards pollution. Now that may have profound effect on the production of steel, the importation of coal, and general movement of bulk commodities that we have been talking about.

Now that on its own is far more important than any other structural change that might take place worldwide, either in developing nations or developed countries. Because we say all these [regulatory] and structural changes pale in significance compared to what might happen if China imposed strict regulations, in an orderly way, on pollution. So that's worrying in our view. And we don't see anything else which is more important and more worth following than what is happening in China now. And that's what we're going to be doing.

Unfortunately, we don't see any beneficial structural changes as regards demand for bulk commodities. Whatever we look, and whatever seems to be significant, tends to be negative. And that's why I reinforce what Ioannis Zafirakis mentioned earlier that supply is the issue here.

And unless we reign in supply in a proper manner, we are not going to have any sustained period of healthy earnings in the large bulk carrier sector.

Okay. Okay, that's very helpful. Just a couple specific questions. One is the coverage in 2015-- and apologies if I missed it, if you already mentioned it. But if I remember correctly, you were around 30% covered as of the end of July for 2015. Can you just update us on where that stands today?

Around 35%. But as we have said in the past many times, you know that we are consistent with our strategy. We will keep staggering the way we are fixing the vessels. And by that, we will have a spot exposure together with some fixed revenues. And at the end of the day, we are aiming for the average of the market of the entire year for the entire of our fleet.

Logistically though, it is not so easy to choose a particular moment when your vessel is going to be opening for the next charter. But we are doing a good job there. And the famous graph that you know that we have with the yellow bars of the fixed revenues; this is the same as it used to be a year, two years, and three years ago. The only thing that has changed is the number of vessels that we keep adding more and more vessels.

Okay. And then just last question from me on cash deployment. You put some money into Diana Containership and you've done a buyback now. I guess the only sort of missing piece is a dividend. And you haven't sort of paid a dividend since the end of 2008. And I fully understand the current market environment and dividends are sticky. But from your standpoint, it could be a nice sort of differentiating-- another differentiating factor for the Company versus some of the other shippers in the group overall. So how do you sort of think about balancing all the cash deployments that you're doing in a positive way, with maybe also throwing in a dividend and restarting a dividend, albeit maybe small in the beginning, but growing it as you move forward?

The best differentiating factor that we have as a company is being consistent with the strategies that we have stated back in 2005. And the consistency says to us that at the lower part of the cycle, we should keep our dry powder to invest in order to create shareholder value. Differentiating in a manner by introducing a dividend just to gain $0.20 on the share price or $0.30 is something that is not an option for us. We find this part of our industry at this time, being a very attractive one to invest as much money as possible. And by doing that, we will create a much greater value for our shareholders, rather than giving them a small or a big dividend at this stage.

Right. But I mean then the question begs, your comment begs the question; are you implying that you're going to be putting a lot of cash into building a vessel in what you view to be potentially as the bottom of the market or where the sentiment has gotten very negative. So is that what we can expect over the next several quarters is Diana Shipping investing in acquisitions whether in the second-hand market most likely?

This is the strategy. But certainly it will not be at a particular moment. It will be during the next year and a half, in a staggered manner as we have explained many times. We will try to invest most of our dry powder.

And also use leverage together with every investment of about 50%. So every vessel that we're buying, you can expect us to lever it up to around 50%.

Can you just-- last question, I promise. Can you just comment on what level you think your dry powder is at this point?

The (inaudible) that you see together, if you add to that the 50% finance, so you can come up with something-- (multiple speakers)

So you can add 50% on the un-mortgaged vessels as well. And you will find it very quickly.

Great, great. Thank you so much, gentlemen.

Jon Chappell, Evercore

Thanks. Pretty exhaustive call; just one quick follow-up from me. Andreas, can you explain a little bit more the impact of the Diana Containership (inaudible). This (inaudible) of $1.4 million in net income in the third quarter, yet your contribution was $12.5 million. I know you said it had to do with your investment. Is this basically just marking your investment to market? And is it one-time in nature type mark up, and going forward we're just going to see the percentage that you own of the net income [post] in that line again?

Basically what you do-- we purchases, as I said but maybe unclearly before, $40 million of shares at a price of $2.51 per share. But if you take the difference between our book value, which was around $3.5 per share, to DCI book value that is, together with the purchase price, you see that we have an income there of just lower than $1, which gives you the income that you see here, and the impact in the income statement.

So that's basically the equity method that we use, and this is where you find the difference of $12,348,000.

Okay, but that's essentially one-time in nature, right? If you don't buy anymore of Containership's in the fourth quarter that won't show up anymore?

Correct.

Okay. All right. That's all I had. Thank you.

Spiro Dounis, UBS

Hey. Good morning, gentlemen. Thanks for taking my questions. Let's keep these brief, hopefully. So we've seen some consolidation among the bulkers. And I know you mentioned you want all vessel purchases going forward. I was just wondering if you can comment on moves to consolidate among bulkers and if that makes sense for Diana at some point.

We have stated our opinion on that. We think that consolidation involve large amounts of money to be spent at a particular moment in the cycle, something that we are really opposed to, as having a dry bulker of $500 million to $600 million in spending, $400 million in one acquisition is something that we don't like.

The other thing that we want to say is that we have noticed recent measures and acquisitions. But I think most of them, they were out of necessity rather than anything else. Having not the ability to go public leaves some people to [mess]. That's it.

That makes sense. Thanks. And then just one last housekeeping, and sorry if I missed it. Can you just remind us again how the 2016 deliveries are being financed and where you are in that process?

No. The-- a bit early to finance the 215 deliveries, although we have started talks and we're very confident that we will-- it will be easy to find finance for those, and attractive finance. But specifically, we wait a little bit in order not to pay a very hefty commitment fee.

Fair enough. That's it for me. Thanks.

(Operator Instructions) Sal Vitale, Sterne, Agee

Hello. And thank you for taking my question. I appreciate it. I know it's been a long call. Really the question I have is just looking at your chartering strategy and looking at that in the context of your outlook for the market next year. So you sound very conservative in your forecast for the dry bulk market next year. And yet you're at about 35% coverage.

And I look at the-- say for Panamax vessels-- I look at the difference between the current spot rates of about $8500 and then I look at the one-year time charter rate on a 75,000 deadweight ton vessel is about $10,200. So do you need to see a much wider spread? And if so, what kind of spread do you need to see there to increase your charter coverage for next year?

The charter coverage is not going to be increased as such. What we are doing is we are fixing our vessels, and we are trying to position them to open at a point where we don't have other vessels opening.

We are in the fortunate position to have more than in total, more than 40 vessels. And that's allowed us to do a physical hedging. And by physical hedging we mean that we do not have to worry a lot about fixing a vessel for a year or two years or three years, since by doing what we are doing, we can have more or less the average of the market. And this is what we are aiming for.

I have said in the past that our strategy is to be 50% correct, rather than 100%.

All right. That's very helpful. Thank you very much. And then just a follow-up, Andreas, on the question earlier on the income from Diana Containership. If you exclude the effect of that difference between the price at which you acquired additional stake and the book value, what would that amount have been? I calculate roughly $300,000 to $400,000 positive. Is that about right?

Come again on your question?

So in other words, if you just look at the income that Diana Containerships generated in the third quarter and you exclude any other effect; what would that line item have been?

Around-- I think around the number you said.

Okay. That's helpful. Thank you very much. I appreciate it. Thank you.

At this time, I'd like to turn the floor back to management for closing comments.

Thank you again for your interest and support of Diana Shipping. We look forward to speaking with you next quarter.