Diana Shipping Inc (DSX) 2015 Q2 法說會逐字稿

Greetings and welcome to the Diana Shipping second quarter 2015 earnings conference call.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ed Nebb, Investor Relations Advisor. Thank you, sir. You may begin.

Thank you, Christine, and thanks to all of you for joining us today for the Diana Shipping second quarter 2015 conference call.

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 briefly summarize the Safe Harbor. 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. Forward-looking statements are based on assumptions, expectations, projections, and beliefs as to future events that may or may not prove to be accurate.

For a description of the risks, uncertainties, and other factors that may cause future results to differ from what is expressed in the forward-looking statements, please refer to the Company's filings with the SEC.

And with that, I will now turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer.

Thank you, Ed. Good morning, and thank you for joining us today to discuss the results of Diana Shipping Inc. for the second quarter of 2015.

Through the first half of the year, we have continued to maintain a solid balances, further strengthened by the proceeds of our senior unsecured notes offering, and have invested in the ongoing expansion of our fleet.

To review our financial results, the Company reported a net loss of $14.1 million, and a net loss attributed to common stockholders of $15.5 million for the second quarter of 2015. This compared with a new loss of $5.7 million and net loss attributed to common stockholders of $7.2 million for the second quarter of 2014.

Our time charter revenues were $38.6 million for the 2015 second quarter, compared to $43.2 million a year ago. The decrease over the year-ago period was mainly due to the prevailing lower time charter rates, partially offset by an increase in the size of the fleet.

Diana Shipping continued to maintain a faultless balance sheet, reflecting cash and equivalents of nearly $275 million. Long-term debt, including the current portion, was $613.5 million compared to stockholders' equity of approximately $1.26 billion.

During the past quarter, we further enhanced our financial capacity by raising $63.25 million in a public offering of senior unsecured notes due 2020. The net proceeds can be used for the acquisition of additional vessels, as well as general corporate purposes and working capital. Reflecting our confidence in the Company, certain executives officers, myself included, purchased $12.75 million aggregate principal amount of the notes in this offering.

Also, earlier this week, we announced the signing and draw-down of a $165 million term loan facility with BNP Paribas secured by 18 vessels, and the voluntary prepayment of the balance of our revolving credit facility with the Royal Bank of Scotland.

In keeping with our established strategy, we have continued to expand our fleet. We took delivery in June 2015 of the Motor Vessel Medusa, a 2010-built Kamsarmax dry bulk vessel. We also announced the purchase of a new building Capesize dry bulk vessel to be named New Orleans, with expected delivery in October 2015.

Including these vessels, our fleet will consist of 42 dry bulk vessels. In addition, we have 2 new-building Newcastlemax dry bulk vessels and 1 new building Kamsarmax dry bulk vessel expected to be delivered in 2016.

We continue to manage the fleet in a prudent manner that promotes a balance of time charter maturities, and produces a predictable revenue stream. Currently, average revenue days are 88 for 2015.

In summary, we will continue to take the strategic actions to enhance shareholders' value by maintaining strong financial resources, continue to invest in the growth of our fleet, and managing the business in a prudent manner throughout a challenging dry bulk market cycle.

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

Thanks, Simeon, and a very good morning to all.

The bulk carrier industry has provided us with plenty to talk about over the second quarter, and more so during June and July this year.

We will start, as we usually do, by looking at the Baltic Dry indices to put things in perspective.

On April 1, 2015, the Baltic Dry Index was at 596. It closed yesterday at the much better level of 1,100. The Baltic Cape Index started the quarter at a miserable 463, and closed yesterday at 2,116. The Baltic Panamax Index was at 596 on April 1st, and closed yesterday at 1,044.

The drop in dry bulk trade growth during the first five months of this year is largely due, according to Clarksons, to declining Chinese imports for all major commodities. Indeed, things have started happening on the up side in June and July.

According to Banchero Costa, the Capesize market began to pick up in the first couple of months on the back of relatively strong demand, a significant pickup in demolitions. However, they also point out that significant over-capacity remains, which will eventually put pressure on rates. Limited contracts in new-building and strong seaborne iron ore trade going forward could shed some light at the end of this long, dark tunnel.

Let's turn to macroeconomic development. According to the OECD, global growth this year should reach 3.1%, and growth could be as high as 3.8% in 2016. This figures are downward revisions, though, from 3.6% for this year and 3.9% for next.

The euro area is expected to grow by 0.7% this year, and by 2.1% in 2016. In Europe in May, the PMI data outline, according to Maersk Broker, the euro area recovery that is experiencing some weakness. It fell to 53.6 in May from 53.9 in April, driven by a decline in the service sector.

In June, however, the index moved back up to 54.1 from 53.6. This was the highest level in 49 months. Also, the manufacturing sector seems to be expanding slightly, as it grew from 52 in April to 52.3 in May.

In China, according to Maersk Broker, the economy grew at an annual rate of 7% in the second quarter. The OECD growth forecast for this year is 6.8%, and for next year 6.7%. Both these figures are downward revisions from 7.1% and 6.9%, respectively.

According to Braemar ACM, activity in China's factory sector expanded slightly in June, while growth in the services sector sped up. Maybe, then, the world's second largest economy is slowly starting to level out after a raft of support measures.

The OECD prediction for growth in India is a very respectable 7.3% this year, and 7.4% in 2016.

In the US the growth forecast, according to the IMF, is for 2.5% growth this year, and 3% next.

Let's turn to demand. According to Clarksons, the global dry bulk sea borne trade is currently projected to increase 1.2% year on year in full-year 2015, which is the slowest growth rate since 2009.

This compares with an estimated growth forecast of 3.7% year on year set at the beginning of the year. This highlights the downturn in the market over the first half of the year. Later on in this short presentation, we will look at the breakdown of demand major commodities.

As for steel, according to Commodore Research, the last four months have seen Chinese crude steel production increase year on year by a total of approximately 1.79 million tonnes. In comparison, global crude steel production outside China during the last four months has declined year on year by a total of approximately 5.5 million tonnes.

World crude steel production, according to Howe Robinson, for the 65 countries reporting to the World Steel Association was 135.59 million tonnes in June 2015. This was down 3% from May's production, and 1% less than during the same period in 2014.

For the month of May, China's and Japan's steel output were both down year on year by 1.7% and 7%, respectively.

International steel prices, according to Gibson Shipping Energy, have been falling relentlessly across all categories. According to Commodore Research, steel prices in China have been dropped steadily over the past 10 straight weeks, which is troubling prospect for coal and iron ore demand going forward. It was only last week that this trend was broken and prices finally increased by 1%.

Turning to iron ore, according to Clarksons, total steel and iron ore trade is expected to grow 3% in 2015, much slower than growth in 2014, as the pace of Australian production expansion is expected to ease.

It also should be supported by further displacement of domestic Chinese iron ore, despite the likelihood of significantly slower expansion in Chinese steel production this year.

According to Gibson Shipping Energy, during June there has been an upturn in Chinese demand for imported iron ore, driven by restocking, and this has assisted the marketing efforts of miners to place cargoes.

At the same time, exporters are preparing to significantly raise production during the second half of the year. This will, no doubt, place even more pressure on iron ore prices, which are hovering around a very low $45 per tonne FOB.

Chinese authorities recently announced a decision to allow Valemaxes to dock at certain Chinese ports. This, according to Clarksons, will further support Brazil's competitiveness in the Chinese market by reducing unit costs in shipments of this commodity.

According to Commodore Research, approximately 80.2 million tonnes of iron ore was stockpiled at Chinese ports in mid-July, which was slightly up compared to the previous week. While iron ore stockpiles have continued to increase, they are still down, year on year, by 22.2 million tonnes or 22%. Low stockpiles remain positive for Chinese iron ore import process.

As for coal, according to Clarksons, total exports of coking coal this year will drop by 2% to 257 million tonnes. An increase in Indian coking coal imports will not be sufficient to compensate for the drop anticipated this year for imports by China.

Steam coal is also estimated to drop by 2%. Under the new regulations, the Chinese government sets different levels of requirements on coal blades for local states and imports for different parts of the country. Reports suggest that imports from Australia have been disadvantaged, due to the misuse of these (inaudible), and, thereby, supporting the domestic Chinese coal industry, which is suffering more than most from the collapse in this commodity price.

None of this is good news for the suffering for the suffering Panamax, which has benefited from growth in the Australia to China thermal coal trade in recent years. According to Howe Robinson, thermal coal imports continue to fall, down to 51 million tonnes or 43% year on year for the first five months of the year. These are the lowest reported import figures since 2009, when China first became a net importer of coal.

As regards stockpiling of this commodity, stocks of coal at the end of June this year were sufficient to run all the coal-fired plants in China for 20 days. At the same time last year, stockpiles were down to only 8 days operation.

According to Commodore Research, peak hydropower production season is now well underway in China, and prospects for coal imports will soon, again, become much less (inaudible). This will, no doubt will have an effect of Panamax trading prospects for the second half of this year.

They also point out that, as mentioned also by Howe Robinson, Chinese coal imports will decrease this year by a total of between 80 million and 100 million tonnes. This will continue to have a devastating effect on the dry bulk market.

While Indian coal imports could reach 25 million to 35 million tonnes this year, the shortfall in demand created by the Chinese drop in imports cannot be breached. Moreover, according to Clarkson, the trend in the coal trade is reflecting an emerging theme in the bulk carrier sector, where a drop in Chinese import demand has amplified over-supply in already imbalanced conditions.

While all this is happening, the market will continue to see a very large number of new-building deliveries for at least the next 16 months as simply too many vessels were ordered back in 2013 and early 2014, at a time when seaborne cargo volume and growth prospects were much more profitable.

As for grain, Clarksons reports that their estimates for total imports of all grains products for the coming 2015 to 2016 grain season will be approximately 310 million tonnes. If this materializes, it represents a 2% drop compared to last year's volume.

According to Commodore Research, who are slightly more pessimistic than Clarksons, compared to the 2014-'15, 2015 to 2016 grain trade is expected to decreased by 12.9 million tonnes, which is down about 3% compared to the previous year.

New-building contracts now -- according to Clarksons new-building contracting came to a (inaudible) 3.3 million deadweight tonnes in 2014, and, as we will see below, it will be significantly further reduced this year. According to Banchero Costa, only 31 Panamax and post-Panamax units were ordered in the first five months of this year, which compared to 83 for the same period last year.

As for Capesize units, a mere 14 ships for a total of 2.9 million deadweight tonnes were ordered during the first six months of this year. This compares with as many as 85 orders for a total of 17.2 million tonnes deadweight ordered during the same period in 2014.

As for scrapping, according to Howe Robinson, at the half-year point, dry-bulk scrapping reached 20.5 million tonnes, consisting of 284 vessels. This figure is already 4 million tonnes more than the total amount scrapped in 2014, but, more significantly, the average age at which tonnage that's being sold for scrap has fallen sharply. That is, where only 35% of the fleet scrapped in 2014 was less than 25 years old, this compares with 2015 where as much as 55% was less than 25 years. According to Clarksons, this is the first time on record that the average age of bulkers sent for demolition has been below 25 years.

Looking at the age profile of the large bulk carrier fleet, according to Banchero Costa, about 9% of the Capesize fleet is 20 years or older, about 7% of the Panamax and post-Panamax fleet is 20 years is 20 years or older.

Turning to supply, according to Clarksons, the bulk carrier fleet is expected to expand by 2.3% year on year in 2015. This would be the slowest fleet growth rate since 2001. This is largely due to an exceptional surge in bulker demolition in the first half of the year, which, if it continues, will reach 33 million deadweight tonnes in the full year 2015.

Fleet growth in the Panamax vessels is estimated at 5% this year, 5% in 2016, and only 1% in 2017. Assuming 15% slippage, Banchero Costa estimates that the net increase in the Capesize fleet this year will be just 1%, rising to maybe 5% next year, and dropping to less than 1% in 2017.

New-building deliveries now -- according to Banchero Costa, in the first six months of this year, 44 Capesize units joined the trading fleet for a total of 8.9 million tonnes deadweight. This was down 8.4% compared to the same period last year. Total deliveries of Cape this year are estimated to reach 23.2 million deadweight tonnes. This forecast is based on the assumption of 15% slippage.

In the first five months of this year, 63 Panamax and post-Panamax units were delivered, totaling 5.2 million deadweight tonnes. This was 32% in comparison to the same period in 2014. Total deliveries of such units during 2015, as per the most updated and revised order book are expected to reach approximately 188 units for a total of 15.3 million deadweight tonnes.

Turning to the outlook, now, for our trade, according to Maersk Broker, during the next few months, Capesize rates are expected to remain volatile. The inventory buildup is expected to continue, but shipments can be unstable, depending on the movement in the price of iron ore.

The Atlantic Panamax rate should stay strong throughout July, but could pull back in August with the lower grain activity.

On a more optimistic note, according to the Shanghai International Shipping Institute, the international dry bulk shipping market is expected to pick up in the second half of 2015. However, they also do not expect this recovery to lead rates to the average levels seen in recent years. This, they claim, is still rather far away.

Commodore Research remains quite bearish for the Panamax market for the second half of the year, and continue to point to peak South American grain export season as having been largely responsible for holding Panamax rates at their present level.

China's hydropower production will also be very robust by late July-August this year, and Panamax new-building deliveries will continue to come at a fast and rather furious pace.

Various opinions regarding future growth prospects for India continue to make their way through the market, but the stark reality for the dry bulk industry, according to Commodore Research is that, as mentioned earlier, India will never come even close to propelling iron ore consumption in the manner that China did.

As we have mentioned in past conference calls, we at Diana Shipping will continue to seek investment opportunities in a world of lower and lower asset values. At long last it seems that the seeds are being sown for an eventual balance between supply and demand, leading to a lasting increase in vessel journeys. The facts indicate that the new-building orders are going down. scrapping has gone up, especially at the beginning of the year, and ship financing is getting more and more scarce.

This may lead someone to believe that we are heading towards a substantial market improvement. However, this depends on whether there will be higher demand to support these positive trends. Only if that happens could we see a strong turnaround in the fortunes of dry bulk ships, not much different from what we are witnessing today in the tanker industry.

On this note, I would like to pass the call to our CFO, Andreas Michalopoulos, who will provide us with the second quarter and first half of this year financial highlights.

Thank you, Stacey, and good morning.

I'm pleased to be discussing today with you Diana's operational results for the second quarter and six months ended June 30th, 2015.

For the second quarter 2015 our net loss amounted to $14.1 million. The net loss attributed to common stockholders amounted to $15.5 million, and loss per common share was $0.19.

Time charter revenue decreased to $38.6 million compared to $43.2 million in the second quarter of 2014. The decrease was due to the decreased average time charter rate that we achieved for our vessels during the quarter, and increased off-hire days compared to the same quarter 2014, and was partially offset by revenues derived from the addition to our fleet of the vessels Atalandi, delivered in May 2014; G.P. Zafirakis, delivered in August 2014; Santa Barbara, delivered in January 2015; and Medusa, delivered in June 2015.

Ownership days were 3,670 for the second quarter of 2015, compared to 3,417 in the same quarter of 2014.

Fleet utilization was 98.2%, compared to 99.8% in the same quarter of 2014, and the daily time charter equivalent rate was $9,613 compared to $12,107 in the same quarter of 2014.

Voyage expenses were $4.1 million for the quarter, compared to $2.2 million for the same quarter of 2014. The increase in voyage expenses was due to a $2.2 million loss from bunkers resulting from the redelivery of vessels in the quarter.

Vessel operating expenses amounted to $21.3 million compared to $21.9 million in the second quarter of 2014, and decreased by 3%. The decrease was due to decreased crew costs, insurances, stores, spares, and taxes. This decrease was partly offset by a 7% increase in ownership days resulting from the enlargement of the fleet, and also increased repairs and maintenance costs and environmental plan expenses.

Daily operation expenses were $5,813 for the second quarter of 2015, compared to $6,419 in the same quarter of 2014, representing a decrease of 9%.

Depreciation and amortization and deferred charges amounted to $18.8 million. General and administrative expenses decreased to $6.2 million compared to $6.3 million for the second quarter of 2014. The decrease was mainly attributable to the change in the exchange rate of euros to dollars, and was partly offset by increased registered stock cost, legal fees, and board of director fees.

Interest and finance costs were $3.4 million for the quarter compared to $2.1 million for the same quarter of 2014. This increase was mainly attributable to the increased average debt and average interest rate in the second quarter of 2015, compared to the same quarter of 2014.

Interest and other income amounted to $0.9 million and was the same as in the second quarter 2014.

Gains from investments in Diana Containerships Inc. amounted to $0.3 million compared to a loss of $0.1 million for the same quarter of 2014.

For the six months ended June 30th, 2015, net loss amounted to $24.8 million, and net loss attributable to common stockholders amounted to $27.7 million, and loss per share was $0.35.

Time charter revenues decreased to $80.6 million, compared to $84.3 million for 2014. The decrease was attributable to decreased average time charter rate and increased off-hire days and was partly offset by increased revenues due to the enlargement of the fleet.

Ownership days for the first half of 2015 was 7,258 compared to 6.697 for the same period of 2014. Fleet utilization was 98.6% compared to 99.3% for 2014, and the daily time charter equivalent rate was $10,069 compared to $11,966 for the six months ended June 30th, 2014.

Voyage expenses were $9.1 for 2015, and include $5 million loss from bunkers resulting from the redelivery of our vessels during the period.

Vessel operating expenses amounted to $42.1 million compared to $42.6 million for 2014, and increased by 1%. The increase was attributable to the 8% increase in ownership days resulting from the enlargement of the fleet.

Despite the increase in total operating expenses, daily operating expenses decreased due to decrease average crew cost, insurances, stores, and spares, and taxes. This decrease was partly offset by increased repairs and maintenance and environmental costs.

Daily operating expenses were $5,941 for 2015 compared to $6,360 for 2014, representing a 7% decrease.

Depreciation and amortization and deferred charges amounted to $37.3 million for 2015. General and administration expenses amounted to $11.9 million compared to $12.5 million in 2014. The decrease was mainly attributable to the change in the exchange rate of euros to US dollars, and was partly offset by increased registered stock costs, legal fees, and board of directors fees.

Interest and finance costs amounted to $5.1 million to $5.9 million, compared to $4.1 million in 2014. This increase was attributable to increased average debt and average interest rates during the first half of 2015 compared to the same period in 2014.

Interest and other income amounted to $1.8 million and was the same as in the first half of 2014.

Loss on investment in Diana Containerships Inc. amounted to $0.4 million compared to a loss of $0.1 million in the same period of 2014.

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

Thank you. (Operator Instructions). Thank you. Our first question comes from the line of Michael Webber with Wells Fargo. Please proceed with your question.

Good morning, guys. This is Donald McLee on for Michael.

Hello, Donald.

Good morning, Donald.

So, during the quarter, you announced a charter extension on one of your post-Panamax vessels for, I think it was up to 25 months, which is somewhat outside the range of your historically short-term chartering approach. Is that indicative of a gradually improving outlook for the dry bulk market, or how should we interpret that charter?

No, We don't have a short-term approach. What we do is, as we have always explained, try to position our vessels to open at different times in the cycle. We found that charter and it was well positioned to -- for the vessel to open after 24 months, at a point where we don't have a lot of vessels opening, as simple as that.

We don't take a position as regards to where the market, we think, is going to go in our chartering strategy. If you start taking positions on chartering, as well, that the market is going to pick up or stay lower, or become lower or stay where it is, then you are adding to your risk involved, and you're already taking risk by having purchased vessels at the low part of the cycle.

We don't need to do that.

That makes sense. And, I guess, in regard to purchases, given your solid cash position, does fleet growth remain a priority, or could we see, maybe, share buybacks or some other capital alternatives?

It is not on our immediate plans to do something like this. We stick to the vessel purchases, and we are constantly looking to invest another $20 million to $50 million soon, by buying one or two vessels.

And within that purchasing strategy, do you have a preference for second half or new-build tonnage?

We think that the market today is such that the resale are of an attraction to us.

Got it. That's all my questions, guys. Thanks for taking the time.

Thanks.

Our next question comes from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question.

Thanks very much. Good morning, everybody.

Good morning.

My first question is with respect to the re-chartering activities that have been done so far. It looks like you've re-chartered about half of the fleet, year to date, and by our calculations, it looks like, I guess, in terms of the new rates that those are being booked at it'll result in about a $20 million, say, cash flow headwind on an annualized basis.

So, my first question is, is that in the ballpark of accuracy, number one? And then second, Ioannis, you've talked in the past about stress-testing the Company, and the stress tests the companies have done, and how even under the most conservative rate assumptions, will allow the Company to continue investing.

So, can you just give us a little bit more color on that stress test, and what that stress tests have told you about the headwinds the Company may have to endure in the current downturn?

Thank you.

We have been very -- this is Ioannis Zafirakis speaking. We have been very conservative with our model, and we are well aware of how much money we can burn, even in a really bad situation.

At the same time, we know very well with the cash position that we have, we can afford to invest for another year and a half around $20 million every two months or so, and, therefore, we strongly feel that we are in a very good position.

Don't forget, also, that the market is going to have some ups and downs where we will have the benefit of taking some charters there. You see, we have always a vessel opening, and if the market improves a bit, we will take the advantage, but nevertheless we have -- as we said earlier, we don't want to take any kind of position with our chartering strategy.

We have ensured the survival of the Company, even in a prolonged downside by -- with our balances.

Right. Can you just offer a little bit more detail, though, in terms of the charterings that you've done year to do date in what has been the weakest market, what you think the prospective cash burn associated with those recharterings would be relative to where them at contracted before?

We think -- you the model of ours, it works both ways. When you have a guessing strategy, where the market is picking up, it looks like you are losing money, and when the market is going down, it looks like you're making money.

We think -- we strongly think that we are in a position to burn around $40 million per year, if necessary.

Okay, great. That's very helpful. Thank you, Ioannis.

Can I ask just one more, maybe two more questions?

The first one is a quick one. Andreas, last quarter you said that the Company has the capacity to deploy $300 million in new purchases, and that's, obviously, the equity as well as the debt component of the financing. I just want to confirm that that's still the number and you guys confirmed earlier that I guess it's still $15 million to $20 million of equity every two months, and I guess that still stands?

Yes, that still stands. That stands even more now that we have extended, basically, the loan that we had with RBS with changing to BNP Paribas with a lot of (inaudible). So, I guess, those numbers are still (inaudible).

Okay. Last one for me. Just a quick question on what you're seeing on the purchase and sale market, because you guys are obviously now a little more active in it? I've heard that, I guess, owners have basically in some cases taken their vessels off the market in response to the improved rates over the last couple months.

So, can you just sort of confirm or maybe deny that, or offer some color in terms of what you're seeing in terms of changes in the purchasing opportunities that you're seeing out there?

As regards to whether there are potential sellers in the market, I can assure you that there are.

And especially the ones which we are particular interested, which are the resales? So, there are ships around, even today.

Okay. That's all I had. Thank you all so much. Have a good weekend. Thank you.

Our next question comes from the line of Gregory Lewis with Credit Suisse. Please proceed with your question.

Yes, thank you, and good afternoon.

Hi, Greg.

Hey, guys. I know it's been a challenging market for the ship -- on the ship finance side, but it looks like, I guess, and I know this has been out there for a while, that RBS is looking to sell its shipping portfolio.

I guess two thoughts around that. One is, does that provide any opportunity for ship owners to potentially get involved in that process? And then, secondly, given the fact that RBS is pretty -- has been historically pretty big in ship finance, is it possible that these sales create further downward pressure on asset prices?

No, I think RBS is a very old, established bank that knows shipping very well, and I don't think that whatever they do they will do in a desultory manner. I think anything they will do is doing to be orderly and very professional.

Don't forget that they have been, perhaps, one of the two banks, only two banks, which have been the oldest established bank going back to Williams Deacon's, Williams Glyn's, and now Royal Bank of Scotland. So, whatever they are going to do is going to be order and professional.

And, Greg, they're thinking about selling the portfolio, not the vessels.

Okay, yes. No, I understand that.

Okay, and then just one other for me. I mean, it seems like over the last couple years, people were thinking that there was the death of the Valemax, the 400,000 deadweight tonne vessels. Now China has started to take the vessels.

They're potentially going to go out and build more of these vessels for their captive fleet, if we want to think that the larger Chinese shipping companies are national, which -- and then, so, as we think about that, where does Diana sort of view that market? And is that something where we could see Diana Shipping getting involved in that vessel size, or is that something at this point that really the average ship owner has no interest in?

Well, as regards Diana, I think we are a little bit skeptical regarding the 400,000 tonnes deadweight ships, and I would like to see the first vessel passing first four-year special survey to see the way they behave.

Quite honestly, I think that the Newcastlemax is a good animal to have, as opposed to the ore carrier. It's not a bulk carrier. It's an ore carrier. So, the 400,000 vessel is at the mercy of iron ore. It's not -- there's no cargo flexibility of being able to load corn, for example, because of the cubic capacity.

So, we prefer the Newcastlemaxes than the 400,000 iron ore carriers.

Greg, also, don't forget that these very big vessels, they demand long-term contracts, which they become banking deals and (inaudible). We want to be in position to take advantage of the market picking up, and not having locked vessels for long periods with long-time charters.

Okay. Hey, perfect. Thank you very much for the time, gentlemen.

You're welcome.

Our next question comes from the line Fotis Giannakoulis with Morgan Stanley. Please proceed with your question.

Yes, hello, guys, and thank you.

Hi, Fotis.

I would like to ask about how do you view the current uptick in the charter rates, and whether this is just a part of the volatility, as you mentioned? Is it part of a restocking, or is it part of a gradual recovery of the dry bulk market?

And, also, if you can comment on the vessel supply, I heard the number of 5% fleet growth in one of the projections of one of the brokers. I feel that the fleet growth is much less, so far? Is there a central (inaudible) broker that can keep the order book much lower than what it looks like?

Okay, I mean, what we're seeing here in way of supply of ships is the uncertainty of some ships not being delivered or not being delivered as to who they're going to be delivered to. So, we don't see a huge slippage in excess of 15%, maximum 20%. So, you're fairly safe to use the new-building statistics that we have now and apply 15% to 20% slippage, and derive from there some reasonable assumptions on scrapping, which we have to (inaudible) in view of the strength of the market, to see where the tonnage is going to be at the end of this year and next.

It's true that it's encouraging that we're going to have fewer Capes being delivered, possibly, this year, but there are more coming next year, unfortunately, and from them on, again, the numbers drop.

On Panamaxes, we have a steady flow of ships coming in. So, how can we interpret the strength in the markets that we're seeing now?

That we will answer after the event, as usual, but for now, we can only speculate and say that it's the restocking iron ore, mainly by China. They're taking advantage of the low price by other, possibly, clients of the mining companies, and at the end of the day, we're going to sit back in October or November and reflect as to what has been happening.

And we are just a little bit skeptical as to whether this is an orderly increase in the market, because it hasn't been very orderly, to begin with, it has been jumpy, and on some days up to 10% a day. So, there's nothing orderly about that.

There's, obviously, an acute shortage and some sense of panic in some quarters, and we have to wait and see how this thing is going to develop once the first cargoes which were fixed in June and July are being -- have been delivered, and the ships come open for their next employment, and their next loading port.

Thank you, Stacey. One last question, if you can comment about Noble Energy and how much it can impact the market if there is a downgrade or a default? Is this a big news for the dry bulk market? I know that they are chartering quite a few dry bulk vessels. That's why I'm asking.

The market, you know very well, Fotis, is very fragmented. However, the psychology is very important, and if the psychology goes to the pessimistic side of the story, it may lead to various events it will lead the rate to go further down.

We are not in a position to really focus on what the effects are going to be if that will happen.

Fotis, so let me (inaudible) capital reserves applies in an environment of optimism, the effects are going to be minimal. But if it happens in an environment of pessimism, they're going to be more pronounced.

Do you have an idea of how many vessels they might have chartered, or how many ship owners might be affected, or it's going to be more the ripple effect that you might have in mind?

We are not in a position (inaudible). We don't know.

Okay. Thank you very much, gentlemen, and, hopefully, we will have a positive signal about the turning of the environment. Thank you, again.

Thank you.

Thank you, Fotis.

Thank you. Ladies and gentlemen, 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.

Excuse me. Excuse me, operator. I think there is another question.

Yes, we did get another question from Amit Mehrotra with Deutsche Bank. Please proceed with your question.

Hey, thank you for having me in at the last minute. One follow-up, just on the question on the age of the fleet. Stacey spoke -- spoke about this in his prepared remarks, but I'm wondering, Stacey, if you've looked at those vessels which are not exactly 20 years old, but maybe 18 to 19 years old, and based on our numbers, it looks like maybe about 5% of the K-size fleet can be reaching that 20-year milestone over the next 12 to 18 months.

So, I'm wondering if you've looked at that and whether that impacts your view on prospective supply or potential scrappage?

Well, the answer is, we have not analyzed that particular sector, because it all depends on the condition of the ships. So, each ship will, effectively, put its destiny, depending on its condition, whether it's going to go to the scrap yard or it's going to continue trading.

The fact remains that as the age of the ship, if they were built at specifications which are not necessarily against the longevity of the particular vessel, provided they were maintained properly, as opposed to some ships which are being built recently, which have a life which is more or less predetermined and will not go beyond the 20 years. I'm talking about the Capes now.

So, we haven't, unfortunately, analyzed on a ship-by-ship basis this 5% sector of the Capesize fleet, and we can't answer your question.

Okay. And then -- there's -- we've seen a couple companies now do advanced dry-dockings ahead of potential regulatory requirements next year. Do you guys have any plans on sort of doing such things in order to defer, maybe, additional CapEx next year that may sort of result in increased -- some increased maintenance CapEx this year?

Yes, we are considering doing something similar.

Okay. Any idea in terms of how much that my cost on the back half of the year?

Well, for the third quarter we have one, two, three, four, five vessels that are hoping to go under dry-dock. I can name them for you -- Artemis, Alcyon, Danae, Dione, Nirefs. And the cost of those is, on average, $600,000 for each.

And on the fourth quarter, we have as a plan to proceed with Naias, (inaudible), Sideris GS, and Triton, and, again, the average cost is the same per vessel, $600,000, more or less.

Okay. (Inaudible). Total, right, per vessel. Right, okay.

Very good. Thank you for that color. Appreciate it, guys.

You're welcome.

We have no further questions at this time. I would now 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.

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