Diana Shipping Inc (DSX) 2016 Q4 法說會逐字稿

Greetings and welcome to the Diana Shipping's Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ed Nebb, Investor Relations for Diana Shipping. Please go ahead, sir.

Thank you, Kevin. Thanks to all of you for joining us today. The members of the Diana Shipping management team who are with us include 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's remarks, let me remind you of the Safe Harbor notice. Certain statements made during this conference call, which are not 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 or beliefs that may or may not prove accurate. For a description of the risks, uncertainties and other factors that may cause future results to differ from 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 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 fourth quarter and full-year 2016. In a dry bulk marketplace that remains challenging, we continue to manage the Company to maintain our financial strength and operational flexibility, while positioning our business for the long term. To review our financial results, the Company reported a net loss of $23.3 million and the net loss attributed to common shareholders of $24.7 million for the fourth quarter of 2016. This compares to a net loss of $22.5 million and a net loss attributed to common stockholders of $23.9 million for the fourth quarter of 2015.

For the full-year 2016, the net loss and net loss attributed to common stockholders amounted to $164.2 million and $170 million, respectively. Of that, $56.5 million related to loss and impairment of our investment in Diana Containerships Inc. This compares to a net loss and net loss attributed to common stockholders of $64.7 million and $70.5 million, respectively for 2015.

Time charter revenues were $28 million for the fourth quarter of 2016, compared to $38.3 million for the same quarter of 2015. Time charter revenues were $114.3 million for 2016, compared to $157.7 million for 2015.

Turning to the balance sheet, cash and cash equivalents totaled $121.1 million at December 31, 2016, including compensating cash balance. Long-term debt, net of deferred financing costs, including the current portion was $598.2 million compared to stockholders' equity of nearly $1.1 billion.

Several developments during 2016 fourth quarter reflected our firm control of our operations and our sharp focus on the long-term prospects of the business. In November, we canceled a shipbuilding contract with respect to a Kamsarmax dry bulk carrier with an original delivery date of May 31, 2016, due to a delay in delivery. In this regard, we subsequently received a refund of all pre-delivery installments payments, plus interest of approximately $9.4 million.

In December, we negotiated a reduction in the contract price and extended the delivery date of two new Newcastlemax dry bulk carriers in San Francisco and the Newport News. The sellers reduced the price by $1 million for each of the vessels, which were then delivered on January 4, 2017.

With delivery of the two most recent vessels acquisitions, our fleet consists of 48 dry bulk vessels. We continue to manage the fleet in a prudent manner. Currently, our fixed revenue days are 47% of our total operating days expected for 2017.

In conclusion, Diana Shipping will continue to respond to the challenges of our market by continuing to maintain our financial strength and managing our business in a prudent manner.

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

Thank you, Simeon, and welcome as usual to all the participants of this quarterly conference call of Diana Shipping Inc. The references we usually make to the Baltic Indices are particularly interesting at this time. Back in October 2016, the first day of the fourth quarter of that year, the month had started with the Baltic Dry Index at 864 and yesterday closed at 688. The Baltic Cape Index moved from 1,971 to 609 at the close of trading yesterday. The Baltic Panamax Index started last quarter at 713 and closed yesterday at 944.

In 2016, the Capesize market achieved a time charter average according to Banchero Costa of only $7,388 per day. In 2015, the average was $8,093, and in 2014, the average was $14,287 per day. Unfortunately, we have foreseen this deterioration back in 2013 much to the dismay of many analysts and other members of our peer group who refused at that time, to see the size of the oversupply problem, which as it happened, coincided with the drop in demand over that period.

According to Clarksons in 2016, a 7% increase in total Chinese seaborne dry bulk imports has been offset to a large extent by a relatively broad decline in dry bulk shipments to other key regions. By current estimate, seaborne dry bulk trade growth is expected to be 1.3% in 2016. The estimate for 2017 stands at 5 billion tons, an increase of about 2% compared to 2016.

Let's turn to macroeconomic developments. The New Year has, according to Braemar ACM, started with fresh signs that the eurozone's economic recovery is continuing. Manufacturing in December 2016 expanded at the fastest pace in more than five-and-a-half years. Preliminary figures coming from the German government estimate that the country's economy grew by 1.9% in 2016 in real terms. Current IMF projections are for German economic growth of 1.4% year-on-year in 2017.

According to a report by Maersk Broker, final GDP numbers in the US for third quarter 2016, showed the economy growing at 3.5% compared to the second quarter. This led the year-on-year rate of growth for the third quarter at 1.7%. At the same time, the FOMC raised its GDP growth forecast for 2017 to 2.1%. According to the IMF, economic expansion in the United States will come in at 2.3% this year and 2.5% in 2018. These forecasts are higher than earlier ones issued by the same institutions due to the plans announced by newly elected President Trump.

JP Morgan's most recent report on PMI shows that world manufacturing index rise to 52.7 points, which is the highest reading since February 2014. Growth was seen across most sectors, including consumer goods. China has been aiming for growth in 2016 between 6.5% and 7%. The Chinese government is confident that economic growth of 6.7% was indeed accomplished in 2016. Strong growth in Chinese industrial production has continued. According to Commodore Research, a sharp contrast from many other nations, including the United States, each of the last 15 months, have seen US industrial production contract on a year-on-year basis. This is a trend that President Trump will probably try to reverse.

Newbuilding deliveries now. According to Howe Robinson last year saw 579 dry bulk vessels delivered to their owners with a total capacity of 47.3 million deadweight tons. According to Clarksons, in 2016, 99 Capes were delivered, while 75 were scrapped. During the same year, 109 Panamaxes were delivered and the same number of ships approximately were sold for demolition.

Overall, delivery ratio to nominal order book was at the record low, 54% in 2016. The question now is what percentage of this year's order book of 53 million deadweight tons will actually be delivered. Anticipated market conditions and sentiment will play a pivotal role in determining the outcome.

Clarksons reported in 2016, the bulk carrier fleet increased by 2.3%. The net change during the year was 17,278,000 tons. Accordingly, for 2017, much will depend on scrapping and slippage mentioned above. Let us hope that the fleet will not increase on a net basis more than it did in 2016. That was the slowest rate of fleet growth in 16 years. The Clarksons' estimate for fleet growth in 2017 is a mere 1%. According to Banchero Costa, new orders of dry bulk vessels in 2016 amounted to just 36 units, a sharp decline from the 380 new orders placed in 2015 and a massive 933 new orders placed in 2013. Only three orders for Kamsarmaxes were placed in 2016, compared to a total of 93 units ordered in 2015.

Let's have a look at demolition now. In 2016, about 377 vessels were sold for demolition with a total capacity of 29.2 million deadweight tons. Of these vessels, 83 where Capes totaling 14.1 million deadweight tons. And according to Bnchero Costa, this weight of demolition is expected to be somewhat reduced for the period of 2017 to 2019 due to improving sentiments and fewer older vessels.

According to the same source, in 2016, there were 115 Panamaxes demolished. That was in the Capesize sector as well. Just for the record, only 12% of the current Capesize fleet are over 15 years old. However, as we have seen in the past with tankers, and presently witnessing in the containership sector, age is not the most significant criteria in the decision to demolish a vessel.

Newbuilding order book now. According to Clarksons, the Capesize order book represents 12.9% of the existing fleet in terms of capacity, while the Panamax fleet on order is only 7.9% of existing Panamax capacity. The overall order book of 954 ships represents a 10.8% of the existing fleet by deadweight capacity.

Let's turn to steel now. Steel production determines worldwide demand for iron ore and coking coal shipments. According to Clarksons, world steel production declined to [1.3346] billion tons in 2016. This represents a drop of 0.7% compared to 2015 continuing the local production decline since 2014, when production reached a peak of [1.6477] billion tons. According to Banchero Costa, Chinese steel output during the first 11 months of 2016 was 739.5 million tons, up 0.4% year-on-year.

Iron ore now. According to Clarksons, global seaborne iron ore trade is expected to increase 4% in 2017 to reach 1.478 billion metric tons, reflecting a rise in iron ore shipments from Australia and Brazil to China. This will combine with stabilization in shipments into Europe and other Asian countries, which were weak in 2016.

Clarksons believes that there is downside risk to continue Chinese iron ore imports growth, given uncertainty regarding the country's construction activity, as well as the likelihood of destocking. However, the Chinese government's commitment to cutting domestic iron ore production coupled with the growing availability of competitively priced imported iron ore is expected to lead to a 5% rise in Chinese iron ore imports in 2017. Commodore Research agrees that Chinese iron ore imports could rise again in 2017 by a relatively large amount.

Last year, iron ore Chinese imports reached 1.02 billion tons, which marked a year-on-year increase of 70 million tons for about 7%. According Braemar ACM, iron ore stockpiles at 41 major Chinese ports stood at 114 million metric tons at the end of 2016, up from 91.5 million tons a year earlier. The most recent low was reached in May 2015 when iron ore stockpiles have dropped to around 80 million tons.

Coking coal now. According to Clarksons, global seaborne coking coal trade is projected to grow 1% to around 248 million tons in 2017. This will be supported by increased Asian demand and stabilization of imported coking coal to the European Union, where the majority of expected steel capacity cuts in that region have already been carried out. On the other hand, Indian coking coal demand in 2017 is expected to reach 45 million tons, an increase of 2% compared to last year when imports dropped by 7% compared to the year before.

Thermal coal now. According to Clarksons, global seaborne steam coal trade will increase marginally in 2017 compared to last year, and reached 884 million tons. This reflects expectations of an easing pace of decline in European Union seaborne steam coal imports and conservative growth levels in Asian steam coal imports. Chinese steam coal imports during this year are expected to drop marginally from 159 million tons to a 157 million tons. This will probably be caused due to an increase in domestic coal output. According to Maersk Broker, towards the end of last year, domestic Chinese coal production moved higher. This was the result of the government's reversal on mining terms. The increased domestic supply reduced the need for seaborne imports and has helped to reverse the upward trend in coal prices.

According to Braemar ACM, coal was the big swing commodity of 2016 and will probably remain a key determinant of freight demand for 2017 as well. Commodore Research sees the outlook for coal shipments as less clear than that of iron ore referred to earlier on. However, they remain bullish at least for the near term.

As for grains, according to Clarksons, global wheat and coarse grain trade is projected to drop 2% to 338 million tons in the 2016-2017 crop year. The decline is expected to be largely driven by lower imports into Asia and the Middle East. Firm domestic output and the destocking activity are expected to continue and contribute to a 34% drop in Chinese grain imports in 2016 to 2017.

As regards to wheat harvest in the United States, it is currently expected to increase 12% during the 2016-2017 crop year compared to the previous one. This should lead to an increase in wheat shipments to around 26 million tons. If materialized, this would in turn make the United States the third largest wheat producer after Russia and the European Union.

Finally, the outlook for the bulk trades. We agree with Banchero Costa that in spite of the increased rates of demolition seen over the last two years, significant overcapacity still remains, which is keeping time charter rates low. However, if limited contracting continues and demolition rates do not significantly decline, the predicted stable iron ore trade going forward could bring a sustained recovery of earnings in the not too distant future.

According to Clarksons, firm Chinese iron ore import demand is expected to continue into 2017 supporting projected dry bulk trade growth of around 2.1%. If net supply of tonnage develops as expected, then as mentioned earlier on this short report, things might be more encouraging than most of us expect. Obviously, an extremely important factor will be the restraint shown by owners to resist newbuilding contractor prices, which desperate shipyards around the world will make sure are extremely tempting.

Therefore, with these first encouraging signs of improvement in the dry bulk carrier industry, we at Diana Shipping look forward to managing the fleet in the most effective way to take advantage of the possibility of better rates going forward. The staggered manner of our time charter expirations will enable us to take advantage of improved rates when they come. Ships whose employments have been coming to an end, are being renewed at higher time charter rates in the expiring contracts. If this trend continues, it should improve the Company's cash flow for this year and hopefully next.

Once we have been through a few months of current level rates, we can then express more confidence as to the future of the bulk carrier market having established the real surplus and point-of-demand supply balance.

I will now pass the call on to our CFO, Andreas Michalopoulos, who will provide us with the 2016 fourth quarter and whole-year financial highlights. Thank you.

Thank you, Stacy and good morning. I am pleased to be discussing today with you Diana's operational results for the fourth quarter and year ended December 31, 2016. For the fourth quarter 2016, first, net loss and net loss attributed to common stockholders amounted to $23.3 million and $24.7 million, respectively. Loss per common share -- to common share was $0.31.

Time charter revenues decreased to $28 million compared to $38.3 million in the fourth quarter of 2015. The decrease was due to the decreased average time charter rates that we achieved for our vessels during the quarter and was partly offset by revenue derived from the addition to our fleet, the vessels New Orleans and Seattle delivered in November 2015; Selina and Ismene delivered in March 2016; and Maia delivered in June 2016.

Ownership days were 4,232 in the fourth quarter of 2016, compared to 3,870 in the same quarter of 2015. Fleet utilization was 99.9%, compared to 99.8% for the same quarter of 2015, and the daily time charter equivalent rate was $6,319 compared to $9,169 for the same quarter of 2015. Voyage expenses were $1.4 million for the quarter compared to $3.4 million for the same quarter of 2015. The decrease in voyage expenses was mainly due to decreased commissions on revenue and bunkers amounting to gain of $0.1 million in Q4 2016 compared to a loss of $1.4 million in the same quarter last year.

Vessel operating expenses amounted to $29 million compared to $23.6 million for the fourth quarter of 2015 and decreased by 11% despite the 9% increase in ownership date resulting from the enlargement of the fleet. The decrease was a result of the Company's effort to minimize costs without compromising the vessels' operations and safety and achieved reduction in all of operating expense categories, except for taxes and other operating expenses. Daily operating expenses were $4,930 for the fourth quarter of 2016 compared to $6,093 for the same quarter of 2015, representing a decrease of 19%.

Depreciation and amortization of deferred charges amounted to $20.6 million. General and administrative expenses were $6.8 million compared to $7.5 million for the same quarter last year. The decrease was mainly due to a reduction in payroll costs due to the reduction in the number of employees employed by our manager in the fourth quarter of 2016, and the decrease in legal and other professional fees. Management fees to related party were $0.4 million for the quarter and were the fees paid today Diana Wilhelmsen Management Limited for the vessels under their management.

Interest and finance costs amounted to $5.6 million compared to $4.9 million in the same quarter of 2015. This increase was attributable to increased average debt and average interest rates in the quarter compared to the same quarter of 2015. Interest and other income amounted to $0.8 million compared $0.5 million in the fourth quarter of last year, and increased mainly due to a gain from the termination of the shipbuilding contract of Hull DY6006, and an increase in the interest income under our loan agreement with Diana Containerships due to the increase in interest rates.

Loss from equity investments -- from equity method investments amounted to $2.1 million compared to $2.3 million for the same quarter of 2015. The loss was mainly due to loss in our investment in Diana Containerships Inc. For the year ended December 31, 2016 now, net loss amounted to $164.2 million and net loss attributed to common stockholders amounted to $170 million of which $56.5 million was due to loss from Diana Containerships Inc. Loss per share was $2.11.

Time charter revenues decreased to $114.3 million compared to $157.7 million for 2015. The decrease was attributable to decreased average time charter rates that we have achieved for our vessels during the year. Ownership days for the year ended December 31, 2016, were 16,542 compared to 14,900 for the year ended December 31, 2015.

Fleet utilization was 99.4% compared to 99.3% for 2015 and the daily time charter equivalent rate was $6,106 compared to $9,739 for 2015. Voyage expenses were $13.8 million for 2016 and include $7.5 million of loss from bunkers from re-delivery of our vessels.

Vessel operating expenses amounted to $86 million compared to $88.3 million for 2015. The decrease in operating expenses was due to the Company's effort to reduce expenses and achieve reductions in almost all operating expense categories, except for taxes and other operating expenses. The decrease was partly offset by increased expenses due to the 11% increase in ownership days resulting from the enlargement of the fleet. Daily operating expenses for the year ended December 31, 2016 were $5,196 compared to $5,924 for 2015, representing a 12% decrease.

Depreciation and amortization of deferred charges amounted to $81.6 million for 2016. General and administrative expenses amounted to $25.5 million compared to $25.3 million in 2015. Management fees to related party were $1.5 million and were the fees paid to Diana Wilhelmsen Management, our joint venture, for the technical management of our vessels under their management.

Interest and finance costs amounted to $21.9 million compared to $15.6 million in 2015. This increase was attributable to increased average debt and interest rates compared to last year. Interest expenses in 2016 amounted to $19.5 million, compared to $13.9 million for last year. Interest and other income amounted to $2.4 million compared to $3.2 million for 2015, and this decrease was mainly due to the decrease in interest income from Diana Containerships Inc. under our loan agreement with them, which amounted to $1.7 million in 2016 compared to $2.7 million in 2015.

Loss from equity method investments amounted to $56.4 million compared to a loss of $5.1 million in 2015 and was due to a loss from an impairment of our investment in Diana Containerships, which was partly offset by a gain from our investment in Diana Wilhelmsen Management Limited.

Thank you for your attention. We would be now 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.

(Operator Instructions) Amit Mehrotra, Deutsche Bank.

My first question is obviously on any update with the lenders, I know it was called off last quarter. Just wondering if there's been any dialog at all there or is it just basically still status quo or maybe radio silent? Thank you.

Hi, Amit. There is always dialog with your lenders and we are currently, nonetheless, not in any kind of restructuring or any such mood. As we said many times, we let the dust settle, we pay our obligations and that's where we stand today.

Amit, this is Ioannis Zafirakis. If you run the numbers, and when you run the numbers, you can easily see that we are going through -- easily through the middle of 2018 without any cash flow issues and at that time, we stay with a very strong balance sheet as well. We are currently -- if you run the numbers, you will see that we are still to value, still to debt, we are at 125%. So, --

Sorry, did you say your (inaudible) was 125%?

Yes. The value of our vessels is around 125% of value of our debt without counting the cuts and the unmortgaged vessels.

Right. The value to loan ratio, right. That makes sense. And then Andreas, associated with that, can you just give us an update on the cash calls. I know there was, I guess, $47 million of debt amortization this year. Can you just tell us sort of -- has that number changed at all, or is that still $47 million as of the cut of the end of December, and then also, I guess the remaining equity payments, the non-debt related drawdown associated with the new building CapEx? Thank you.

Well, the number has not changed. Actually, our numbers are exactly the way we have foreseen them. So, no, they have not changed. Remaining CapEx, we don't have. We have the delivery of the vessel that was done. We have the loan of $57 million from China Export Import Bank that was drawn down. And the only thing that is remaining is the dry docks that are foreseen, and I can go through them, but there are not so many. If you want, I can go through the dry docks for 2017, but--

I mean, you could you just -- I mean -- is it like $3 million to $5 million in total? Is that how we should think about it?

Yes. Yes, exactly.

Okay. Great. Let me just ask one more sort of, I guess, corporate finance question. In terms of, Ioannis, the stock, obviously I don't have to tell you, is up 30% in the last 44 days, 45 days, which would make any potential equity offering, I would, by my math, like 25% less dilutive. So, I'm just trying to understand like, would that be, said obviously, the stock is still at a relatively low level, but given the improvement in the equity value of the Company, is an equity offering -- I know, you don't have to do it, but it might be nice to have given sort of the lack of maybe equity cushion you do have if something does go wrong. But, is an equity deal still out of the question for you guys or maybe has it gotten a little bit more tenable given the less dilution, given the rise in the stock price?

You know, it is our strategy to place debt at the bottom of the market and equity at the higher part of the market. And therefore, strategically speaking, we are not here to do an equity offering, if we don't have to. And you have to understand that the benefit of the premium to net asset value in any offering and how less dilutive it is, it can be clearly seen only with purchase of vessels, something that we do not have as a plan.

Okay. So, you don't plan on acquiring any assets now, you are just potentially going to accrue any --?

Yes, this is what I said. In order to explain your comment as regard, less dilutive premium to net asset value et cetera, you only get the benefit of the premium to net asset value when you raise equity and you exchange costs with vessels, and you raise equity at the premium to net asset value and when you buy vessels at net asset value. That's why I made the comment about the purchases.

Okay, that makes sense. And then, one last one from me, just more on the market. Stacy, your comments are always still helpful every quarter in terms of the market outlook and I kind of understood your view on -- the brokers' view on iron ore. But there just seems to be a lot more uncertainty around coal shipments. And coal shipments obviously collapsed 30% in 2015, they grew 25% last year, and -- I'm just trying to understand, like, it seems like that's the area where there could be potentially the most risk and do you guys have a view -- I mean, you've been pretty good about calling the market in the past.

And just trying understand that the risk parameters around coal, could we see things like weather or even rainy season in China and things like that can impact the coal volumes to the downside? I'm just to understand like where do you see the vulnerability of the dry bulk market, specifically as it relates to coal shipments and what are your views there for the remainder of the year?

Yes, with coal, we have two ways of looking at it. First, we look at it long term and that's not very positive for the reasons that we all know, about the environment and how clean the energy produced from coal is. But that's not something that will affect coal shipments either this year or next, that is our feeling or even the year after that. It's something that we can look at more seriously affecting demand from 2020 onwards.

What is happening now in the short and medium-term has more to do about how the Chinese handle their domestic coal production to one extent, of course, and also how much energy we need to produce in the form of electricity in the short to medium-term, because if that need goes up for whatever reason, then we do know that coal is going to be the commodity which will respond more quickly than any other form of electricity generation, which is either some solar power or wind or hydro power. Those cannot respond quickly if there is a relatively quick increase in the demand for power generation.

So, the factors about weather and the rainy season in China are extra short term, we feel, factors and they will play their role. But we don't feel it's going to be a lasting role in the demand for coal shipments. The lasting role is going to be affected by the terms that I mentioned earlier, demand for power generation on the one hand, and domestic Chinese coal production on the other end. Longer term, substitution of coal in the energy production sector with other forms of producing energy and electricity.

(Operator Instructions) Fotis Giannakoulisis, Morgan Stanley.

Hi guys, this is actually Ben stepping in for Fotis. Just one question on the market, and since we've already spoken about coal, I guess, specifically iron ore here, rates have certainly come down in the near term especially with Capesize rates, but what is your perspective on Chinese iron ore inventories given that they are up roughly 30% year-on-year? Do you have any idea on potential timing of when restocking begins in China, begins again as a buyer?

With stockpiles of iron ore in the past, we have, all of us, not us in Diana, proven to be wrong. Every time we felt that iron ore stockpiles are very high, the Chinese would buy more. And when we felt that they didn't have enough, for some reason, they would stop buying. So, unfortunately, it's unpredictable. Their criteria has to do more with how they view the cost of acquiring iron ore and the prospect of utilizing it in their steel industry. So, from here onwards, what we are looking at is, pretty high stockpiles admittedly, but that is not sufficient in itself to make us draw the conclusion that the Chinese are not going to continue buying iron ore if they feel that it is an opportunity to do so for them.

So, unfortunately, their criteria are not only price-related, but we have to do, as I said, with the rate -- that they feel, they're going to deplete their stocks, they don't want to be caught with dropping stockpiles and then increases in the price of iron ore. So, they might keep increasing their stockpile if they feel that the price is advantageous. And the steel industry will be consuming, we feel, at least in the medium term, more iron ore than we have expected at least for 2016 and what we were looking at a few years earlier as predictions. So, they might surprise us on the upside is all I'm saying, on the demand for iron ore by their steel industry.

Sure. And just one more -- one more follow-up. If this prediction comes in fruition and there is a surprise to the upside, where do you anticipate these imports coming from? I think lately we've seen a pretty substantial slowdown in Brazilian exports. Do you think that Brazil will come back into the margin and return to grow at a similar pace it had been growing earlier this year?

Unfortunately, we cannot predict because we don't know enough about the insides of Brazilian shipments and what affects them. But for sure, if there is an increase in iron ore demand, it will come partially from Brazil and from Australia. And regrettably, we're not in a position to apportion such an increase between these two major sources of this commodity.

(Operator Instructions) Spiro Dounis, UBS Securities.

Just wanted to ask real quick on asset values. Sounds like you are getting a little more optimistic on rates and you said you're positioned well to benefit from a rising rate environment just given your shorter charter book. So, just as you think about asset value, do you think the track rates are up, or is there potential that you see asset left behind just given stronger dollar, struggling shipyards, difficulty in financing, how do you think about that?

Spiro, what we are trying to say is the following. We are currently in the last two months or so at a level of, let's say, $10,000, $11,000 for a Cape; $8,000 for a Panamax -- $7,000 per day for a Panamax. What we are saying is that this is a neither here or there rate environment. If we see that stay for a six-month to eight-month period, then we will be convinced that this is our balancing point. From the moment we have established that we are at the balancing point in the demand and supply curve of ours, then -- if we run the numbers then and we try to calculate supply and demand, whatever result we're going to come up with as an incremental change, either positive or negative, is going to be sufficient to have a better idea on what the market is going to do.

We'll go back to what we kept saying in the last two years that people who were predicting all that we're looking at the incremental changes without having established, a correct starting point, we find this period and then months to come as a very interesting period in establishing our balancing point. If we manage to do so, we will have a better idea about where the assets are going to be going, the asset prices and the charter rates.

That's fair. Second question just around, I guess, regulation coming up here between ballast water treatment and the sulfur rules, I think it sounds like this could increase the rate of scrapping out there. I guess, just wondering two things, one, how do you see this impacting your fleet, how do you plan on dealing with it? And two, how do you see an impact in the fleet as a whole and when do you think we'll start to see that benefit?

Again, we go back to what we were saying previously in the previous question. All of these factors that you are asking, they are certainly factors that they have to go into the equation to see whether we are going to have a net incremental positive change in the supply and demand equation. But, we have to wait a bit before we do that type of calculation. But certainly, it's without saying that if you have the need for spending a lot of money on vessels, that [shale] supply is being kept at lower levels. But again, it's irrelevant the result we are going to come up with, after doing this calculation, if we have not established previously our starting point.

Okay. Last one from me. You're still the largest holder of Diana Containerships. Just wondering, longer term, once we get maybe through better part of the dry bulk cycle, what's the plan with Diana Containerships? Do you see yourself actually opportunistically adding more there at a certain point, or how you think about that?

We will have to cross that bridge when the time comes.

Okay. I didn't think I'd get much out of that one. Appreciate it. Thanks guys.

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

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