Diana Shipping Inc (DSX) 2017 Q2 法說會逐字稿

Greetings, and welcome to Diana Shipping 2017 Second Quarter Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to Ed Nebb, Investor Relations Advisor. Thank you. You may begin.

Thanks, Brenda, and thanks to all of you for joining us for the Diana Shipping Second Quarter Conference Call. Members of the company's management team who are with us today are Mr. Symeon 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, let me briefly 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. Such forward-looking statements are based on assumptions, expectations and beliefs as to future events that may or may not prove to be accurate, and for a description of those risks and uncertainties, please refer to the company's filings with the SEC.

And now, without further ado, let me turn the call over to Mr. Symeon Palios, Chairman and CEO.

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 2017.

The recent quarter was distinguished by several key events, including a common stock offering for the additional three vessels to our fleet. To review our financial results, Diana Shipping, Inc. recorded a net loss of $23.8 million, and a net loss attributed to common stockholders of $25.3 million for the second quarter of 2017. This compares to a net loss of $31.3 million, a net loss attributed to common stockholders of $32.7 million for the second quarter of 2016.

Our time charter revenues were $37.8 million for the second quarter of 2017. This was an increase from $28.3 million for the same period of 2016, due to increased average time charter age for our vessels and increased ownership days resulting from the enlargement of our fleet.

Diana Shipping, Inc., continues to maintain a strong balance sheet. Cash, cash equivalents and restricted cash were $67.8 million at June 30, 2017. Long-term debt including the current portion was $637.7 million compared to stockholders' equity of nearly $1.1 billion.

We completed an underwritten public offering of $80.5 million of our common stock on April 26, 2017. Reflecting our confidence in the future of the company, entities associated with certain Diana Shipping, Inc. executive officers and directors, including myself, purchased 5.5 million shares in the offering.

The company has continued to seek opportunities to expand its fleet, and employed substantially all the net proceeds of the offering to fund the acquisition cost of three additional dry bulk vessels. The vessels purchased including two 2013-built post-Panamax dry bulk vessels, the motor vessel Electra and the motor vessel Phaidra, and one 2013-built Kamsarmax dry bulk vessel, the motor vessel Astarte, all of which were delivered in May 2017.

Including these recent acquisitions, our fleet now consists of 51 dry bulk vessels.

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, our fixed revenue days based on the earliest delivery date are 84% for 2017, and 19% for 2018.

Moving forward, we are confident that our current strategy will leave the company well-positioned for a more promising phase of the dry bulk cycle.

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

Thank you, Symeon, and good morning to all the participants in this Second Quarter Conference Call of Diana Shipping, Inc.

During the second quarter of this year, the bulk carrier industry has shown some clear signs of trying to attain the much-awaited balanced state between demand and supply. We start as usual by looking at the main indices. At the beginning of the second quarter, the Baltic Dry Index stood at 1,282, while yesterday's closed at 980. The Baltic Cape Index on 3rd April was at 2,518, and closed yesterday at 1,221. The Baltic Panamax Index moved from 1,379 to 1,225 during the same period.

In the meantime, these three indices registered their highest values of the year thus far in March and April, with the BDI hitting 1,338 on 29th March, the Baltic Cape Index reaching 2,765 on the 28th of March, and the Baltic Panamax Index coming off a high of 1,621 on the 18th of April of this year.

According to Gibson Shipbrokers, during the second quarter of this year, there was a level of optimism across freight and raw materials markets following a commitment by the Chinese leadership that China will achieve its target of 6.5% gross domestic product growth in 2017. This, however, was countered in the actual physical markets by news of a proposed ban of coal imports to second-tier Chinese ports, which placed a dampener on expectations of future coal shipment volumes. We'll see what effect this has had on coal shipments later on in this report.

Starting with macroeconomic development now, the [IMF] has capped its growth forecast for the U.S. economy for 2017 from 2.3% to 2.1%, citing the possible effects of uncertainty associated with White House policies. The U.S. Commerce Department reported that the economy grew at an annualized pace of 1.4% in the first quarter of this year. This, however, is still a slowdown from the final quarter of 2016, when the economy grew at the rate of 2.1% year-on-year.

The IMF has raised its projection for Chinese GDP growth to 6.7% in 2017, compared to 6.6% previously. The organization stated that the improved stability in the housing and financial markets has meant that some near-term economic risks have become less significant.

The Chinese Academy of Social Sciences reports that China's GDP grew by 6.8% year-on-year during the first quarter of this year. For the full year 2017, the same organization is forecasting GDP growth at 6.5%.

In Japan, the Nikkei Flash Japan Manufacturing Purchasing Managers Index, or PMI, dropped to a 7-month low of 52 in June this year, from 53.1 in May. Slower growth was signaled in June, with both orders and output rising at the weakest rate since late last year.

In the Eurozone, businesses and consumers became more optimistic in June about their prospects, than at any time since before the most recent global financial crisis. Business and consumer confidence jumped to 111.1 in June from 109.2 in May, reaching the highest level since August 2007, which was more than a year before the start of the 2008-2009 credit market meltdown.

European manufacturing PMI rose to 57.3 in June, indicating the strongest rate of expansion in the manufacturing sector since April 2011. In Germany, the Business Climate Index rose from 114.6 points last month, to 115.1 points in June, breaking last month's record. The final [HIS] Eurozone Manufacturing PMI rose to 57.4 in June, up from 57.0 in May.

Let's look at supply now, and start with the new building order book. According to Clarksons, at the beginning of June this year, the bulk carrier order book was 61.3 million deadweight, representing 7.6% of the existing fleet. There are 135 Panamaxes on order, and the capacity of these ships represents only 5.6% of the existing fleet of such vessels. The 119 Capes and [large tonnage] on order represent 9.6% of the existing fleet. Nearly half of the total bulk area tonnage on order is accounted for by the Capes and these larger new buildings. The vast majority of these new buildings are scheduled for delivery during the remainder of this year, and next year as well.

Let's look at new building deliveries, now. According to Banchero Costa, after assuming delivery slippages, bulk carrier deliveries in 2017 could come in at around 42 million deadweight. According to Banchero Costa, demolition this year could reach about 16 million deadweight, with a further 22 million deadweight to be scrapped in 2018. According to Clarksons, demolition activity has slowed down notably in recent months, with just 7 million deadweight sold for demolition during the first 5 months of the year. This is down 67% year-on-year.

Fleet growth, now: according to Clarksons, fleet growth remains slower than the 5% per annum average seen in the 2013 to 2016 period, and with the order book at a 13-year low of 61 million deadweight in June 2017, equivalent to under 8% of the fleet, bulk carrier fleet growth could be limited to as low as 1% in 2018, and even zero next year.

According to Banchero Costa, total dry bulk fleet growth is estimated to come in at 3% this year, 0% in 2018 and a small reduction of 1% in 2019. These estimates assume no huge increases in new building orders down the road.

As for the age profile of the fleet, according to Banchero Costa, only 9% of the existing fleet of Capesize bulkers are over 15 years old. As for Panamaxes, about 21% of the fleet are 15 years or older. Handysize vessels over 15 years old account for 22% of the fleet. If one takes age as one factor, admittedly not the most important one for scrapping ships, these statistics seem to point towards the most likely source of future scrap candidates.

Scrapping, now according to Braemar ACM, through the end of June 2017, 148 bulk carriers will have been sold for scrap with their total capacity of 8.7 million deadweight tons.

Let's turn to demand, now. On iron ore, according to Clarksons, in 2017 worldwide seaborne trade of iron ore is estimated to increase 6% compared to last year, and reach 1.489 billion tons. This is expected to be driven by the increasing availability of low-cost and high-quality iron ore experts from Australia and Brazil. Chinese seaborne iron ore imports are projected to grow 7% to 1.1 billion tons in 2017, while iron ore shipments to the European Union are expected to increase 2% to around 106 million tons.

Banchero Costa reports that demand for imports of iron ore by China during 2017 to 2018 might be supported by declining domestic mining in China. In the meantime, according to Gibson, China produced 346.83 million tons of steel from January to May this year, up by 5.1% on the same period in 2016. On a worldwide basis, steel production reached 693.4 million tons.

According to Banchero Costa, iron ore stockpiles at Chinese ports have been on an upward trend since the lows of about 80 million tons in mid-2015. They reached over 140 million tons at the end of May 2017.

Banchero Costa continue their analysis by stating that downside risks for iron ore import volumes remain, including the potential for lower demand from lower steel output going forward, following fresh [curbs] on lending in the Chinese property market and the end of the iron ore restocking.

According to Clarksons, global seaborne coking coal trade is projected to increase 2% to around 255 million tons in 2017, after having remained flat in 2016. This largely reflects expectations of a continued increase in coal shipments into Asia, predominantly China, together with a slight recovery in European seaborne coking coal import demand. In this regard, it is interesting to note that European Union steel output increased 4% year-on-year to total 56 million tons from January to April 2017.

According to Clarksons, global wheat and coarse grain trade is projected to drop 1% to 347 million tons in the 2017 to 2018 crop year, partially reflecting expectations of a 5% fall in imports into Asia to 111 million tons. Chinese grain imports are expected to drop 13% to a five-year low of 14 million tons in 2017 to 2018, largely due to the country's corn destocking program and expectations of another firm domestic harvest.

On the other hand, imports to the Middle East are expected to rise 6.5% to a record 59 million tons in 2017 to 2018. During the same period, the U.S.D. A. has forecasted the global soybean trade to grow another 5% to 148 million tons. This could mainly be driven by Chinese demand, with the country expected to see 93 million tons of imports. The Chinese Ministry of Commerce has suggested that an agreement will be signed soon with the U.S. Department of Agriculture to import record volumes of soybeans from the United States. From January to April 2017, Chinese seaborne soybean imports grew 18% year-on-year to 27.3 million metric tons. During this period, 17.2 million metric tons of imports were sourced from the United States, up 14% year-on-year.

According to Clarksons, global seaborne steam coal trade is projected to grow 3% to 916 million tons in 2017, following a marginal decline in 2016. This partly reflects an expected slowdown in the pace of decline in shipments into the European Union. Elsewhere, steam coal shipments into Asia are projected to rise 3% to 723 million tons in 2017, largely driven by Chinese seaborne import demand, up 9% year-on-year, as well as increasing shipments into a number of the region's other developing nations such as Vietnam, Thailand, and the Philippines.

The ban on coal imports through ports that were built with approval from provincial rather than national level authorities as of July 1 this year, has created some disruption in coal shipments. However, according to Braemar ACM, we may just see a redirection of ships toward the largest coal ports with no overall market impact, save some near-term disruption, while cargo interests work out what is going on and plan accordingly. The most likely scenario for the future is that trade on smaller vessels on the short coal routes, Indonesia and Eastern Russia, into the smaller ports, is hampered while there is limited impact on the Capesizes or even a positive one if trade is substituted onto bigger ships into hub ports from the likes of Australia.

According to Clarksons, during the first 5 months of 2017, Chinese power generation increased by 5.4% year-on-year. Chinese thermal power generation rose by 7.2% during this period, with hydro power output decline 4.8% year-on-year. However, it is worthwhile noting that according to Gibson Shipbrokers, in China the power output from coal generation has been held back in some regions to give more space for solar and wind power generation. This is the first step in the long-term policy to reduce thermal power generation nationwide, while boosting cleaner energy production and transmission.

Finally, let's look at the outlook for our industry. According to Banchero Costa, the deceleration in scrapping could slow down the dry bulk market recovery, especially as 2017 deliveries are expected to remain relatively high at 42 million deadweight after assuming delivery slippages. This follows the delivery of 543 units, amounting to 46.4 million deadweight, in 2016.

Still according to Banchero Costa, on the demand side, China, a main driver behind iron ore, steel and coal trade, has continued to import large volumes of iron ore, mainly due to inventory buildup and as domestic iron ore production was displaced by cheaper seaborne imports. However, Chinese steel exports are slowing, largely due to improved domestic demand and Beijing's resolve to tackle overcapacity. Chinese coal imports have increased by a strong 29.5% year-on-year in January to May, due to strengthening thermal electricity output, strong demands from domestic steel mills, and restocking demands.

Commodore Research remained very bullish for iron ore import prospects for the second half of the year, due to both second half of the year seasonality in Brazil and Australia in iron ore production, and also from the ongoing year-on-year growth in iron ore production in those nations. They also remain bullish for coal import prospects for this year, and are quite bullish for the near term as power plant coal stockpiles are low while demand is surging.

According to Clarksons, while the fundamental balance in the bulk sector has seen notable improvement recently, the dry bulk market appears to have had a downward correction in recent months following the more robust earnings environment seen during the first quarter of this year. This has led to the fluctuations in the Baltic indices mentioned at the beginning of this report.

Indeed, there remain a number of risks to the market outlook on both the demand and supply side, but current projections by shipping analysts suggest that the balance in the dry bulk sector may continue to gradually improve over this year and in 2018.

Taking all the above factors and projections into consideration, we at Diana Shipping are finally beginning to feel that the bulk carrier market is very near its demand-supply balance point. There are no large supply excesses to contend with, nor are there any demand-related issues looming in the horizon, even though you can never tell what the future might hold on that front. From here onwards, we hope that sensible ordering of tonnage and continued scrapping will prepare the bulk area market for a steady and sustained improvement in earnings. This is something that we have all been waiting for a while now, and some have been prematurely predicting its arrival.

Management's business strategy has not changed, and management will follow developments as the market moves towards its next peak, and steadily strengthen even further the company's balance sheet with gradual reduction of debt.

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

Thank you, Stasi, and good morning. I am pleased to be discussing today with you Diana's operational results for the second quarter and 6 months ended June 30, 2017.

For the second quarter ended June 30, 2017, net loss and net loss attributed to common stockholders amounted to $23.8 million and $23.5 million, respectively. Loss per common share was $0.26. Time charter revenues increased to $37.8 million, compared to $28.3 million in the second quarter of 2016. The increase was due to the increased average time charter rates that we achieved for our vessels during the quarter, and revenue is derived from the addition to our fleet the vessels Maera delivered in May 2016, San Francisco and Newport News delivered in January 2017, and Astarte, Electra and Phaidra delivered in May 2017.

Ownership days were 4,491 in the second quarter of 2017 compared to 4,147 in the same quarter of 2016. Fleet utilization was 97.8% compared to 99.4% for the same quarter of 2016, and the daily time charter equivalent rate was $8,173 compared to $6,003 for the same quarter of 2016.

Voyage expenses were $2.1 million for the quarter compared to $3.6 million for the same quarter of 2016. The decrease in voyage expenses was mainly due to a gain on bunkers of $0.4 million in the quarter, compared to a loss of $2 million in the same quarter last year. Vessel operating expenses amounted to $22.3 million, as compared to $21.9 million for the second quarter of 2016, an increase by 2% mainly due to the 8% increase in ownership days resulting from the enlargement of the fleet. The increase was due to increased repairs in maintenance, taxes, and other operating expenses, and was partly offset by decreased crew costs, insurances, and environmental costs.

Daily operating expenses were $4,971 for the second quarter of 2017 compared to $5,289 for the same quarter of 2016, representing a decrease of 6%.

Depreciation and amortization of deferred charges amounted to $21.6 million. General and administrative expenses were $6.7 million compared to $6.5 million for the same quarter of last year. The increase was mainly due to increased restricted stocks cost due to the retirement of a board member, and was partly offset by decreased payroll costs due to the reduction in the number of shore-based employees.

Management fees to related parties were $0.4 million, the same as last year. Interest and finance costs amounted to $6.7 million, compared to $5.6 million in the same quarter 2016. This increase was attributable to increased [average] debt, and average interest rates in the quarter compared to the same quarter of 2016.

Interest and other income amounted to $0.9 million, compared to $0.5 million for the same quarter last year. The increase was due to increased interest rates and a fixed fee of $0.2 million, which was due from Diana Containerships on the termination of our loan agreement with them dated May 20, 2013.

Loss from equity method investments amounted to $2.5 million compared to $2 million for the same quarter of 2016. The loss was due to an impairment of about $3.1 million in our investment in Diana Containerships, Inc., partly offset with a gain in the same investments due to Diana Containerships' results, and a gain in our investment in Diana Wilhelmsen.

For the 6 months ended June 30, 2017, net loss amounted to $50.3 million and the net loss attributed to common stockholders amounted to $53.2 million. Loss per share was $0.60.

Time charter revenues increased to $69 million compared to $59.1 million for 2016. The increase was attributable to increased average time charter rates that we achieved for our vessels in the first half of the year, and the increase in ownership days due to the enlargement of our fleet. Ownership days for the 6 months ended June 30, 2017 were 8,804, compared to 8,078 for the 6 months ended June 30, 2016.

Fleet utilization was 98%, compared to 99.2% for 2016, and the daily time charter equivalent rate was $7,627 compared to $6,096 for 2016. Voyage expenses were $3.1 million for the 6 months ended June 30, 2017.

Vessel operating expenses amounted to $43.6 million, compared to $43.9 million for the first half of 2016. 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, repairs and maintenance, and other operating expenses. This decrease was partly offset by increased expenses due to the 9% increase in ownership days resulting from the enlargement of the fleet.

Daily operating expenses for the 6 months ended June 30, 2017, were $4,957 compared to $5,451 for 2016, representing a 9% decrease. Depreciation and amortization of deferred charges amounted to $42.7 million for 2017. General and administrative expenses amounted to $12.4 million compared to $12.7 million for the same period in 2016.

Management fees to related parties were $0.9 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 $13.1 million compared to $10.6 million in 2016. This increase was attributable to increased average debt and average interest rates compared to the last year. Interest expense in the first half of 2017 amounted to $12.2 million, compared to $9.4 million for the same period last year.

Interest and other income amounted to $1.6 million compared to $1.1 million in the first half of 2016. This increase was mainly due to the increasing interest income from Diana Containerships, Inc., under our loan agreement with them, which amounted to $1.2 million in the first half of 2017, compared to $0.8 million for the same period in 2016.

Loss from equity method investments amounted to $4.8 million compared to a loss of $4.2 million for the same period last year, and was due to a loss from an impairment of our investment in Diana Containerships, Inc., which was partly offset by gain from our investment in Diana Wilhelmsen Management, Ltd.

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 procedure for asking questions. Thank you.

(Operator Instructions) Our first question comes from the line of Jon Chappell with Evercore.

Andreas, I want to start with the sources and uses of cash in the second quarter. Obviously, you had the equity raise and then the three vessel acquisitions that closed in May, but the net cash used in investing in activities is $108 million and the ships cost $67.8 million. Is the other $40 million associated with the loan to Diana Containerships, or is there another use of cash there?

No, no. That's the main part, is associated with actually the, yes, it's the $40 million for the loan to Diana Containerships, Inc., and we had a couple of dry docks as well. But apart from those, we had actually five vessels that went onto dry dock, but the main part obviously is the $40 million that you're referring to for Diana Containerships, Inc.'s loan.

So let me ask you two other quick, detailed questions on the financial statements, then one more strategic one. So first of all, if you can remind us, what's the debt amortization profile on a quarterly basis for the rest of this year and then for next year?

So basically, for this year it's $57 million, but it's 12 months from now. So, for the next 12 months, it's $57 million, and so as per now for the next 12 months. And for the next 12 months after, so from July 1, 2018 to June 30, 2019, it's $117.7 million.

And then also, just super-quick, what's the outstanding share count post the equity raise and any of the over-allotment that was completed?

The outstanding share count is 106,131,017.

Just one last strategic one, either for Mr. Palios or Ioannis, I read yesterday that Diana Containerships by your own admission requires more capital and obviously you've provided more now with $82.6 million in total loans there. To what extent will you continue to support that entity? Obviously, there's opportunities in the core business of dry bulk and you've already made some timely acquisitions there earlier this year, but it seems like there's a lot of support to a company that has a $3 million market cap right now. How much more support would you provide to Diana Containerships at a time when they really need some more capital?

Let me explain something, here. Basically we are not supporting Diana Containers as Diana Shipping, Inc. What we have recently done is, we have provided with a loan in order to secure the $42.5 million that it was loaned to Diana Containers by Diana Shipping, Inc., previously and they were completely unsecured. And also, because of the ability of Diana Containers to buy back the $129 million of RBS with only $85 million, basically the $40 million extra that we placed there gave us the opportunity to get back the $42.5 million that were in a very difficult situation. To put it differently, Diana Containers before that deal had the negative, big negative net asset value the way we have calculated it, which means that there was no clear probability of Diana Shipping, Inc., getting back the $42.5 million. By doing what we have done, now we are in a position where we can get back these $42.5 million together with the $40 million. The questions that you may have, and everybody else may have is, are you putting more money at risk in order to get back the remaining $42.5 million? And the answer to that question is that there is not a big risk for the $40 million if you consider the fact that the $35 million of the unaffiliated party together with the $40 million of Diana, the $75 million, they are covered with $85 million scrap value of the value of the vessels of Diana Containers. So basically, by doing that, we have managed to increase the probability enormously of Diana Shipping, Inc., getting back the $42.5 million. Needless to say, together with the $40 million. We have not supported Diana Containers as [such]. And if you look that equity participation in Diana Containers, it's very, very, very small, and we have sold most of it, basically.

Okay, I do understand that explanation, and I do appreciate that, Ioannis, but just the one thing that's a little bit unclear, though, is that's a cash outflow, as my first question to Andreas pointed out. And now, your cash balance is much lower than what would have been indicated post- your equity raise. So, I'm just curious at this opportune time, if we layer in Stasi's views on the market, when maybe you think you should be buying more assets, is that $40 million being used to its best ability right now?

Basically, we have taken the decision that for us it is more important today to secure the $42.5 million rather than make much more acquisitions simply because we have made enough as we have clearly said in the past. We are consider ourselves to be very, very, very well-positioned already for the market to pick up.

Bear in mind that Diana Shipping, Inc. has reached the critical mass for a specific segment. So, although we're looking for more tonnage, we believe that we have all the ammunition to be placed properly in the market as a dry cargo operator.

(Operator Instructions) Our next question comes from the line of Fotis Giannakoulis with Morgan Stanley.

Symeon, I want to ask you about how do you view the market that have some reports that they talk about an improvement in the last few days? There is a situation of higher coal prices in China, and a shortage of coal. Have you seen any improvement in the coal trade overall in the market recently?

Well, I think that Fotis, the beauty of Diana Shipping, Inc., is the fact that we have eliminated an unknown which is impossible to find the actual number. The fact that we are floated in the New York Stock Exchange has provided that ability not to be 100% dependent on how the market is going to move. Of course, we have to be aware of what is happening, but it's very difficult to predict which way it will go. Obviously, the market has shown some signs of improvement because the amount of tonnage which is coming from [the year] on the dry side is much less, no more ordering. And don't forget that the demand for -- or rather, the supply of cargo today, in actual terms, are greater than what they were in 2009. Maybe we have not seen the accumulated increase in the cargo, but still the cargos are more than what they were in 2009. So, I think we are coming closer to a recovery.

I want to ask about the inventories both for coal and for iron ore. How important an indicator is it for the trade and the demand for ships? We see that iron ore inventory is being very high at this level. I don't know if we should put any importance on this inventory. On the other hand, the coal inventories in China are at very low levels. Is this something that the, any conclusion we can draw from this data?

On the coal side, there is some sign for optimism because they have been drawing down on coal reserves for a few years now. Quarters, I should say, not years, but last year in particular with the slowdown in imports there was an even more strong drawdown on coal reserves. Now, what works against this, of course, is the Chinese government's desire to try and reduce the amount of power produced from coal-fired power stations, but this is a long-term view and we don't see this is going to affect the demand for coal imports over the next few quarters or even years. So, on coal we see more of a direct link between low stockpile and the higher demand. On iron ore, as you correctly pointed out, stockpiles are not a very reliable guide because it seems that the traders are buying iron ore depending on price. And they don't seem to be looking very closely to the amount of stockpiles they have, provided of course they have somewhere to put it, which we assume they do. So, the reason why Commodore Research are bullish about the last half of this year and the demand for Capesize vessels doesn't base itself on low stockpiles of iron ore, but more on the commercial side of the purchase of this commodity as they, themselves, admit. They think that prices are going to be so compellingly cheap, that people are going to buy it and then try to figure out what they're going to do with it.

The last 10 years, we have exactly the same discussion about iron ore inventories, etc. What we can say, though, for the last 6 years now that it is the first time that we have reached the famous balancing situation between supply and demand. We think that we are in balance as regards supply and demand, and it is the first time after so many years that we can certainly say that if we are correct with our assumptions about inventories, and what that means for the demand, and we put that in the equation together with the supply and we come up with something as an incremental positive change or negative, it will have an effect on the charter rates. Because we kept saying to everybody, the previous quarters, that it is irrelevant if your calculation about demand is going to be higher than supply. It is irrelevant. It was irrelevant for the charter rates, because we had the very big discrepancy between demand and supply, but now that we are in balance certainly assuming that we are correct in our estimations about demand and supply, it will be shown on the charter rate. And this is something that everyone should be looking for. So, let's say that you analysts, or ourselves, or all the others, we come up with a positive change as regards demand and supply for the year to come, being the increase in demand higher than the increase in supply. Then, we are positive that this will have a positive effect on the charter rate. And this is what we are expecting, because this is what we calculate ourselves. We calculate increasing demand to be bigger than the increasing supply, and this is why we have a positive view for the next 12 months.

One more question about the demand and the commodity demand worldwide. We focus too much on China in this sector. But, I want to ask about what happens in the rest of the world. Economists are talking about the global synchronized recovery that started earlier this year. How do you view the Atlantic basin and other parts of the world outside of China in terms of chartering activity?

I think that if we look back and consider what the world economy was doing, and where we had pockets of disruption in international trade, we are in one of the best situations now on an overall basis than we have been for many years. There have always been, in the past, certain areas of the world where trade was being disrupted for some reason or another, which prevented us from having an unqualified view, especially as regards demand for world trade. Here, we have some pretty predictable forces at work: A slight slowdown in the rate of growth in the United States; counterbalanced by, at long last, an increased rate of growth in Europe; at the same time, we have Japan which is fluctuating between growth and stagnation, but we feel that analysts -- or, I've been saying that eventually economic activity will pick up there as well; And then we have the developing economies in Asia that I mentioned also in the report, which are steadily picking up trade. Now, the effect of this on a net basis we feel, and maybe we are wrong, but we agree with the analysts that do feel this way, is going to be positive for world growth. So, all we have to do is restrain ourselves from ordering too much tonnage and increasing the supply of ships, because there will be trade there both in the containerized trade and in the bulk trade, to keep busy, the tonnage that is offered to carry these commodities. And the carriage is going to be done at more and more remunerative time charter rates. We have, of course, places like Africa and South America that have been having their problems because of their own issues, Africa political and the South American continent commodity pricing. But even there, commodity price stabilization is going to help give some more positive visibility on the trade that is going to affect mainly the north-south trade in the container ship market, but also the bulk carrier trade. So, overall I think what's happening in the world is marginally but rather clearly positive now for seaborne trade.

One last question about the supply and the discipline that you encourage your fellow ship owners to show. Resale prices have moved above new building prices for the first time after many years. I was wondering, how disciplined do you think that the other companies are going to be if all this discussion that we heard in the first quarter about potential orders, whether that has a risk of materializing? And also, if you can comment about the new low sulfur regulations, if this is going to have any impact on the supply of tonnage? There are some people who are talking about slowing down the fleet. On the other hand, there is a cost associated that might or might not be able to pass to the customers, if you can give us your views on these two issues?

First of all, the discipline by the owners is not going to be shown simply because the owners are thinking about the future, etc. It has to be seen together with the psychology as regards the future. The reason why we have no new building orders is because the psychology is not so [optimistic] as we speak, and this is a good thing, and it should stay like that. We should be skeptical about the future of the rates, the future of the market, and from the moment we are skeptical then the forces are going to work towards the right direction, and then people will think that this is not going to be sustainable. The market will keep moving up. And then suddenly, everyone will think that this is going to be sustainable, and the market is going to get destroyed after a while. What I'm trying to say is that the fact that we see no new building orders in big numbers as we speak today, it has to do with the psychology which is neither here nor there, about the future of the market. Now, as regards the low sulfur, the various expenses that are going to be necessary for the ship owners, again, everything is calculated in the supply and demand numbers that we have been talking about. And don't forget that if the rate environment is high, people will pay whatever they have to pay in order to keep their vessels running since they're going to be profitable. We cannot keep using cost arguments in favor of the market picking up, because it is a circular way of thinking, and you cannot have both at the same time. We will either have a market improving, and people will pay whatever they have to pay in order to keep their vessels running; or we will have a market going down and people not being able to pay for these type of things, where they're going to scrap the vessels. And, at the end of the day, the market is going to pick up again.

Our next questions come from the line of Gregory Lewis with Credit Suisse.

You've mentioned that the fleet is where you kind of want it to be in terms of size, but just given that, could you talk a little bit about what you're seeing in the sale and purchase market for secondhand vessels? Clearly, asset prices have shot up pretty aggressively this year from where they were at the end of last year. Are you starting to see signs of owners looking to sell vessels, or is this still where there's a scarcity of tonnage out there for secondhand acquisitions?

There are ships available for potential purchases, and where I can comment is that you have less takers today, less people are willing to buy ships at today's prices. And that is a sign that the owners are very skeptical, and they understand what's happening in the market, and they're not rushing to order new buildings or to buy resales or to buy, for that matter, secondhand ships. But, that eventually may come if the market goes up further. I don't know whether I have answered your question?

That was pretty good and insightful. Thank you. And then, just one follow-up for me. As I kind of go back and look at your initial core fleet of Panamax vessels, at this point there's more than a handful of vessels that are in that 16-year-old range. Are we at a point in the cycle where it could make sense to start to sell some of these assets, or is it still maybe too early in how you're viewing this potential up cycle to want to start to sell some of the older, non-core tonnage at this point?

We have the feeling that the market is not there yet to start selling the older ships, but of course, we have it in mind, yes. But our fleet is quite good in general, and the average age is below the 8 years. So, I think it's pretty good. But, we have in mind eventually, when the market shows some increase, to start selling the older tonnage.

I have to remind you that these vessels were purchased with such a useful life ahead of them in order to be sold in a good market again, and they will see a good market before they get sold.

Don't forget that most of the ships which we have in our possession, we have built ourselves under our own supervision, and we are happy with the quality of the ships we have.

We have no further questions at this time. I'd like to turn the floor back to management for any closing comments.

Thank you again for your interest in and support of Diana Shipping, Inc. We look forward to speaking with you in the months ahead. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.