Diana Shipping Inc. Q1 2010 Earnings Call Transcript

May.26.10 | About: Diana Shipping, (DSX)

Diana Shipping Inc. (NYSE:DSX)

Q1 2010 Earnings Call

May 26, 2010 9:00 AM ET

Executives

Edward Nebb – Investor Relations Advisor

Simeon Palios – Chairman and CEO

Stacey Margaronis – President

Andreas Michalopoulos – Chief Financial Officer

Ioannis Zafirakis – EVP and Secretary

Analysts

John Chappell – JPMorgan

Justin Yagerman – Deutsche Bank

Gregory Lewis – Credit Suisse

Scott Burk – Oppenheimer

Operator

Greetings, and welcome to the Diana Shipping Inc., 2010 First Quarter Conference Call. (Operator Instructions) As a remainder, this conference is been recorded.

It is now my pleasure to introduce your host Edward Nebb, Investor Relations Advisor for Diana Shipping. Thank you Mr. Nebb, you may begin.

Edward Nebb

Thanks very much Claudia. Welcome everyone to the Diana Shipping, Inc 2010 First Quarter Conference Call. The members of the Diana Shipping management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice, which you can see in its entirety in the news release we issued earlier today. Certain statements made during this conference call, which are not statements of historical fact are forward-looking statements and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on assumptions, expectations, projections, intentions, and beliefs as to future events that may not prove to be accurate.

For description of the risks, uncertainties, and other factors that may cause future results to differ materially from what is expressed or forecasted in our forward-looking statements, please refer to the company's filings with the Securities and Exchange Commission.

And with that, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping, Inc.

Simeon Palios

Thank you. Good morning and thank you for joining us today. We are pleased that the results of Diana Shipping for the first quarter of 2010 continued to reflect our profitable performance. The sound management of our fleet and the strength on our balance sheet. We have also made steady progress in implementing our strategy to build shareholder value through investments in our fleet.

In this regard, the following developments during the first quarter are particularly note worthy. In early March we took delivery of the newly built motor vessel New York and Capesize dry bulk carrier that has been chartered to Nippon Yusen Kaisha for a minimum 58 month to a maximum 62 month period at a gross rate of $48,000 per day.

We announced conference in April for the construction of two Newcastlemax dry bulk carriers, so of approximately 206,000 dead weight each for a contract price of $59 million per vessel.

We expect to take delivery of these vessels during the first half of 2012. These events followed our earlier announcement in January, 2010 for the delivery of a Panamax dry bulk carrier motor vessel Melite. This vessel was purchased at a price of $35.1 million.

As a result we have increased the size of the fleet to 22 vessels, last the two new biddings on order.

This clearly reflects our strategy or seeking to take advantage of market opportunities to expand our fleet in a disciplined and cost effective manner. As we have noticed in the past and depending on prevailing market conditions, we plan to continue this process over the next 20 months in order to build our capacity to generate consistent revenue and drive increasing shareholders value.

Now, I would like to point out some of the highlights of our first quarter performance. Then the members of our senior management team will review our market outlook and discuss the financial results in greater detail.

Net income was $28.8 million for the first quarter of 2010. Voyage and time charter revenues totaled $62.2 million. Our daily time charter equivalent rate was $31,982 for 2010 first quarter which covers daily vessel operating expenses by a cutter of nearly five times. Diana's balance sheet has remained strong. Our cash position was approximately $298 million at March 31st 2010.

We have continued to operate with a relatively low amount of leverage compared to our shipping company peers. Long term debt including the current portion of the end of the first quarter was $327.7 million, compared with stockholders equity of more than $1 billion. Our fleet employment strategy continues to promote consistent and predicable revenue streams. Approximately three quarters of our vessels are chartered for periods ranging from 2011 to 2015.

In conclusion, Diana shipping has performed well across a range of economic and industry requisitions and we have demonstrated our commitment to building shareholder value through the prudent management of our business, the focused and disciplined expansion to our fleet and our reauthorization of the share repurchase program.

With that, I will now turn the call over to our President, Stacey Margaronis. Thank you.

Stacey Margaronis

Thank you Simon and welcome to all who have joined us today in our latest quarterly conference call. The first quarter of this year started off with uncertainty for large bulk area earnings who developed in a volatile manner and lower but nevertheless on a very positive note. The Baltic dry index started the quarter at 3140 and finished at 2998. The bulk area Cape index began the year at 4197 and at the end of March to the 3425 while the Baltic Panamax Index went from 3823 to 3674 during the same period.

Cape earnings have moved significantly higher, proof of the market's ability to absorb the continuous and un-relentless slab of new buildings. The Panamax equivalent have shown more resilience faced with a somewhat more modest new building delivery schedule and the Baltic Panamax Index has moved about 20% higher since early April.

Looking at the macro economic picture, the world economy has shown clear signs of emerging from the most brutal and deep recession since the 1930 with gross domestic product growth in both developed and developing economies steadily improving. The IMF is forecasting world economic expansion of 4.2% during 2010 which is the fastest pace of growth in 2007.

U.S forecast for 2010 gross domestic product growth stands at 3.1%, which many economies consider very conservative. U.S. manufacturing expanded in April at the charter based in June 2004 with the supply management tax index rising in April to 60.4 from 59.6 in March. China's gross domestic product is estimated to grow by about 10% this year while for Brazil, India and Russia, these estimates stand at 6.3%, 7.7% and 4.5% respectively. The only large economic block lagging behind in GDP growth term is the Euros were growth for 2010 is estimated at an anemic 1.1%. These results are rather positive overall macro economic background within which the bulk area fleet will have to navigate financially.

Steel production. Given the above specific forecast it is not surprising to note the positive forecast from steel production which has always been the prime moving force behind the transportation of the most important bulk raw material, iron ore and coking coal. According to the World Steel Association, world steel production for 2010 is forecast to exceed 1.3 billion tones, a 10% increase compared to 2009.

China's total 2010 production is expected to reach more than 610 million tones, an increase of 8% on 2009 volumes. Steel consumption in the BRICs countries is expected to increase in 2010 according to Simpson, Spence & Young by 8% to 692 million tones while steel consumption increases by the mature economies will be led by the NAFTA region where demand is expected to rise by 23.5% to 100 million metric tones following a 37.4% decline last year.

Let's look at iron ore. The Clarkson Research Services estimates the world growth in iron ore trade for 2010 stands at about 11% compared to 2009, which will bring the total imports to just over 1 billion metric tones. China's state-run trader, Sinosteel sees China's iron ore imports rising 55 million metric tones in 2010 to 660 million tones. In the meantime prices have been sharply with the spot price of Indian 65% iron ore content reaching over $180 per ton by the end of April. This was 22.4% higher than the month before and around 200% higher year-on-year.

In the month of April iron ore exports from Brazil fell to 21.1 million tones, a drop of 2.6 million tones from March 23.7 million tones were exported and slightly lower than Februarys figure. The main cut in exports were cargoes to China and Japan. The most apparent reasons for this were seasonal rainfalls in Brazil on the one hand and the unresolved pricing of iron ore contracts on the other. As we know, the latter has been changed from an annual to a quarterly pricing system.

Iron ore will sold at CIF prices instead of FOB and transportation as well as other costs affecting the delivery of products will be taken into account in the future. Other factors which have been recently affecting prices and shipment volumes of iron ore have been the Australian government's proposed resource super profit tax of 40%, otherwise known as RSP and the West Coast cyclones in Australia which closed several iron ore ports during the first quarter of this year.

Looking at coal, total exports of coking coal for 2010 are forecast by Clarkson to reach 228 million tones, an increase of about 8% from the year before. Chinese seaborne and coking coal imports reached about 9 million tons for the first three months of this year, an increase of 169% year-on-year.

Coking coal imports to several European Union countries are now improving, Spain and France have imported significantly higher volume of this mineral during the first three months compared to the same period last year.

More interesting, our Indian buyers of coking coal have been recently buying coal from Russia. This product has been increasingly more competitive as demand and prices remain high for additional sources of this raw material.

Total export of thermal coal had expected to reach 601 million tons in 2010, an increase of only 2% from the year before. Australian exports of this mineral during the first quarter this year reached 30.8 million tons, a decrease of 1% compared to the same period last year.

The main reason for this was a strong cyclone which affected Australia's coal exports, imports in mid-March while exports to Japan were up by 11.3% year-on-year, exports to China dropped 25% compared to the same period last year.

On the other hand, the BHP Billiton, Anglo American and Xstrata have shipping coal 10,000 miles through the Panama Canal to Columbia and China.

Cerrejón in Columbia the world's largest open pit mine for coal started shipping coal to China quite recently. The mine may also make its first sales to India this year and production from this jointly owned mine will reach 31 million to 32 million tons of coal during 2010.

Chinese imports for Indonesian thermal coal have been increasing steadily this year. Imports from South Africa will be corresponding some of this mild effects on demand are expected to increase looking forward. The reason behind this projection is the completion of what has been known in the trade as we say five expansion projects at Richards Bay Coal Terminal.

The expansion will allow exports reach 91 million tons per annum. Grain, total exports of grain cargo for 2010 are expected by are expected by Clarkson to reach 230 million tons, a decrease of $0.07 compared to last year.

The recent oil leak in the Gulf of Mexico has created fears that exports from the Gulf might be severely affected or even seized completely. It will have negative impact effect on grain shipments which will come on top of the anticipated fall by 23% or 6.3 million tons of imports by Asian countries of the middle-east and imports by African nation which are expected to drop by 4.9 million or about 13% year-on-year. This might have an affect on the Panamax trade over the next few months.

However, according U.S. based Commodore Research Panamax freight should be supported by an increase in coal shipments as mentioned earlier as well as from the projected short term surge in Asian coal demand.

Coal congestion. Before we turn our attention to the supply side of the large bulkers, we should not neglect to say a few words about coal congestion. According to Galbraith, the number of vessels waiting outside the major coal and iron ore ports to load or discharge reached a record high in late December 2009 and continue to sustain a high level through the first quarter of 2010 with the average number of vessels waiting, reaching 377 to quarterly records.

First quarter, 2010 saw a record number of Panamax at 154 in number as well as Cape's 152 been delayed each representing 10% and 17% of their respective fleet total.

We agree with the Galbraith assumption that overall port congestion is unlikely to disappear anytime soon. However, it should be noted that even small reductions induce from peak level translate into a significant number of ships coming back on to this port market which could equal or even exceed the number of new building joining the fleet over any particular time period.

This will obviously have significant influence on the fleet market for the vessels over the next few quarters. On an overall fleet basis, Lorensen and Simoco estimate that world coal congestion currently affects about 9% of the world's bulk carrier fleet.

Have you got port expansion and short-time infrastructure work, the most important development of that China is the anticipated expansion of the cargo utilization capacity of ports in Queensland between now and 2012 which is estimated by Goldman Sachs research to reach an additional 25 million metric tones per annum. Ton-mile demand now, due to the predictions vary about the future and shipping analysts Lorensen and Simoco are forecasting increases in overall dry cargo ton-mile demand of 14.7% for 2010, 10% for 2011 and 11.3% for 2012.

According to these analysts this demand will have to absorb the influx for new buildings over the same period. We will return to this all important issue in a few minutes once we briefly take a look at the order book.

According to Clarkson, on May 1st, this year there were 765 Capesize bulkers on order of about 146.3 million tons deadweight representing 80.6% of the existing fleet. Deliveries are more like evenly spread in 2010, 2011, 2012 and beyond. The same analysts see 845 Panamax bulkers on order of 68.1 million tons dead weight representing about 54.3% of the world fleet. Here, most of the deliveries about 26 million tons dead weight have been scheduled for 2011 with 21.1 million in 2010 and about the same from 2012 onwards.

According to reports on world regard, at the beginning of 2009 there were 142 Capes and 72 Panamax bulk carriers scheduled for delivery that year. At the end of the year only 96 Capes and 64 Panamaxs have actually been delivered.

Off the 795 bulkers which were scheduled for delivery during 2009 only 408 were actually delivered. World Yard had 156 vessels not known to them at the beginning of the year which were currently delivered possibly delayed deliveries from 2008 which brings the total number of vessels delivered in 2009 to 544 or 68.4% of the total scheduled deliveries.

During the first quarter of 2010, out of the 86 caped scheduled for delivery only about 45 were delivered because we have got Panamax, post Panamax sizes, 61 ships were anticipated to join the fleet and only 38 actually made it.

On an overall basis, out of the 433 new bulkers on order only 206 joined the fleet during the first quarter 2010. This total includes 26 ships delivered in the first quarter of 2010 which were possibly still over from the year before for and the quarter confidential conflict for exercise options.

It's the data gathering World Yard is indeed correct, actual cancellations or deductions from the order shipments were 16% for the first quarter of 2010 while slippage accounted for 42% of the scheduled order book in deadweight terms. Ordering however has become more popular recently due to the increase in the prices of modern bulkers by about 20% during the last six months or so. Many buyers have taken the decision towards the new rather than say a premium for second hand tonnage. Korean as well as Chinese ship builders have been more than happy to sign new building contracts for the relative single ships to build. This is not a good time for the future and we will explain why soon.

Scrapping has always been notoriously difficult to predict because of the wild swings in the decision making protests of owners of all the bulkers depending on the freight market and the predictions of future earnings. Therefore from the plethora of different predictions for scrapping during 2010, we regard the most reasonable impact of Maersk Brokers who predict that about 18 million tones deadweight of mainly smaller bulkers will be scrapped this year.

The supply and demand balance. Assuming all vessels scheduled for this year actually deliver, then the dry bulk fleet will grow by 17% in 2010 and 15% for next year in 2010, net of scrapping. If one takes into account the distribution of the order book which is heavily biased towards larger vessels, the forecast is quite fierce and anonymous for the future earnings of the ships. Therefore if dry bulk owners cannot rely on scrapping and further significant increases in conjunction to come to the rescue, the only hope lies with huge increases in ton-mile demand and large number of cancellations and slippage in the new building order book.

Maersk Broker foresees strong industrial production increases worldwide to lead to a 9% increase in world bulk trades this year. If the shift towards longer trade routes is taken into account, the anticipated increase in overall ton-mile demand reaches about 12%. This is not much different from the optimistic forecast of ton-mile demand increase of 14% provided by Lorensen and Simoco mentioned above.

A short and bullish scenario presented by Galbraith is probably, even with the continued deluge of new building tonnage. If long haul shipments, especially from Brazil to the Far East pick up strongly over the remaining months of 2010 and Cape tonnage is in scarce supply due to continued high level coal congestion, we could expect Cape earnings to rebound and remain strong for the rest of the year. A similarly optimistic short term scenario to develop for the Panamax and post Panamax, underpinned by strong demand for the transportation of coal and lower fleet growth will indicate.

In the medium term, currently we provide a reasonable forecast which has their best-case scenario showing net fleet growth in the Cape by sector of 17.3% in 2010 and 9.1% in 2011. This best-case scenario assumes 50% rate of actual deliveries against the order book for each year and the doubling of scrapping from 2009 level in 2010, 2011 and 2012. For Panamax, the medium term forecast is slightly more optimistic. The net fleet growth for 2010 is predicted at 7.7% and for 2011 at 5%.

This 2010 and 2011 ton-mile demand increase in fact above are realized, then the medium term is quite optimistic for Panamax but not so good for Cape sized bulkers. Longer term however, it is far to conclude anything other than the obvious fact that net fleet growth will eventually outpace even the most optimistic of demand forecast and until earnings fall to below operating expenses, many of this allusions to tonnage oversupply such as scrapping and further new building cancellations we'll think do not happen.

However, we must remember that we are going through one of the biggest investor expansion in the post-[war] economic history of the world. Led by China and India, a host of developing nations are aiming to bring their people out of poverty and into prosperity. The requirement of raw material to achieve this role is essential. Thus the very long term future of dry bulk is in these markets. Its easy to conclude, that once we get over the problems created by effective ordering which could take a few years, hopefully less, dry bulk areas will return to the [fragility] until the next wave of speculate ordering leads to the next drop in the shipping cycle.

In conclusion, as mentioned by our chairman and CEO on several conference calls in the past, our company is positioned to face the challenges of the uncertain future in the bulk areas by maintaining a strong balance sheet and implementing a vessel acquisition strategy which will lead to steady growth of the fleet overtime without loading our balance sheet with significant debt.

Long term secure stream of earnings will ensure the timely repayments of the full amount of debt which will gradually fill up on our balance sheet and as more and more vessels become effectively debt free, the equity and debt raising ability of our company will be enhanced accordingly. Obviously, as we have said in the past, our investment policy will adjust at a point in the cycle that we feel we are in at any given point in time. We will try and take advantage of each of stage in the cycle and optimize the cash flow generation of our fleet for the benefit of our shareholders while maintaining relatively conservative levels of overall debt.

I will now hand over to our CFO, Andreas Michalopoulos who will provide you with a summary of our financial highlights for the first quarter 2010. Thank you.

Andreas Michalopoulos

Thank you Stacy and good morning. I am pleased to be discussing today with you Diana's operational results for the three months ended March 31st 2010. First quarter 2010 net income for the first quarter amounted to $28.8 million and the EPS of Diana Shipping amounted to $0.36.

Voyage and charter revenues decreased to $62.2 million, compared to $62.7 million in 2009. The decrease is attributable to reduced average hire rates and increased hire days during the quarter which however was partially offset by increased revenues due to the addition in our fleet of the vessels Houston, Melite and New York in October 2009, in January and March 2010 respectively.

Ownership days were 1894 for the first quarter of 2010 compared to 1710 in the same period of 2009. This utilization was 99.7% in the first quarter of 2010 and 98% in 2009. The daily ton charter equivalent rate for the first quarter of 2010 was $31,982 compared to $34,898 for 2009. Voyage expenses were $2.4 million for the quarter.

Operating expenses amounted to $12.5 million and increased by 33%. The increase is attributable to the 11% increase in ownership days resulting from the delivery of the vessels Houston, Melite and New York and increasing crew costs, store, spares and repair.

Daily operating expenses were $6,606 for the first quarter of 2010 compared to 500 plus $121 in 2009 representing a 20% increase. Depreciation and amortization of deferred charges amounted to $12.1 million for the first quarter of 2010. General and administrative expenses increased by $1 million or 24% for the first quarter of 2010 to $5.1 million compared to $4.1 million in 2009.

The increase was mainly attributable to increase in salaries and compensation cost on the restricted stocks and the executive fees and was hardly affected by decrease in legal fees.

Interest and finance costs increased by $0.2 million to $1 million for the quarter, compared $0.8 million in 2009. This increase was attributable to increased average debt during the first quarter of 2010 compared to 2009.

Thank you for your attention, we would now be pleased to respond to your questions and I will return the call over to the operator who will instruct to you as to the procedure for asking questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is coming from John Chappell with JPMorgan. Please state your question.

John Chappell – JPMorgan

Good afternoon guys. One follow-up question on the supply side that you laid out, as this European situation continues to develop and given that the European banks are the major lenders to most of the shipping community. Do you see any impact from call the euro contingents having any impact on lending and the ability for ship owners to take delivery of the ships that they have ordered?

Stacey Margaronis

The question I think has an answer which depends very much on how the European Central Bank and the European governments are going to tackle European government debt which as we know is held in the tune of about $2 trillion in the books of several large European banks.

If that number is correct and we assume that such the fourth grade is going to take place as to shape the whole system, then we have to assume that ship lending is going to be affected. Realistically however and looking at the track record of the European Central Bank to-date we -- I find it hard to see at the scenario where all this government debt which is held in the balance sheets of the European banks is allowed to default at least to a large percent or they take a large haircut on this debt which they hold. Maybe they will take a small haircut on government debt of countries like Greece and Portugal, possibly Italy or Spain but nothing that is going to shake the financial status of these banks.

This happens and develops as I just described, I don't think that it will make any difference for ship lending because ship lending for the ships that are going to be delivered during 2010 and 2011 is at levels which all the markets have developed are not very far from the second hand prices. Therefore the banks provided they have available funds, they will advance for these loans to be finance the acquisitions to take place and deliveries therefore to materialize.

In short, I don't think that the future is all grim because of the problems that we hear but this however the European and the Central Bank through this control of the situation, there is panic and there are large sales write-offs of government debt then I will have to agree with your fears that many ships will not be able to be delivered because of lack of financing by the European banks.

John Chappell – JPMorgan

Okay thanks very much for your insight. Question on Diana and you're near term use of capital and the strength to your balance sheet. I think the share buybacks have been reauthorized, how are you looking at your share price today versus your net acted value and how do you view the return of the share buyback today versus what you can get even in the second hand market or in the new building market?

Ioannis Zafirakis

Hi Jonathan this is Ioannis. As you know that we have never commented on our price compared to our NAV. We do not do this calculation ourselves here. So, we cannot comment on that, however the reason why we have reauthorized this plan had to do with the volatility of the markets especially in the capital market but in addition to that the shipping markets. We want to be there to support the stock in case needed.

That is very, very simple, as regard to our investments, our CEO stated in the press release that the preference that we have is to buy assets, i.e. vessels instead of buying back our stock. But we have a $100 million on the side to do that if required. You understand that Diana Shipping Inc, by buying back this stock is like buying our vessels back.

John Chappell – JPMorgan

Right. Okay. I understood and just two quick follow up sir Andreas, in the operating expenses for the first quarter was it higher than our forecast. Was there some timing issues with purchases, business stores or supplies there or that type of run rate you should use going forward and then also on the new builds for the Newcastlemax's. Are there any significant payments in 2010, down payments for those ships?

Andreas Michalopoulos

The first part of your question, as they were two events that happened during the first quarter that gave these operating expenses, the first event is the delivery of Melite and New York and this has initial supply for those vessels which typically dissolve the operating expenses. The second event is the dry dock of Nirefs and Calipso which as you know with U.S. GAAP you basically OpEx your dry dock costs or the big majority of it. So, that's also the explanation for the slightly higher operating expense.

Now going forward we have this quarter, the second quarter we have performed the dry dock of motor vessel Aliki, which is a Capesize and as well as motor vessel Clio. So, obviously there you should see the operating expenses at around the same level as you have been during the first quarter.

Together with that there is a program of fuel tank operation between heavy fuel oil and low sulfur oil which is a regulation that we'll follow obviously and therefore there is a cost associated to that. So your second quarter modeling would use the same operating expenses as you did for the -- as happened in the first quarter, so around 6,500 on average per day.

Now concerning the second part of your question and the new Newcastlemax vessels we have paid the contract signing installment which was $14,000,500 per vessel and that's it for this year. The next is steel cutting which typically happens between eight months and 12 months before the delivery of the vessels. So we don't foresee anything else for 2010.

Operator

Our next question is from Justin Yagerman with Deutsche Bank.

Justin Yagerman – Deutsche Bank

I wanted to get an update on fleet employment because even Stacy's outlook on the margins and it's somewhat uncertain I guess and given all the different cross [variance] we've got. I don't blame you. I wanted to get a sense for how you're thinking about the vessels that you have open in the seven months or so. How far in advance can you charter those vessels? How far would you be thinking about chartering those vessels given the uncertainty in the market and then what kind of employment are you currently going to be looking for, for those vessels.

Simeon Palios

Well Justin, I think you know very well that we have a very, very strong balance sheet. So we can be the masters of our own destiny. So we don't have to charter anything well ahead.

Now for the Panamax's you have to be as close to the delivery as possible but for the case it could be another two months further away. But I think the color we have of the month gives us enough ability to try and get the benefit of the market closer to the date of delivery of the vessel to the customer. So I think we can place as we have done the last year or so.

Justin Yagerman – Deutsche Bank

I don't want to put words in your mouth but should I take from that that you think that there is a near term firming potential in the market or how should I be thinking about that? If I think about where rates are today, they are relatively strong and if you have uncertainty on a go forward basis, that I guess is the crux of my question is would you be more apt to lock up now if you had the opportunity to?

Simeon Palios

Well, I think that as I told you before, the balance sheet is strong enough and it gives us enough cushion to be able to come closer to the deliveries of the vessels from the present charters to us. Thus try and get the full benefit of the charter provided at the time. The next open vessel Panamax is going to be September time, thereabout and the next opinion of the case most likely will be again October.

So those two vessels are the next to focus on. Of course we can charter both of them today but the rates which we're going to achieve are not going to be best rates. So I think we can play a little bit coming closer to the deliveries of those [six] to us.

Ioannis Zafirakis

And if I may add something. This is Ioannis. I've said in the past many times that having the strategy that we do with portfolio approach for chartering, this is exactly what Mr. Palios means taking the benefit of the market and regardless of the outcome we can have a very good average for vessels by having a vessel to fix every month or so.

And the reason why we may fix ahead one of the case, because it's easier, that's one reason. The second may be because we don't have another vessel to fix at that time. We want to get the benefit of the entire market and a good average. We try to avoid taking this difficult decision and position whether the market is going to go up or down. We are happy with the average.

Justin Yagerman – Deutsche Bank

And maybe you could comment a bit, your last couple of orders have been new bills and then you've got this buy back that you've reauthorized. How do you feel about the vessel values of ships on the water currently and maybe if you could put that in context with what you think the time charter market is currently during right now and how much liquidity is in those various charters out there?

Simeon Palios

As we have stated in the past, we have initiated an investment program which is going to last for 24 months that started at the end of the previous year, beginning of this year. We are going to be consistent in buying vessels in a staggered manner. We have proven that with a basis of motor vessel Melite, the order of the two new buildings.

We should expect Diana to buy another vessel or two in the months to come and then so on and so forth we are going to continue for the next 24 months. Again this has to do with our plan to get a very good average as regard to the prices of our assets that we're going to purchase.

The thing is that there are vessels around to be brought. We are constantly looking but as we have said also in the past we are not prepared to spend a big portion of our dry bulk, the liquidity that we have in one shot. The charter rates at the moment are rather healthy I would say. What you buy is what you get, meaning that if you buy a vessel today, a charter of that that you can have justifies the price at least for the next year and we are fortunate to have this catalogue.

On the other hand these are some of the goals, the other way we will be buying assets cheaply because they will not be so good for those assets we can afford to do so based on our strategy.

Justin Yagerman – Deutsche Bank Securities

Andreas, can you kick on it, I know most of what you guys do is are denominated but where in your P&L you potentially have your own exposure that may either benefit or potentially hurt you guys.

Andreas Michalopoulos

Hi Justin, we mainly have euro exposure, actually in our administrative expenses, in G&A we have found 60% of euro exposure actually and we also have euro exposure in part of our crew wages as well as stores and spare parts. So, that's where you could either benefit or not from the euro dollar fluctuations.

Operator

Your next question is coming from Gregory Lewis with Credit Suisse. Please state your question.

Gregory Lewis – Credit Suisse

I am not sure who I should direct this question to but regarding the containership joint venture, at this point it looks like containership rates have sort of stabilized and looks like we are beginning to see upward movements in pricing of assets, how should I think about Diana position itself in the containership over the next six months.

Simeon Palios

As we have already announced our $50 million investment represent an interest approximately 60% of the common sale Diana Containership Inc, this company was created to invest in containers over the next 12 to 18 months. Diana Shipping Services has entered into an administrative agreement with the new company and this is expected to enter into vessel management agreements with every vessel purchase by the new company.

We are very excited to participate in that segment of the shipping industry and we strongly feel that this is the medium to long term will prove to be a value investment for our shareholders.

Been a private transaction does not allow us to give any further information.

Gregory Lewis – Credit Suisse

Okay in terms of what you are seeing with asset prices, are asset prices sort of have stabilized in here in the containership state and is it deferring by vessel size?

Simeon Palios

Well I think that we have to live with what I said before but let me try and reply to your question. Yes there is a marked difference between the 1700 TEU vessels up to 3000. From 3000 onwards I think the vessel values and the range are much better.

Operator

Our next question is coming from Scott Burk with Oppenheimer. Please state your question.

Scott Burk – Oppenheimer

I guess just to follow-up, I guess one on the broader economy we have seen a huge downsize in the equity market for last few weeks in contrast that cape rates have been and it's telling a different story. What do you attribute to the near term movements and rates, is that mostly congestion story or is it a change in pattern and are you starting to see new changes based on the weakness in the broader economy.

Stacey Margaronis

Hi Scott, this is Stacey. We haven't seen any negative at least changes due to an economic development and we haven't seen anything positive yet which we can attribute with certainty to economic performance around the globe. What we know is that the Chinese growth story is underpinning the demand for iron ore and coal and both steam coal and coking coal.

And as I mentioned earlier on the disturbances that we have in Brazil is due to weather phenomenon there during spring time and now the shipments are being restored, so we have more shipments from further way to places like Brazil. So, this is one of the factors which are underpinning the Capesize demand for Capesize vessels.

Also, we have the queues which don't seem to want to go away of ships and we have nearly 160 ships now Capesize vessels which is quite a lot of tonnage been tied up in queues waiting to load or discharge.

So, what we are seeing here is that there is a steady stream of new buildings joining the fleet, there are practically no scrapings of Capesize vessel. But these vessels seem to be going away or at least artificially been deleted from the supply side of the equation due to congestion.

So for the time being that's the only reasonable explanation we can see long haul shipments been restored, new buildings been balanced out by increased congestion and therefore on a utilization basis we see ships which are available for charter and transportation of goods to be more or less steady rather than been than blow up in numbers.

Now this cannot go on forever as you can imagine and as I mentioned briefly a little presentation is that when queues start becoming shorter and the ship is been released on to the market. Greater the queues, the greater the number of ships which are going to join the supply side of the equation, so we have to be vary here and expect quite a lot of volatility in the large bulk carrier freight rate market.

Scott Burk – Oppenheimer

Okay and actually I wanted to follow-up on something you said during the presentation as well you said talk about the transportation side, on top on the quarterly system, they have gone to a situation where it become like the iron ore miners are announcing for transportation cost. Could you clarify that and it seems like that would have a negative implication on day rate upside as well if you have a more concentrated charter pool.

Stacey Margaronis

So now, when the calculation of the CIF price of each ton of iron ore is taking place, the factor is like the distance, the quality of the product and a few other things which are very, lets call them commodity related and specific, taken into account and they set the price for each quarter. So we don't have this general contract price that we have which was supposed to hold for a year and then the spot market going alongside it, very often with huge differentials.

We're going to have a more, lets call it market friendly and sensitive pricing system which all in all we feel is going to help smooth these sharp increases and decreases of demand for the transportation of this commodity over the next few quarters. We have to see how it works but we are quite confident it's going to work better than the old annual contract pricing system.

Scott Burk – Oppenheimer

Okay, and then I wanted to also ask, it's been interesting to see where you have made investments so far. So, you've had the one second investment and the two new builds. As you compare the two options there what looks more attractive now and new build prices starting to come back up a little bit but still obviously much cheaper than second hand. Which way would you favor it currently?

Simeon Palios

I think both at the right price. And as Ioannis said before, I think you have to keep a discipline on the buying time of these vessels. I think the discipline in buying the proper space or time is much better than whether it's going to be a Panamax or a Cape. Both are useful vessels to have.

Operator

Gentlemen, it appears we have no further questions at this time. I'll now turn the floor back over to management for any closing comments.

Simeon Palios

Well thank you again for your interest in and support of Diana Shipping. We remain confident in our plans to deliver increasing shareholder value and we look forward to speaking with you next quarter. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and we thank you for your participation.

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