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Diana Shipping, Inc. (NYSE:DSX)

Q1 2014 Results Earnings Conference Call

May 14, 2014 09:00 AM ET

Executives

Ed Nebb - Investor Relations Advisor

Simeon Palios - Chairman and CEO

Anastasios Margaronis - President

Andreas Michalopoulos - Chief Financial Officer

Ioannis Zafirakis - COO and Secretary

Analysts

Gregory Lewis - Credit Suisse

Taylor Mulherin - Deutsche Bank

Matthias Detjen - Morgan Stanley

Keith Mori - Barclays

Kevin Sterling - BB&T Capital Markets

Donald McLee - Wells Fargo

Herman Hildan - RS Platou Markets

Operator

Greetings and welcome to the Diana Shipping First Quarter 2014 Conference Call. At this time all participants are in a listen-only mode. A brief 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 Advisor for Diana Shipping. Thank you sir, you may now begin.

Ed Nebb

Thanks, Christine and thanks everyone for joining us for the Diana Shipping 2014 first quarter conference call. The members of the management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Operating Officer and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks let me remind you of the Safe Harbor notice. Certain statements made during this conference call, which are not statements of historical fact, are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act.

Such forward-looking statements are based on assumptions, expectations, projections and beliefs as to future events that may not prove to be accurate. For a description of the risks, uncertainties and other factors that may cause future results to differ from what is expressed in the forward-looking statements please refer to the company's filings with the SEC.

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

Simeon Palios

Thanks Ed. Good morning and thank you for joining us today. In the first quarter of 2014 Diana Shipping continued to pursue our strategy of gradually expanding our fleet while at the same time, strengthen our financial resources to support long-term growth.

During the quarter, we took delivery of a newly built ice class Panamax dry bulk vessel, the motor vessel Crystalia. Earlier this week, we also announced delivery of an additional ice class Panamax the motor vessel Atalandi. Both vessels are time chartered to Glencore Grain B.V. We also announced a shipbuilding contract during the first quarter for the construction of a Kamsarmax dry bulk vessel which is expected for delivery in the second quarter of 2016.

As a result of our fleet expansion activities we have an increasingly diverse and model fleet that apparently consists of 38 dry bulk vessels. We also have three dry bulk vessels in order; two new Kamsarmax dry bulk vessels and one Kamsarmax dry bulk vessel with deliveries expected in 2016. We continue to manage the fleet in a prudent manner designed to promote a balance sheet of time charter maturities and produce a predictable revenue stream. Currently our fixed revenue days are 73% for 2014 and 21% for 2015.

To further enhance our capital position, we completed a public offering of 2.6 million shares of 8.875% Series B cumulative redeemable perpetual preferred stock during the 2014 first quarter. We prefer offering asset resources to a balance sheet that has already one of the strongest in our industry. The company’s cash position at March 31, 2014 was more than $307 million.

We continue to operate with a very manageable degree of leverage. Long-term debt including current position and net of defer financial cost was $445.1 million compared to stockholders’ equity of over $1.3 billion.

Now let me review our financial results for the first quarter of 2014. Time charter revenues totaled $41.1 million for the period. The company reported the net loss of $6 million and net loss available to common stockholders of $6.8 million for the 2014 first quarter. Looking ahead, we will continue to pursue our strategy to strengthen our financial flexibility while expanding the productive assets of our fleet. We will continue our program of selectively and gradually adding to our fleet as market positions permit as to acquire vessels at attractive prices.

We will operate our fleet according to balance and prudent chartering policies and promote a predictable revenue stream and maintain relationships with high quality charters. And we will continue to manage our balance sheet to enhance our financial flexibility, provide the capacity to support growth and maintain an acceptable degree of leverage.

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

Anastasios Margaronis

Thank you, Simeon and a warm welcome to all the participants in this latest quarterly conference call of Diana Shipping, Inc. The bulk carrier market has certainly been through tough times during the first quarter of this year. In this respect, let us look at the Baltic industry briefly to get the sense of the turbulence witnessed during the last few weeks and months.

The Baltic Dry Index started the year at 2,113 after having reached a peak of 2,337 on December 12 last year. Yesterday, it closed at 982. The Baltic Cape Index started at 3,733 having peaked at 4,291 on December 12 last year and closed yesterday at 1,453.

Finally, The Baltic Panamax Index stood at 1,780 on January 2, having reached a high of 2,096 on December 13, 2013 and closed yesterday at 933. For these entities were today up between 20 and 30 points. Let’s look at macroeconomic consideration. The IMS forecast global growth leveraged 3.6% in 2014 and estimate which is up from about 3% earlier on and an actual figure of 3% in 2013. They are estimating an increase of 3.9% in 2015.

Its latest growth prediction is actually down compared to the last predictions in January of this year. The IMS growth outlook for the U.S. economy remains unchanged at 2.8% for this year, 3% in 2015. Chinese growth forecast remained at 7.5% for this year and 7.3% in 2015. Recently released data shows that Chinese retail sales in March increased by 13% compared to March 2013.

Consumer trending remains robust according to Commodore Research. And is anticipated to continue growing this year and next. According to recently released data, China overtook the United States to become the largest economy in terms of foreign trades, with export and import reaching $4.2 trillion during 2013.

According to the IMS, by the final quarter of last year, total financing as the Chinese authorities described debt financing has reached 200% of GDP, up from only 125% before the 2008, 2009 price. The key growth of debt in China has led the Chinese government according to a financial times commentator (inaudible) either to allow debt accumulation to continue creating bigger problems in the future or implement rapid reform in which a fall in investment and the larger than planned slowdowns now.

The drop in fast forward the same commentator continues is to accelerate adjustment in reform, while sustaining aggregate demand through monitory and fiscal qualities operated Central Government.

China's ability to postpone the crisis might be the decision makers to choose to delay dropped in adjustments option described about. That could prove a huge mistake; growth cannot be sustained by increasing indebtedness investment. Reform and rebalancing are essential. The Chinese authorities appear to understand that without such reform their plans for liberalizing the country's capital account could be catastrophic for the economy. Let us hope that the right decisions are taken soon in this regard.

Turning to steel now; The World Steel Association has released its steel consumption forecast for 2014. Global demand is expected to grow 3.1% compared to 3.6% in 2013. The crude steel capacity utilization ratio for the 65 companies that provide data to the WSA were 79% at the end of March this year. This compares with 78.6% in March last year. Production in the European Union was up 6.7%, while in Asia as a whole production in March was up 2.6% compared to the same period last year.

Chinese stockpiles of steel according to Commodore Research have declined for seven consecutive weeks and are now down by 16% compared to the same time last year. Simultaneously however, Chinese steel production has recently risen to a record level. And this is putting moderate pressure on local steel price.

Iron ore now, according to Clarkson during this year, total world iron ore imports will increase by 9% to reach 1.3 billion metric tons. A positive sign in the ore trade with the suspension by the Indian government of the existing restriction of mining and become (inaudible) Goa iron ore producing state. This should bring more iron ore to the market but the shorter seaborne to Chinese ports (inaudible) the Capesize sector in way of increase [on mine] demand.

Looking at Australia, the official opening of the [King’s] mine in Western Australia at the end of March together without planned mine expansion are projected according to Clarksons to reach 16% year-on-year increase in Australian iron ore exports for 2014. According to Australian dealer of resources and energy, iron ore exports should reach 687 million metric tons in 2014 and 749 million metric tons in 2015.

According to Commodore Research at the end of April, Chinese iron ore stockpile stood at 100.3 million metric tons. Commodore is encouraged by the fact that this figure was 300,000 tons less than a week ago and by the fact that both stockpiles have fallen during four of the last five weeks. However, we also admit that iron ore port stockpiles remain at historically very robust level and compared to last year, 32.7 million metric tons higher, a significant increase of 48%.

According to Howe Robinson, there is evidence that demand for construction related steel production has rebounded in March. So they expect that stockpiles of iron ore to come down in the coming months. The Chinese government recently announced the stimulus package to build 6,600 kilometers of new rail lines this year and the less developed central and western regions of the country. The further $178 billion [of the fund] is being dedicated to low cost housing to provide shelter to the rural population moving near town for employment and to increase the standards of living.

Reports have recently [served us] though that China’s bank will raise the deposit needed for financing iron ore purchase. It is not known yet by how much this deposit will be raised; it became effective on May 1st. But it is possible that the short-term disruption in purchases of both imported and domestically produced iron ore could occur. This is something that needs to be watched over the next few weeks.

Turning to coking coal now. Clarksons predict that this year we’ll see worldwide imports of coking coal reaching 277 million metric tons, an increase of about 5% compared to the volumes shipped last year. Total coking coal exports from Australia are expected to be the main driver of global coking coal trade growth this year and are projected to grow 6% year-on-year to 176.8 million metric tons in 2014. Meanwhile Chinese seaborne coking coal imports are currently projected to increase 12% year-on-year to reach 67.1 million metric tons in 2014. Going forward much will depend on how the arbitrage between international and domestic Chinese coking coal prices develops this year.

To thermal coal now, according to a Clarkson, total thermal coal exports on worldwide basis are expected to grow this year by 4%, reach 883 million metric tons. Chinese imports are estimated to reach 327 million metric tons this year, up 8% year-on-year. Out of this growth, about 42% is expected to come from Australia. Indonesia is expected to provide about 40% of all Chinese seaborne imports of coal this year.

In this respect, it is worth noting that according to Commodore Research, coal stockpile in Qinhuangdao, China’s largest coal port and the loading port for about 40% of China’s coastal coal shipments currently stands at approximately 4.5 million tons. This is the lowest stockpile level seen since October 2011. These stockpiles are down 18% compared to this time last year. Commodore Research anticipates that more coal imports will be needed to help rebuild Qinhuangdao stockpile and the badly needed search in Chinese thermal coal fixtures should soon materialize.

Recently released data shows that coastal coal shipments totaled a record 66.2 million metrics tons in March. This is 44% more than what shipped in February this year and 18% more than what shipped in March 2013. Recently released data shows that as of March 20th, thermal coal stockpiles at major power plants in China stood at 69.7 million metric tons. This marks a decline of 18% of the beginning of February and marks a year-over-year decline of 9%.

Future trade could be affected by plans recently announced by the Chinese government to shut down around 1,700 small domestic coal mines during this year with an estimated total production capacity of approximately 120 million metric tons.

As regard to grain shipments, Clarkson’s forecast for this year is that total imports could reach 290 million metric tons and that is for the [2013-2013] grain season. As this materializes, it represents a respectable 9% increase compared to last year’s volumes. Strong growth is also underpinned according to the USDA by the improved forecast of ports’ grain exports from the United States. Their forecast for Brazilian and Argentina soybean exports also remain high and well above levels seen in 2013. China imported 15.3 million metric tons of soybean during the first quarter of this year, which was 33.3% higher than for the same period in 2013. However for the near-term an unfortunate development is reported cancelation by Chinese buyers of as many as 50 additional South American soybean cargos. Such cancellation places even greater pressure on the dry bulk market, particularly the Panamax segment.

Spot market rate according to RS Platou Economic Research, spot rates for Capes stood at the end of last month at around 11,000 per day and for Panamax is up approximately $7,000 per day, the average year-to-date figures are 17,300 per day for Capes and $9,600 per day for Panamax. According to Commodore Research the Capesize rates have continued to come under pressure this year by combination of iron ore, seaborne trade volumes being lowest at the start of every year along with a disproportionately long [lasting] Capesize new building traditionally being delivered during the first quarter of each year.

Commodore Research believes that the Capesize fleet growth will decline during the rest of this year, which combined with the expected surge in iron ore export, is likely to boost Capesize rate. Our belief is that this prediction fails to take into account the surpluses created from the last two years by the huge increases in the supply of these ships and the effect that low Panamax rates can have on capping any upward movement in Capesize earnings.

As for Panamaxes Commodore believes that South American grain cargos have helped rates stabilize at the low level, but pressures remain due to the very large amount of new buildings delivery.

Turning to the low age profile of the bulk carrier fleet. The low age profile of the bulk carrier fleet remains a big concern as we got scrapping and the controlling the supply of tonnage. Only 10% of the Panamax fleet is over 20 years old. If we include the younger Post-Panamaxes in the statistics, the percentage of overage ships falls to under 8% and near 7% of the Capesize fleet falls into this age category.

Scrapping now. According to Banchero Costa, unfortunately demolition has been slowing down since its peak in 2012 with 20.6 million deadweight tons sold for scrap in 2013 across all vessel types. This was 35% lower than in 2012 and only 50 units or 3.4 million deadweight tons were sold for scrap during the first quarter of this year. This includes 1 VLOC, 8 Capes, no Post-Panamaxes and 4 Panamax. The scrapping figure was 60% less than in the same period of last year.

Now supply overall, according to Clarkson’s the total bulk carrier order book at the end of March this year stood at [157.8] million deadweight tons, which represents 22% of the existing bulk carrier fleet.

The Panamax order book stood at 34.5 million deadweight tons representing 18% of the existing Panamax fleet. And the Capesize order book was at 65.4 million deadweight tons, which was 22% of the existing Capesize fleet.

According to Banchero Costa, in the first quarter of 2014, 189 vessels or 15.9 million metric tons were delivered, which total included three yellow VLOCs, 30 capes, 10 Post-Panamaxes and 55 Panamaxes. Total deliveries in 2014 in accordance with the order book are expected to be about 64.6 million deadweight tons including ships already delivered in the first quarter. Assuming a 15% slippage as was the case over the last few years on average, the total actually delivered should not exceed 55 million deadweight tons.

Newbuilding contract, according to Banchero Costa during 2013, there have been at least 913 reported newbuilding orders, which is almost three times the level seen in 2012. This activity continued into the first quarter of 2014, with the reported 120 Handymaxes, 56 Panamaxes, 51 capes and 9 VLOCs ordered for delivery over the next 2.5 years; the total of 295 newbuildings were ordered during the first quarter of this year alone.

Let's turn to supply demand projection. According to Clarksons, the bulk carrier fleet and the dry bulk trade are projected to grow at an approximately similar pace this year at 4.9% and 4.4% respectively. While fleet growth in the Panamax sector is expected to remain strong at 7.1%, the Capesize sector should see growth at around 4%, which is considerably slower than the projected 9% increase in the seaborne iron ore trade for 2014.

With Australian iron ore production surging during the second quarter of each year for seasonal factors, Commodore Research expects shipments to increase significantly. They also expect that Capesize fleet growth will decline from the robust level seen during the first quarter of this year. The market should also benefit, they argue from when the Atlantic Basin activity return and their concern is centered around a very large number of Panamax vessels have continued to be delivered in the market and Panamax fleet growth which is set to remain the highest of the world for major vessel plant.

The problem here is that with the past record deliveries of capes, which have created the fleet with an average ratio of only 7.3 years making the youngest sector of the dry bulk fleet. More than half of the Capesize fleet in terms of deadweight is currently 105 years of age.

However it is difficult to be overly optimistic about the medium-term health of the bulk carrier market. When one look out personally, the very high number of deliveries during the past and also the next two years. Secondly, the record Panamax deliveries this year and third the huge contracting appetite we’ve shown is appeared to have and which has been translated into the new building orders discussed above.

Within this environment, we at Diana Shipping will continue purchasing good second hand tonnage and very selectively creating new orders for large bulkers with the technology. We are confident that the market will eventually improve significantly and reward this consistent policy and investment strategy. It will also help us maintain the strength and integrity of our balance sheet

I will now pass the call to our CFO; Mr. Michalopoulos will provide us with the financial highlights of the first quarter of this year. Thank you.

Andreas Michalopoulos

Thank you, Stacey and good morning. I am pleased to be discussing today with you Diana’s operational results for the first quarter of 2014. Net loss amounted to $6 million and net loss per common stockholders amounted to $2.8 million and the loss per share was $0.08. Time charter revenues decreased to $41.1 million compared to $42.6 million in and first quarter 2013. The decrease was partly attributable to [average] time charter rate compared with the same quarter of 2013.

The decrease was partially offset by revenues derived from the vessels MYRTO delivered in January 2013, MAIA delivered in February 2013, BALTIMORE delivered in June 2013, ARTEMIS delivered in August 2013, MYRSINI delivered in October 2013, P. S. PALIOS delivered in December 2013 and CRYSTALIA delivered in February of ‘14.

Ownership days was 3,280 for the first quarter 2014 compared to 2,806 in the same period of 2013. Fleet utilization was 98.8%, same as in the first quarter of 2013. And the daily time charter equivalent rate was $11,820 compared to $14,398 in the same quarter of 2013.

Voyage expenses were $2.4 million for the quarter. Vessel operating expenses amounted to $20.7 million compared to $18 million in the first quarter of 2013 and increased by 15%. The increase was attributable to 17% increase in ownership days resulting from the enlargement of the fleet. On average, daily operating expenses decreased due to decreased crew costs and insurance. Daily operating expenses were $6,298 for the first quarter 2014 compared to $6,400 into the same quarter 2013, representing a decrease of 2%.

Depreciation and amortization of deferred charges amounted to $16.9 million. General and administrative expenses increased to $6.2 million compared to $5.5 million in the first quarter of 2013. The increase was mainly attributable to increased number of number of employees, of salaried and employees indemnity and travel expenses. Interest and finance costs were $2 million for the quarter compared to $2.1 million in the same quarter 2013. This decrease is mainly attributable to increased (inaudible) and decreased 9% in the first quarter of 2014 compared to the same quarter of 2013 partially offset by increased outlook interest rates.

Interest and other income amounted $2.9 million compared to $2.2 million in the same quarter of 2013. Increase was due to interest and finance fees deriving from our loan with Diana Containerships.

Thank you for your attention. We will be pleased to respond to your questions now. And I will turn the call to the operator for instructions (inaudible) for asking questions. Thank you.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question comes from the line of Gregory Lewis with Credit Suisse. Please proceed with your question.

Gregory Lewis - Credit Suisse

Yes. Thank you and good afternoon.

Simeon Palios

Hi Greg.

Anastasios Margaronis

Hi Greg.

Gregory Lewis - Credit Suisse

Stacey, you provided a lot of color around iron ore, around coal, around grain and I mean -- I guess I may be I missed, you didn't really touch on the diverse side of the market that is the minor bulk sector. Do you have any sort of thoughts or insights on how we should be thinking about that segment of demand over the next one to two years? I mean it's just going to be a derivative of coal; it's going to be derivative iron ore. How should we think about that just simply as it is a major driver of the overall market?

Anastasios Margaronis

Yes. Well there are two reasons why we haven't expanded on that at all. First is for the interest of time, as I’m already [boring] with too many numbers. And the second is that as far as the sector that we are involved in, we are not as major as we are on an overall basis. And those minor bulk commodities are shipped primarily in Handymaxes and Supramaxes and some of them (inaudible) shipped in Panamaxes and practically they are not capes and new [Kamsarmaxes].

On an overall basis, while I have been reading (inaudible) it is going to be a growth there. Estimates range anything between 4% and 7% depending which report you want to read. And how optimistic collecting the number want to be. But there is going to be support from growth in the shipments of minor bulk cargos, which primarily will affect as I said the smaller price ranges than those that we are being invested and in which we trade.

Gregory Lewis - Credit Suisse

Okay. And then just and just sort of piggybacking on this sort of general team. I mean the outlook we laid out, I think you laid out on iron or on coal in '14 looks pretty attractive. It's not really translating into higher pricing, higher day rates, higher (inaudible) whatever you want to call it. What do you think is really, is it something where we're seeing these demand expectations being reduced or is it just something that we think this is more of a second half story?

Simeon Palios

The problem that we have with the assumption is not that we don't agree with them, we take demand as being more or less what we have presented which is quite strong. We have a small problem with translating this increased demand in an increasing tonne-mile demand. Because there is a lot of uncertainty as to where most of the cargo will come with and we see a lot come from. And we see a lot of cargo coming from Australia and some cargo coming from India, from Indonesia. And those increases that we witnessed that I have mentioned during the short presentation are not as important as increases from places like South America shipping goods from there either to Europe or to the Far East.

So that is what bothers us a little bit. And the other main thing that is of concern of course are being deliveries of our ship starting from the second half of next year onwards, even the first half as well, but particularly in the second half of 2015 going into 2016. There we're going to see again new seats coming through, we have very little scrapping to speak of and without any (inaudible) making ships unable to trade for whatever other regulatory reading one can think of. We feel that we’re going to have too many ships in the market over the next 18 to 24 months to ship the volumes that we have described in our presentation.

Gregory Lewis - Credit Suisse

Okay, great. And then Andreas, I was actually having a little bit trouble and I apologize if you said and I missed it. But I guess I was wondering as I look at the depreciation line it looked like as I think about it that that line helps, that number helps [lies at] about $16.9 million even though I guess the ownership days in the fleet went up about 40 days and I am just trying to back into why depreciation wasn’t up sequentially?

Andreas Michalopoulos

We had some dry bulking amortization as when that once the depreciation (inaudible).

Gregory Lewis - Credit Suisse

Okay. So it is just related to -- okay so. All right. I mean I guess I can hope follow-up offline to get those numbers. All right, guys, thank you for the time.

Simeon Palios

You are welcome.

Operator

Our next question comes from the line of Taylor Mulherin with Deutsche Bank. Please proceed with your question.

Taylor Mulherin - Deutsche Bank

Good morning guys. How are you?

Simeon Palios

Fine thanks. How are you?

Taylor Mulherin - Deutsche Bank

Thank you. So I just want to start off just kind of talking about the acquisition side of things. You guys are up over $300 million with your cash balance and I would say clearly in position to expand the fleet. You touched on this in the presentation but just if you give a little bit more color around how you’re thinking about second hand vessels compared to maybe going out 2017 deliveries in buildings, isn’t what do you want to do but just maybe compared to resells that might have a little bit more near-term deliveries, how you just think about those two potential options?

Ioannis Zafirakis

Hi, this is Ioannis Zafirakis. We have explained in the past that we consider our market to be matured market, but the vessels side are based on the market conditions and basically the market prevails. And therefore what you pay is what you get. So basically the difference between a resale or a second hand vessel as a result the profit capability. So the upside when the market is going to turn are only already and embedded into price of the vessels. So basically to cut the long story short what we say is that it doesn’t really matter whether you are going to be buying a resale or a second hand vessel of three or four years of age, five years of age from the moment you are paying a different price for that. As we have explained also in the past, our investment strategy states that we will keep buying a vessel or two every two months or so for the next year and half and we should not change the pace of our practices based on short term events. As we have also explained of course if we end up as a part of the market or the cycle of where we consider that a non-growth phase for the company we will stop buying vessels and we will start paying dividend and try to modernize the fleet and do what we have explained in the past we were going to do.

Taylor Mulherin - Deutsche Bank

Makes sense. And I also just want to follow up on something that you have talked about in the past and that’s just availability of shipyards just think it’s pretty interesting from a market standpoint. Something that you had said was there were still European slots for one year term delivery that you want to payout for it and obviously if we’re just talking about years I think anything in 2015 will be pretty difficult at this point. But when you are talking about 2016, do you still think there are still slots that are kind of being held back for the shipyards just waiting for people want to payout or is that kind of normal side of window at this point?

Simeon Palios

We have said in the past that there are few empty slots available and also the ability of the yard to change the contracts from a tanker to dry bulk vessels and vice versa from the moment they have not started building the vessel. This is what we are saying.

Now, the fact that the yards are full, building dry bulk vessel is something that we explain thoroughly that we don’t like. We regret to say that we were once again correct in our way of thinking at the previous conference call where everyone was over optimistic about the market. And we said to you read the sign better and see that the market is not -- the things are not so good as they were presented to you being.

And we still say the same thing that the numbers of that available in the waters are too many. We have still vessels coming into the water; we know how vessel is going out of the water scrap. And at the same time everyone is considering demand to be very, very strong something that we are not disputed.

Taylor Mulherin - Deutsche Bank

Make sense. Okay. I'll leave it there. Thanks for your time.

Simeon Palios

You’re welcome.

Operator

Our next question comes from the line of Matthias Detjen with Morgan Stanley. Please proceed with your question.

Matthias Detjen - Morgan Stanley

Good morning gentlemen and thank you for the update. So, I want to ask you a little bit about, I mean you already talked about how you want to deploy the capital, but what I was asking about is how asset value have reacted to this sort of weakening in rate? And I mean you said that it might get worse before it gets better and now I think it's getting worse. I mean if you could talk about if this is the correction you were talking about or is it more something you see as seasonal? And if this had an effect on asset price at all from the observations you have seen in the market?

Simeon Palios

The asset prices have not moved downward the same way with the charter rates, the psychology is still there. What we say is people do not want to admit the fleet gets as a result the potential of the market. And there is still a kind of an optimism around, people are not prepared to sell their vessels without a premium based on the previous optimism that existed. But it takes usually time and when that comes and people see the market staying at lower level than anticipated then you will see the values of the vessels going further down as we have explained. (inaudible) the values of the ships and the time charter rates that we are seeing today.

And this despite fleet is (inaudible) people who own vessels have psychology which seems to be positive because the market will be on the -- will be higher than what we have seen, but we haven't seen it yet and it remains to be seen.

Matthias Detjen - Morgan Stanley

Okay. So, what do you say that was in strategy you would -- come asset value sort of come in line with rates or…

Simeon Palios

No, no. We cannot do that. We do not have a crystal ball in front of us so we can’t be certain 100% that this is going to happen. Our strategy is made exactly for that not to be amended. And therefore we are prepared to pay to-date inflated price if necessary and knowingly that the next vessel that we are going to be buying is going to cheaper. But we have to stick to our position in the company investing at particular point in the cycle regardless of what is happening. From the movement, we have not moved to a different part of the cycle.

Matthias Detjen - Morgan Stanley

Okay.

Simeon Palios

So you will see us buying something rather soon, although we do not expect the value of that vessel not to be inflated a bit.

Matthias Detjen - Morgan Stanley

Okay. Well, that's very helpful. Thank you again gentlemen.

Simeon Palios

You're welcome.

Operator

Our next question comes from the line of Keith Mori with Barclays. Please proceed with your question.

Keith Mori - Barclays

Good morning gentlemen.

Simeon Palios

Good morning, Keith.

Keith Mori - Barclays Capital

I'd like to kind of comeback to some of your comments at the end of your prepared remarks. If I understood you correct, you kind of begin to tell us that the market have improved or going to improve over the next few months and you're going to see some acceleration here. And then as we've gone to call we’ve kind of come out of -- heard you speak about oversupply fundamental going on here. Can you kind of help me taking side of those two points together? Do you see the market kind of remaining in a low over the 12 to 18 months and then an acceleration? And just could you help me out time those comments together?

Simeon Palios

Yes even though, we never become sort of (inaudible) in making detailed focus. I can tell you what I will trying to express in the presentation has been opinions of analysts, which we found reasonable. So the first opinion that we found reasonable and we still find reasonable was that we believe that for seasonal factors rates could improve over the next few weeks and months and those seasonal factors have to do the South American trade increasing, the reduction in the pace of deliveries of Capesize vessels. And those are remaining reasons that we see some improvement taking place and other less important seasonal factors.

Going towards the end of the year though, we feel that any upside momentum especially on the Capesize sector will be tempered firstly by the opposite teams and factor from those that are pushing Capesize rates higher. And by the continuous increase in the supply of Panamax vessels which we feel are going to (inaudible) on the upside for rates both in the Panamax sector and also the Capesize sector.

Therefore, over the next 18 to 24 months which are going to include the periods of high deliveries, great numbers of ships joining that lead again. Unless we get an extraordinary number of scrapping tonnage coming through, which will not happen unless rate drop as you can imagine we're going to have soft market. That’s in fact what we think is a reasonable prediction without as Ioannis explained earlier placing bids on this by refraining from buying it now because of this anticipation as regard to the market. Therefore even though we assure that the market will improve eventually and it will improve significantly from the level at that we’re now, we are not very optimistic about the next 12 to 24 months as regard to rate, which does not exclude spike in rate, especially spot rate, due to seasonal reasons or other disruptions in the supply stream of ships.

Keith Mori - Barclays

Okay. That’s helpful. Thank you. And then maybe something here for Simeon, you have a large capital base now of over $300 million. We talk about markets remaining soft here; I mean do you expect to deploy this capital into expanding of the fleet or maybe some other opportunities are out there like share repurchases or dividends over the next 12 months to 18 months? How should we think about capital deployment where we are in this cycle?

Ioannis Zafirakis

As we have repeatedly said -- this is Ioannis Zafirakis again. We expect to deploy the capital slowly in the next year and half. That’s one. Secondly, we do not expect to pay dividend if we do not end up at the part of the cycle where we consider to be a non-growth part for the company and non-growth space for the company. And that’s the after part of the cycle as we say where we see in places start time charter rates and in places value for vessels.

So we have been very, very clear on that. And we keep saying that to everyone that we will not change our pace of purchases. Now, if you were asking whether we’re prepared to do a merger, to do merging on and acquisition of another company, again we’ve got in [tail] spending large portion of that dry powder that we have, we’re not there to do it. We’re not prepared to take any kind of bet which is sizable at any particular point of the cycle. We want to do it slowly and we have kept doing that the last year and half and we intend to do that for the next year and a half.

Keith Mori - Barclays

Okay, thank you gentlemen.

Simeon Palios

You are welcome.

Operator

Our next question comes from the line of Kevin Sterling with BB&T Capital Markets. Please proceed with your question.

Kevin Sterling - BB&T Capital Markets

Thank you. Good afternoon gentlemen.

Simeon Palios

Hi, good morning.

Kevin Sterling - BB&T Capital Markets

You were chatting about asset values and kind of gave us some good color there. So how does it usually take for sellers to become more rational when asset prices begin falling as we are seeing now; is it a couple of months or longer?

Ioannis Zafirakis

It all depends on psychology and anticipation. It certainly takes a few weeks, couple of months at the minimum. And if in the meantime something happens to change the sentiment for the better, then they usually don’t come true these adjustments and the ideas of sellers. And that’s why we follow the policy that was described earlier of buying a ship when we find the right ship regardless of whether in a few weeks or a couple of months its price goes down because we are not sure it will. Psychology is something that nobody unfortunately can foresee and it has a strong hold on the price ideas particularly of sellers, buyers as well but mainly the sellers.

Simeon Palios

A new factor that has entered into the picture that Stacey described is the big chunks of money that are coming into the picture from private investors and together with the capital market but they have distorted the way of thinking and they create a kind of not normal optimism about the market but influences everybody.

Unidentified Company Representative

And if I can add, there is also the very low cost of the money. If you have interest rates very low, then the equilibrium between the values does not come quickly stronger. So the plentiful money that Ioannis has described plus of course the very low interest rate is two factors which make [Ioannis] resilient to keep the prices higher and just the prices after a longer period than a shorter one.

Kevin Sterling - BB&T Capital Markets

Okay, got it. Are you still seeing, are we still seeing a lot of private equity money come into the market, or is it slowed some?

Ioannis Zafirakis

It has slowed down a lot, but not to the point where psychology should be but it’s still a kind of a optimism as we explained earlier. But certainly people slowly are realizing that we very well much anticipated quick and sustainable recovery on the charter rates is not there to come soon.

Kevin Sterling - BB&T Capital Markets

Okay, got you. Thank you. And one last question here is more of a housekeeping question; I think it’s for Andreas. Andreas how should we think about daily vessel operating expenses going forward, is 6,400, 6,500 a day of good range to use?

Andreas Michalopoulos

Yes, I think it’s a good range with this quarter has been better at $6,298 per day per vessel. But I think if you use what we have said which is $6,400 you will have a good number there.

Kevin Sterling - BB&T Capital Markets

Got you. Okay and thank you for your time today. I appreciate it.

Andreas Michalopoulos

Thank you.

Operator

Our next question comes from the line of Michael Webber with Wells Fargo. Please proceed with your question.

Donald McLee - Wells Fargo

Hey guys. This is Donald McLee on for Michael Webber. All my questions have been answered, but thanks for the time.

Simeon Palios

Thank you Donald.

Andreas Michalopoulos

Thank you.

Operator

Our next question comes from the line of Herman Hildan with RS Platou Markets. Please proceed with your question.

Herman Hildan - RS Platou Markets

Good afternoon gentlemen.

Andreas Michalopoulos

Hello.

Herman Hildan - RS Platou Markets

Hi, just have one question really, in terms of how do you define what the markets which is a non-growth part of the cycle? Is that say for example (inaudible) and the charter market or how do you think about that?

Andreas Michalopoulos

Certainly, this is something that we will have to consider and read the at the time. It certainly cannot be described with only two numbers like, vessel price or [charter] rate, but it’s also to do with the psychology, the existing trend of this time and basically it's a kind of feeling that you get when you have the experience that we do and not feeling quite comparable growing the company anymore about that. It cannot be particular but we have to draw a regression line for the last 50 years which will end before that you have taken out the values extremes, you may have a very good idea about that part of the cycle. You understand that this is a moving target always and this is why I said to you that a lot of parts are coming to play when we decide that.

But of course what (inaudible) has explained is a rule of thumb. And this rule of thumb, we have explained it since the day we have brought at the company that most (inaudible) have filed. And it's a pretty good idea provided, you take numbers growing about more than 30 years rather than the last 10 years, and taking away the extremes like extreme case in 2008.

Herman Hildan - RS Platou Markets

I mean if you take the 20 average rates and you take out speaker names and tell (inaudible) which is the level that we briefly touched upon on the one year charter rates recently. So that's why kind of (inaudible).

Andreas Michalopoulos

You use more briefly touched upon and this is exactly what we meant earlier. It has to be not briefly touched upon, it has to be something that looks to be sustainable.

Herman Hildan - RS Platou Markets

Okay. So when you kind of pass the period of those kind of rates that will start will you define market as being….?

Andreas Michalopoulos

And you know what else, when everybody is going to be talking saying that the market will never go down again that's the point.

Herman Hildan - RS Platou Markets

Yes, that's interesting, because I think at least my perception is that well obviously even though the spot market is down now based on seasonal explanation so that, it seems that people are very, not really borrowing into the long-term recovery of the market, they're saying, well, okay, market’s probably going to begin from next couple of years. But if you look into extortion ‘17 and ‘18 that's kind of getting a bit dangerous while on your hand it sounds like you're bit cautious next year and half in terms of the market, but you're more optimistic about call it [‘16].

Andreas Michalopoulos

Provided a blood bath that occurred during the period that we said the first year and half. If a year and a half passes and we’re neither here or there, then the recovery is going to take longer to come.

Herman Hildan - RS Platou Markets

Okay. So If we kind of flip the discussion to the benchmark in terms of (inaudible) prices have gone from say 45 to 60 how much down do you think they’re going to go, what do you think will be the low point from here and the next year and half?

Simeon Palios

No, no, we cannot do, we cannot predict this type of -- you know that, nice try.

Herman Hildan - RS Platou Markets

Nice try. Thank you very much guys.

Andreas Michalopoulos

Thank you. You are very welcome.

Simeon Palios

Bye-bye.

Operator

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Simeon Palios

Thank you again for your interest in and support of Diana Shipping. 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. Thank you for your participation. And have a wonderful day.

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