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Diana Shipping Inc. (NYSE:DSX)

Q1 2011 Earnings Call

May 6, 2011 09:00 AM ET

Executives

Edward Nebb – IR Advisor

Simeon Palios – Chairman and CEO

Anastasios Margaronis – President

Andreas Michalopoulos – CFO

Ioannis Zafirakis – EVP and Secretary

Analysts

Michael Webber – Wells Fargo

Josh Casa – Deutsche Bank

Fotis Giannakoulis – Morgan Stanley

Gregory Lewis – Credit Suisse

Scott Malat – Goldman Sachs

Urs Dür – Lazard Capital Markets

Salvatore Vitale – Sterne Agee

Operator

Greetings, and welcome to the Diana Shipping Incorporated First Quarter Conference Call and Webcast. At this time, all participates 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, Edward Nebb, Investor Relations Advisor for Diana Shipping. Thank you, sir. You may begin.

Edward Nebb

Thank you, Dan. Greetings everyone, and welcome to the Diana Shipping Incorporated 2011 first quarter conference call.

The members of the Diana Shipping 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, Executive Vice President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before our management begins their remarks, let me briefly summarize the Safe Harbor notice, which you can see in today’s news release. 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.

Such forward-looking statements are based on assumptions, expectations, projections, intentions, and beliefs as to future events that may or not prove to be accurate. For a description of the risks, uncertainties, and other factors that may cause future results to differ materially from what is expressed or forecast in 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.

Simeon Palios

Good morning and thank you for joining us. Diana Shipping delivered higher time charter revenues and increased net income for the first quarter of 2011 as compared to the same period a year ago. Our ability to achieve this solid financial and operating performance in spite of a difficult industry environment reaffirms the value of our long-term strategies.

As we now conditions of the dry bulk shipping marketplace today continue to be challenging while demand is relatively robust the excessive growth in the supply of new vessel has outpaced that demand and weighs heavily on charter rates.

Fortunately, we have consistently managed our business to produce stable results across a range of industry and economic scenarios and this disciplined approach has continued to stand the company in good shape. We have pursued a charter in policy that has enabled us to balance the duration of our time charters and to lessen the impact of the current interest rate environment.

With the exception of all these three vessels the vast majority of the fleet is charter for extended period with delivery dates in 2012 and beyond. We continue to foster and maintain excellent relationship with quality Charterers and we have maintained a quarterly balance sheet with a strong cash position and minimal leverage, which provides the stay in power who has done a difficult industry cycle.

Now, let me review some of the key aspects of our performance for the 2011 first quarter. Net income increased to US$33.1 million for the first quarter of 2011, up from US$28.8 million a year ago.

Voyage and Time Charter revenues totaled US$69.4 million compared with US$62.2 million for the same period last year. The average daily Time Charter equivalent rate was US$31,592, relatively a change from US$31,982 a year ago. This result reflects the benefits of our fleet expansion strategy as the addition of vessels in Melite, New York and Alcmene in 2010, contributed to the Time Charter revenues and earnings growth.

Turning to our strong balance sheet, we see that the company has the financial resources to weather the present challenging industry positions and support the implementation of our strategy of prudent growth. Our cash position was a record US$373.3 million as of March 31, 2011 compared with US$345.4 million at year end 2010. We continue to operate with minimal leverage, long-term debt was US$356.7 million at the end of 2011 first quarter, compared with stockholders equity or more than US$1.5 billion.

In conclusion, Diana Shipping has produced rising profitability during a challenging period for the dry bulk shipping market. We are well-positioned to take advantage of opportunities that may arise in the current industry cycle. And we will continue to work to enhance shareholder value through our balanced chartering strategy, a selective approach to growing our fleet and by maintaining a solid balance sheet to provide stability in a volatile environment.

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

Anastasios Margaronis

Thank you Simeon, and welcome to all who have joined us on this quarterly conference call. The quarter that just passed was one during which certain very strong messages were sent out by the dry bulk fleet market and anyone deciding to ignore these or take them lightly will be doing so at his own tariff. The Baltic Dry Index started the year at 1,693 on 31st, March 2011, stood at 1,530.

The Baltic Cape Index were 2,285 on January 4 and ended the quarter at 1,768 while the Baltic Panamax Index started the year 1,798 and on March 31st have gone to 1,968, unfortunately it too declined sharply since then and yesterday it stood at 1,723. We feel that the signal eliminating from the markets are indeed confirming, very cautious expectations as far back as May 2009 when we said, “Beyond the short-term optimism, it is difficult to envisage a scenario not centered on a sharp freight market recession.

The length and the depth of this recession will depend on the evolution of the global economy.” Later during the conference call, we went on to say, “The challenge for most shipping companies will be to survive over the next two years or so and then optimism will hopefully return to the industry. In the meantime opportunities will present themselves to acquire inexpensive assets with significant capital appreciation potential”.

(Inaudible) told the unexpected strength of the economic recovery in 2010 and the related deliveries of several new building bulkers, not to mention the outright cancellations resulted in 2010 being a pretty decent year at least after the beginning of the last quarter. However the inevitable cannot be indefinitely postponed, regardless of the short or medium term factors which might temporarily at least influence its supply demand balance of bulk shipping.

Let’s just have a brief look at the macro economic factors which we have there influenced on demand for bulk carriers of all sizes over the next few quarters. The IMF has recently lowered its forecast for U.S. economic growth for 2011 predicting that higher oil practice and the slow pace of job creation will restrain the pace of recovery.

U.S. gross domestic product growth is now expected to expand that 2.8% this year, down from 3% predicted earlier on. This was confirmed by first quarter growth figures coming in at 1.8% annual rate with government spending declining by the most since 1983 and bad weather leading to increases in food prices which in turn had an adverse effect on consumer spending. Nevertheless consumer spending which was up 0.7% during the first quarter grew more in fact being anticipated. However this cannot be expected to continue going forward unless more favorable conditions return to the marketplace.

In March Japan manufacturing deteriorated the fastest pace in at least nine years underscoring forecast for the economic shrink in the after mark of the earthquake and nuclear disaster. Factory output fell by 15.3% from February and household spending declined 8.5% from a year earlier. The Bank of Japan cuts its growth estimate for the year ending March 2012 to 0.6% from January’s prediction of 1.6%. In China, the growth five year plan lowers the target of GDP growth to 7% per annum over the next five years compared to actual growth over the last five years of 10.6% per annum. This implies that growth in the Chinese economy will be slower than at any time in the last decade.

First quarter GDP growth in China came in at 9.7% and growth for the whole of 2011 according to the Economist Intelligence Unit is predicted at 9%, while for 2012 the estimate for growth is 8.7%. Growth in Europe services and manufacturing industries slowed in March after surging energy costs in Japan’s earthquake clouded global growth prospects. The latest forecast for growth in the Euro-area according to Economist Intelligence Unit stands at 1.75% for 2011 and the same for 2012.

Therefore, we see that overall world growth is expected to slow rather than accelerate, and then unless energy prices come down fairly soon, it is logical to assume that more downward revisions of growth forecast can be expected. It is a bad omen as regard the market’s ability to absorb the anticipated increases in the size of the world bulk carrier fleet, net of scraping, which we will talk about later on.

Let’s turn to bulk carrier demand. Starting with the most likely effects of the Japanese earthquake in the demand for raw material imports to that country, we agreed with the view expect by (inaudible) that more and more domestic production will be proffered internally to aid in the rebuilding process. The power supply disruptions will affect manufacturing and production output, as well as the Japanese export trade. All the above will most likely create a drop in shipping demand for the next couple of quarters as industries and their logistical chains try to recover from the devastating effects of the recent earthquake.

Looking at steel production on a worldwide basis, the 64 countries reporting to the World Steel Association, reported production of 372 million tons for the first quarter of 2011, which was 8.8% higher than the first quarter of 2010. Chinese steel production has overcome pressures created by the surge in steel stockpiles during February and March, and going forward is expected to increase modestly, thus supporting the overall growth figures from the current level above.

As for iron ore, Clarkson predict an increase in total world imports of 7% during 2011, bringing the expected total volume to 1.055 billion tons, a new world record. Very little growth is expected in the supply of Indian iron ore to China, and again according to Clarkson that would make it increasingly hard for Chinese steel mills to find greater export volume from elsewhere. At the same time according to Commodore Research, about 81 million tons of iron ore is currently stockpiled at Chinese port, an increase of 1.4 million tons or 2% from just a week ago. Stockpile have remained at near record levels since the end of January, which has core Chinese iron ore pictures to fluctuate rather wildly during the last few months. Overall, Chinese iron ore demand has remained very firm, however, as steel production has been maintained at the high level.

Coking coal exports are expected, according to Clarkson, to reach 265 million tons in 2011, an increase of 5% over 2010. Japan’s coking coal imports are expected to reach 77.4 million tons during 2011, representing a year-on-year increase of 6%. Japan is expected to use larger quantities of steel this year for its reconstruction effort, but Clarkson do not believe that this will necessary lead to the importation of larger volumes of raw material used in the production of steel.

It’s is more likely that the country’s steel mills will export less steel than in recent years, giving priority to the domestic demand for steel in the construction of housing, roads and other infrastructure projects ahead of overseas demand.

Obviously, this will in turn mean that Japan’s overseas clients will have to get their steel from elsewhere, so the net result on the overall transportation of raw material is very difficult to predict.

According to Clarkson, thermal coal exports are expected to reach 686 million tons, which if realized will be 4% higher in 2011 than in 2010. It now appears that a number of coal-fired power stations in Japan were more seriously damaged than previously thought and therefore the country’s coal-fired power generating capacity would be adversely affected over several more months.

This will have an analogous negative effect on steel coal import to that country for the rest of the year. Lastly Clarkson’s projection for Japanese import of steam coal is 126.5 million tons, up just 1% from 2010. However, in the long run, the energy mix in power generation will change in Japan as a result of the damaged to the nuclear plant. Thermal coal and LNG are according to Clarkson’s most likely to fill the immediate and longer term gap.

According to Commodore Research, grain export are projected to dock during the 2010, 2011 season, reaching about 270 million tons down from about 290 million tons during the 2009, 2010 season. Global wheat export are expected to register the largest decline of about 11.5 million tons or 9% less than the volume shipped during the 2009, 2010 season.

Unfortunately, no one is in a position to predict today to give you accuracy of what the 2011, 2012 grain export will look like. So all we can say is that for a few months to come the Panamax and Handymax trade will not get much more than the usual seasonal support from the grain trade. According to Clarkson, overall bulk commodity shipments are expected to increase by 5% in 2011 compared to 2010 and come in at just under 3.5 billion metric ton.

Let’s turn to bulk carrier supply. In looking at projections of the world bulk carrier fleet, it is inevitable to start by looking at the order book and try to make a reasonable guess on how many vessels will actual be delivering and when. The total bulk carrier for the book stands at 260.8 million tons deadweight, which is a rather daunting 47.3% over the existing fleet. The 600 for Capesize bulk carriers and order represent about 54.5% of the existing fleet, while the 928 or so Panamax are just under 54% of the existing Panamax fleet.

According to the contractual delivery date, deliveries are fairly, evenly spread out between 2011 and 2012 with the 2012 Panamax delivery book looking the strongest of them all at over 33 million tons deadweight.

In our model, we have assumed that about 40% of Capesize bulkers and equal percentage of Panamax will have or never be delivered or their deliveries will be delayed. This will mean that about 30 million tons deadweight worth of capes and around 16 million tons of Panamax’s will be delivered during 201. These ships represent gross additions to the cape fleet of about 14% and for Panamax’s in addition of 12%.

Good possible scrapping come to the rescue to date about 33.7 deadweight tons of capes and only 800,000 tons deadweight of Panamax’s have been scrapped. If this trend continues for the rest of the year, the net additions in cape fleet will be reduced to 16 million deadweight tons bringing the net fleet increase to around 7.5%. It has to be kept in mind however that the average age of capes heading for the scrap yard during 2010 and so far in 2011 has been about 26 years.

Considering that only 6% of the existing cape fleet is over 25 years old and a further 10% of the fleet is between 20 and 25 years old, the scope of further scrapping in that size range is fairly limited unless there is a total collapse of the earnings going forward.

Finally as mentioned by Howe Robinson in the annual dry bulk review for 2010 never in the past has scarping taken place ahead of shipping recession on a sufficient scale to prevent it.

Under the 40% fleet assumption for Panamax, the additions to the fleet net of scraping in 2011 would be brought down to 13 million deadweight tons, an increase of 10% of the existing fleet.

As we all well know port congestion occurs for a number of reasons, but is always most acute when infrastructure systems are working to capacity. Commodore Research anticipate a fairly steady effect of port congestion and the supply of tonnage.

They cite the small congestion increase in Australian coal and iron ore port and Brazilian iron ore port since February this year as example. Back in February, it was about 150 vessels waiting to load outside these ports.

In April about 175 vessels were waiting of which Commodore Research estimate that the 110 of them were cape bulkers. If the trade volumes refer to above materialized, the year should not see much further increase in congestion assuming there will no more natural disasters similar to what happened in Australia a few months ago.

New building contracting has been another cause for concern. During 2010, nearly 90 million deadweight tons of new buildings were contracted according to merchant brokers. This has been the second high year for dry bulk new building contracts the highest being 2007 up around 128 million deadweight tons. So far in 2011, the trend is certainly more encouraging but the 2010 orders in quarter will delay the freight market recovery that we all anticipate by several quarters.

The growth of the fleet this year has been 20.1 million metric tons delivered during the first quarter alone.

Clarkson allowing for late reporting in slippage project that 79.7 million metric tons will actually be delivered in 2011, which is more or less the same as the tonnage delivered in 2010. This represents an overall fleet growth of 12.6%, which is difficult to reconcile with the projected 5% growth in demand. Even if our optimistic cancellation that slippage figure is materialized in only 6% of the fleet on order during 2011 is actually delivered, the numbers are still unpleasant.

We should keep in mind that nearly all vessels scheduled for delivery this year have seen contraction commence so cancellation of their delivery is highly unlikely. We mostly would realistically hope for would be a delay of some deliveries into 2012. As we have seen in the past this will just delay the negligible further deterioration of the supply demand balance.

One would have expected there are other dramatic slide in asset values given the drop in bulk carrier earnings witnessed so far this year. This has not happened. So far this year we have seen a relatively modest drop in the value of modern cape and a similar drop in the value modern Panamax. At the end of 2010 the modern cape was work according to Clarkson is up approximately $50 million even though asking prices were considerably higher. And the latest value of the similar ship today is just under $45 million. For a modern Panamax the values have dropped from $36 million at the end of 2010 to just under $33 million to date.

However, the values for very old vessels have gone up, with the rising truck values, which is somewhat surprising because they still do commend a significant premium to their net scrap values. We agree with the view expressed by Robinson that the dry bulk market continues on a long-term cyclical downswing as the cumulative effect of fleet growth outpaces cargo growth. These conditions are expected to continue through the rest of the year and into 2012.

The Capesize sector most vulnerable while Panamax should suffer less. As far as this year is concerned, supply demand balance for Capes is less favorable during the first half compared to the second half. While for Panamax's, the situation is the reverse.

In this climate, our company tends to continue its acquisition strategy and acquire vessels with conservative leverage. This foreign policy will continue throughout the drops of the shipping cycle and we are confident that Diana Shipping will not only survive this downturn, but also manage to emerge a larger company with a much greater earnings capability and profit potential when the market starts improving.

I will now pass the call to our CFO and Treasurer, Andreas Michalopoulos who will provide you with the highlights of the first quarter financial results. Thank you.

Andreas Michalopoulos

Thank you, Anastasios and good morning to everyone. I am pleased to be discussing today with you Diana’s operational results for the first quarter 2011. Net income for Diana Shipping, Inc. for the first quarter 2011 amounted to $33.1 million and EPS of Diana Shipping amounted to $0.41.

And Time Charter revenues increased to $69.4 million, compared to $62.2 million in 2010. The increase is attributable to increase revenues due to the addition in our fleet of the vessels Melite in January, New York in March and Alcmene, in November 2010.

Ownership days were 2,106 for the first quarter of 2011 compared to 1,894 in the same period of 2010. Fleet utilization was 99.8% in the first quarter of 2011 and 99.7% in 2010. The daily time charter equivalent rate for the first quarter of 2011 was $31,592 compared to $31,982 for 2010. Voyage expenses were $2.9 million for the quarter. Operating expenses amounted to $12.4 million and decrease by 1%. A decrease is attributable to reduce the stores spares and repairs and maintenance costs of the vessels, this decrease was partly offset by increase in crew and insurance costs.

Daily operating expenses were $5,873 for the first quarter 2011 compared to $6,606 in 2010, representing a decrease of 11%. Depreciation and amortization of deferred charges amounted to $13.5 million for the first quarter of 2011.

General and administrative expenses increased by $1.4 million or 27% for the first quarter of 2011 to $6.5 million compared to $5.1 million in 2010. The increase was mainly attributable to increase in salaries and compensation cost on restricted stocks and was partly set off by the elimination of rent expense after the acquisition of the property we used to leave through DSX for expenses.

Interest and finance costs increased by $0.3 million to $1.3 million for the quarter compared to $1 million in 2010. This increase was attributable to increased average debt during the first quarter of 2011 compared to 2010 and increased average interest rates.

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

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question is from Michael Webber of Wells Fargo. Caller, please proceed with your question.

Edward Nebb

How are you?

Michael Webber Wells Fargo

Very well.

Edward Nebb

Hi Michael.

Michael Webber Wells Fargo

Just a couple of quick question. I wanted to start off on acquisitions and change of kind of the ongoing question, where are asset values now, I guess relative to where you guys have really looked to fully trigger on something. I guess maybe in terms of – maybe returns, I guess, where are our returns right now on the markets versus your hurdle rates? And what do you think is really going to drive those down?

Ioannis Zafirakis

Hi Mike. This is Ioannis. How are you doing?

Michael Webber Wells Fargo

Good.

Ioannis Zafirakis

We got another set at hurdle in buying vessels ourselves, we have set the period and the period has started. It is true that during the last quarter we were not successful with our bid to purchase one or two more vessels. That was basically because as you know, that there was a period of proportionally high as regard to the values, high values compared to the rate.

Michael Webber Wells Fargo

Right.

Edward Nebb

And this is why we filed in our bids that we were not prepared to pay something that we didn’t feel it was correct. But slowly the market is getting there and the reason, and there is proper correlation between asset values and rate and we will start buying vessels pretty soon and something that our CEO can also talk about.

Simeon Palios

Well, Michael, as we speak, we are very close in concluding the batches of another Panamax vessel for which we will make the appropriate press release, as soon as the memorandum of agreement is signed. We are also negotiating another vessel within the parameters that we have explained. And as you can see, we are focusing our sales on the Capes, on the Panamax’s and on the post Panamax’s and that’s what we are going to do in the future also and I think the time has come that we have to start doing something.

Michael Webber Wells Fargo

Got you. No, that’s very helpful. Thank you for the additional color. We have seen, I guess recently some M&A in the shipping fees in general and I missed your point earlier, asset values have kind of hovered at a level, but it seem too high predicated based on where rates are. You do have some peers that are trading at or below any of the – it’s taking over competitor or acquiring your competitor or something you guys have looked at and if not, I guess what parameters would you really need to be able to be willing I guess to buy it off something like that?

Edward Nebb

We have to be very careful how we are going to do our new acquisitions and we will not be willing to buy ships in block. We will prefer to buy ships every two months or every three months rather than buying something on block and fixing the time we have made the acquisition, it’s much wiser to do it in stages.

Michael Webber Wells Fargo

Okay, all right, that makes sense. I guess one more question I’ll turn it over, are you guys, a fair amount of management overlap with Diana container ships and the container ships space is actually been – it’s been very active recently, how would you guys classify, are you guys are splitting your time right now, do you think it’s about a 50-50 split or even a little bit more active on the container ships considering that the deal flow we’ve seen on that part of the business?

Edward Nebb

Actually we are splitting our time on a 50-50 basis.

Michael Webber Wells Fargo

Okay, okay. Great, all right. Thanks guys I appreciate your time.

Edward Nebb

Thank you, Mike.

Operator

Our next question is from Justin Yagerman of Deutsche Bank, caller please proceed with your question.

Josh Casa – Deutsche Bank

Good afternoon everyone. This is Josh Casa for Justin.

Edward Nebb

Hi Josh.

Josh Casa – Deutsche Bank

Hey how are you. I guess starting off on, is the current spot market, I know lot of people are banking on coal volumes picking up in the near-term, so I think people are citing low inventories in China, what are your thoughts in how the near prospects or may a bit of affirming rate in the Pacific?

Edward Nebb

Yeah it’s not unlikely that – that will happen, of course everything is relative and we have to remember that coal is also shipped up and down the coastal ports of China, down basically not up, and we’re not precluding any possibilities of that Andymax and Panamaxs might become busier transporting coal over the next quarter.

However, what we’re looking at is a broader and longer term picture than that and what is the balance of the year and the first half of 2012, where visibility is fairly clear and we see a lot of ships coming on stream and not enough being scrapped in order to reverse the weakness that we have seen recently and which we anticipate might possibly be with us for a few quarters at least in the dry bulk freight market.

Josh Casa – Deutsche Bank

Got it. And, as far as the opportunities you’re seeing to purchase vessels, I know people have been talking stressed vessels for over a year now. Have you seen any or any of these vessels you are bidding on from maybe owners you’re being pressured by their banks to sell, or are these just vessels that are coming in the open market on kind of normal market terms.

Edward Nebb

I don’t think we have a reached the stressed situation as yet dry cargo market, because when you’re totaling your vessel at a multiple to the running expense of the ship, then the situation is not distressed. Today you can charter a Cape or Panamax, for example, for a year around $14,000, $15,000 daily. That is not distressed, because you are at more than twice the running expenses of the ship. The distressed situation comes when the charter rate is equivalent to the running expenses or duration.

Josh Casa – Deutsche Bank

So, you’re looking at charter rates compared to OpEx not necessarily all in cash breakevens?

Edward Nebb

Yes. We do, because the – all in cash breakeven depends very much on finance and other factors which vary from owner-to-owner and company-to-company.

Josh Casa – Deutsche Bank

Got it. And I guess, when you think about these new purchases, how do you think about funding those – are you expecting just to pay for cash or should we look to see you guys take on maybe more debt and keep the dry powder?

Edward Nebb

Well, we’re starting entering the low part of market with zero bank lending, which means, that in theory, we have to reach a point. By the time that the market recovers, we’re 50% financed at those prices. And that is our goal. Do you follow me?

Josh Casa – Deutsche Bank

I think so. I think I could follow up offline. But some questions, so thank you.

Edward Nebb

Thank you.

Edward Nebb

The new acquisitions will be made basically with the value I’ve said, leverage additional leverage of 50% we foresee.

Josh Casa – Deutsche Bank

Okay. Thank you, guys.

Edward Nebb

Welcome.

Operator

Our next question comes from Fotis Giannakoulis of Morgan Stanley. Caller, please proceed with your question.

Fotis GiannakoulisMorgan Stanley

Congratulations for the good results. I want to ask you about the Chinese buyers, if they are back in the market. We’ve seen commodities coming off significantly the last few days. Not so much in coal and iron ore prices, but it seems that there is some pressure in terms of commodity prices. Do you see the Chinese coming back in the market and building (inaudible) again? And also, how do you explain the last few days, Panamax raised – they have firm up significantly. The index is around 30% higher than it used to be 10 days ago.

Edward Nebb

Yes. With regards to the commodities, as you said, we have to be careful to differentiate commodities such as platinum, gold and others, which indeed have come down, and silver and oil too, to certain extent, and iron ore and coal. Now, here Chinese has reasonably low stockpiles of coal, but not of iron ore as mentioned earlier on. So the Chinese might be opportunistic in their buying patterns.

However, they are not we feel influenced dramatically by short-term price influences. They have a fairly long-term plan we have seen, not that we have any proof it, in acquiring and building up stockpiles of certain commodities. And they will do that not completely independently of their price, but they are going to be less sensitive than we would expect them to be. What we have seen happen in the iron ore trade, of course, is that they try to use their high inventory in order to ship when they feel it’s opportunistically to their advantage.

With coal, because the stocks are low, we think they are going to be importing steadily more coal, or at least we hope to. The question that we have in our minds and we cannot really answer is how much coal is going to be coming from China itself and how much coal is going to be imported. And there the information that we have gathered, that unfortunately is inconclusive.

Fotis Giannakoulis – Morgan Stanley

So shall we assume that there is a move in Panamax rates is driven by this low coal inventories and some stockpiling that we might see it continuing?

Edward Nebb

We will look at that in a couple of weeks and say with more certainty, but it’s very likely that it is. And of course, we shouldn’t forget the rainy season that is having its seasonal effect on that particular size of vessel.

Simeon Palios

What – we should also do not – we should not forget in the equation to have always the supply of vessel available for chartering. It’s a nice thing to try and see the demand, but also in the same equation we should put the supply of vessels, the number of vessels available for chartering.

Fotis Giannakoulis – Morgan Stanley

Coming to exactly to this point, we’ve seen that spot prices are moving higher, but we do not see a number of period fixers. The number of period fixers has stayed low. Do you have a view on that and why is this happening and how do you expect this to develop the next few months?

Edward Nebb

Well I don’t think the chapter is of 100% sure, but the market is moving in direction it has shown the last three days. The market is not coming down with a straight line, and don’t going up with a straight line. So, I suppose what state he has explained to you is valid.

Plus the fact that the mines in Australia are drying now and of course there is a supply of cargo from Australia. But overall what is very important is that the supply of tonnage is much more than the demand of tonnage. And that’s where we are facing the fact that – we think that the market is not on the up, as you are implying.

Simeon Palios

And Fotis, as regard to your question for the long-term employment of the Charter, they are in a period where they do not really know what to do. And simply they are waiting to see what’s going to happen. And we are certainly here to say that, it doesn’t mean that the Charter is know something more than we do, when they’re going for a longer or shorter term period.

Edward Nebb

You see the principle of our company is based on that fact. If you don’t know whether market would be going up or down, that’s why you hope to finding ways and means to delete that unknown. And that’s what we are doing.

Fotis Giannakoulis – Morgan Stanley

Thank you for that. I want to take the opportunity of this conference call. I know that you are exporter of Diana in Containerships is a very, very small right now, it’s around 1%. But you still have this equity investment in Diana Containerships. Can you give us your quick thoughts on the containership market? We saw that the ideal capacity has dropped to pre-crisis levels as 11.1% at this point, seems that the climate is turning a little bit more optimistic on the liner side. How do you view the Chartering market in Containerships developing?

Edward Nebb

Fotis, thank you very much. And I do appreciate your interest in Diana Containerships, Inc. However, the management of Diana Shipping is not in a position to comment us to the financial performance or outlook of Diana Containerships or the containership sector generally during this call.

Fotis Giannakoulis – Morgan Stanley

Okay. I appreciate. Thank you.

Operator

Our next question is from Gregory Lewis of Credit Suisse. Caller, please proceed with your question.

Gregory LewisCredit Suisse

Thank you and good afternoon.

Edward Nebb

Hi, Greg.

Gregory Lewis – Credit Suisse

Hi, so just following up on, I’m not sure if you were trying to talk about it or get to it. But when you were talking about iron ore in China, I guess, it’s the annual iron ore spot contracts have basically been over for a little over a year. And we’re seeing the shift pretty much the spot pricing. Given that, what type of impact do you think that’s had on the Cape market or do you think it’s still too early to tell whether that’s been a positive or negative for the overall health for the Cape market?

Edward Nebb

In the long-term it should be a positive, because it should avoid chartering in (inaudible) and stop here having all sorts of enquires being fulfilled at once before the exploration of a contract period, and then all of a sudden a lull. But for the time being we have seen that the volatility in the iron ore chartering markets has been primarily influenced by the high iron ore stockpile in China rather than anything else.

So the spot market is being watched and the iron stockpiles – iron ore stockpiles are being used by the Chinese to the advantage of the Speed Mills in China. That’s all we can see for the time being.

Gregory Lewis – Credit Suisse

Okay, great. And then just, I mean, you touched on the grain market, it sounded like you were forecasting grains, the grain trade that actually retreat about 20 million tons I believe I think that’s what you mentioned. I mean, how do you think about that given the fact that Supermax rates have been rather strong, Panamax rates have been rather strong, I mean we’re heading into the typical seasonal grain trade, which seems like it’s going to be fairly good, I mean that – how do you sort of balance with the expectation that the grain volumes are going to be down year-over-year?

Edward Nebb

Yes, the first thing that I have to mention is that my comments were very limited use for predicting rate because more or less historical rather than future rates. We haven’t been able to find reliable information about the 2011, 2012 season. Therefore, what I mentioned is basically what has been happening by about say 80% and only 20% is what is going to happen for the rest of this season, which is very limited.

Now don’t forget that 20 million tons is not much, when you consider the tonnage of Handymax and Panamax’s, flowering the oceans. The great market has still having the effect that it used to have on rates, about 20 or 25 years ago. It’s of peripheral interest and I would say that more or less a seasonal influence over this market is all that it’s worth looking at nowadays.

From now on what can happen during this summer is going to be effected by forecast for the new 2011-2012 season, and we don’t know what will happen then. And, furthermore, the Handymax’s and Panamax’s and there rates are influenced far more from the Chinese coastal trade then the world grain trade because that trade as I mentioned in China is very close, so it may have even exceeded as we speak 600 million tons. While we are talking about the world grain trade or exports of around 300 million. Imagine then that we have focus if you are talking about Handymax and Panamax rates more to the Chinese coastal trade then to the world grain trade.

Gregory Lewis – Credit Suisse

Okay, great. That’s perfect. And then just really quick, it sounds like you had mentioned kind of Panamax Time Charter rates right now, if – when and if Diana goes out and acquire some new tonnage. Should we expect those vessels to sort of be turnaround and put on, I guess, roughly 12-month charters or do we think those are going to sort of operate in the spot market?

Edward Nebb

They will be part of the whole big sellers we have said in the past. They would part of the portfolio approach that we have and they will be place to open up the stage where we do not have other vessels opening. The spot exposure that we have for our fleet is through the whole portfolio approach and it’s through the vessel that we are opening every now and then.

Gregory Lewis – Credit Suisse

Okay. So in other words we should expect that of these vessels purchased it’s going to be placed on a one year Time Charter?

Edward Nebb

For two or three.

Simeon Palios

Yes.

Gregory Lewis – Credit Suisse

Okay. Thank you very much for the time.

Edward Nebb

Thank you.

Simeon Palios

You’re welcome.

Operator

Our next question comes from Scott Malat of Goldman Sachs. Caller, please proceed with your question.

Scott MalatGoldman Sachs

Good morning. Thanks. Just wanted to ask on the Newcastlemax what are you seeing out there and market acceptance for those, are there any encouraging signs out there to point to?

Edward Nebb

Yes. We are closely looking at present. Of course the first Newcastlemax is coming at the end of the year very early 2012. And there are major charters sniffing around, yes.

Scott Malat – Goldman Sachs

Okay. Thanks. That’s all operating expenses; maybe you could help us things through the outlook for those the puts and takes with supply increasing so much, would you expect some rise in fuel costs, whether insurance rates doing anything – any help on that will be great?

Edward Nebb

We budget the operating expenses at $6,500 a day per vessel for the entire fleet. This quarter as you might have guided was better than expected mainly for the seasonal – I mean it was let’s say by – not by accident, but I mean that happens type of fleet we have. We had some dry dockings that were postponed for Q2 and the costs associated to those etcetera, etcetera. So you should budget 6,500 per day per vessel for the fleet that would – I hope answer your questions.

Scott Malat – Goldman Sachs

So, even though, we came in so below at this quarter. We still see the same number it’s – and the differences in quarters was really dry docking. There’s nothing other...

Edward Nebb

Usually, dry docking lubricants as well this quarter some of our vessels were waiting to discharge. So, while we were waiting to discharge the consume less lubricants. The lubricant number was quite big in the overall ratio, and therefore we immediately had a difference there. So, therefore, that’s why we expect this number of $6,500 to be more or less accurate going forward.

Scott Malat – Goldman Sachs

Okay. Thank. That’s helpful.

Operator

Our next question is from Urs Dür of Lazard Capital Markets. Please proceed with your question, caller.

Urs DürLazard Capital Markets

Hello, gentlemen.

Edward Nebb

Hello.

Simeon Palios

Hi.

Urs Dür – Lazard Capital Markets

Hi. In recent days and it’s a little esoteric and I guess sort of its place is here in recent days, we’ve seen the broader markets sell-off commodities quite aggressively and obviously it just looks like trade, just like, it look like a trade on the way up. The Chinese are bit price sensitive and with concerns of inflation going forward, do you see any influence possibly on the market if you would see a further fall in commodity prices for increase near term demand due to price sensitivity?

Edward Nebb

Possible that we might get some increased stockpiling if this trend continues. Of course, we have to keep in mind that there are limit as to how much the Chinese or anyone for that matter can stockpile from commodity that they need. But it couldn’t surprise us and that could be a welcome, so to boost to the market which is better and rather badly, but we have to stress that we consider that as being a short-term influence rather than a long-term influence on the trade market for the next few quarters.

Urs Dür – Lazard Capital Markets

Great, excellent. You have got $4.60 in cash per share, negative net debt and it’s fantastic that you are looking at acquiring a couple of ships that’s great, but this is a dramatic amount of fire power for company when you have near or the bottom of the cycle values although as you point out you expect them to grow up further and you have been right. Any chance you are going to do something bigger than one or two ships along the way or do something else with that cash?

Edward Nebb

We would also – we have said in the past, we are opposed to the idea to invest a large amount of our dry powder at one point in the cycle. So we do not foresee something like this happening. What we foresee happening is that we would be more active from now onwards for the next year and half or so and we will – you will see us buying slowly, but steadily assets, individual assets?

Urs Dür – Lazard Capital Markets

Excellent. I’m glad that you are sticking to your strategy and plans. Thank you very much for time guys.

Edward Nebb

Thank you.

Operator

Our final question is from Salvatore Vitale of Sterne Agee. Caller, please proceed with your question.

Salvatore VitaleSterne Agee

Good morning, gentlemen.

Edward Nebb

Good morning.

Salvatore Vitale – Sterne Agee

I have a quick questions just a follow-up on a question that was asked earlier, regarding your deployment of the one-off acquisitions of vessels that you will be making over, let’s call it over the next few quarters, excuse me.

Given that, if I’m looking at the clock since one year Calimax rates are currently about $8,300 and your vessel OpEx is about $6,500, I think someone said earlier. Would it make more sense to just employ them under spot market at least temporarily giving that spot rates are currently about 12,000? You know, and I understand that you bearish on the dry book market, but even if they fall by half then you still not – too much more soft then having a fixed demand on the one year Time Charter. How do you think about that – about that pension between having the certainty of Time Charter versus the significant spread between the spot rate and the Time Charter rate?

Ioannis Zafirakis

The beauty – Salva, this is Ioannis. The beauty of our chartering strategy and the fact that we have 25 vessels in the water – the new businesses that we are talking about is that we do not have to do what exactly you describe, since we will have another vessel opening after few months to take advantage. If the market picks up and we charter at a better rate. We are doing basically as you know better than me a physical casing of our rigs without having to have the spot exposure on the vessel. We have the spot exposure by having a vessel always in the cycle to fix. So basically they are doing what you described in a different manner.

Salvatore Vitale – Sterne Agee

Okay. That makes sense. Thank you very much.

Edward Nebb

Thank you.

Ioannis Zafirakis

Welcome.

Operator

We do have another question is from (inaudible). Caller, please proceed with your question.

Unidentified Analyst

Good morning.

Edward Nebb

Good morning.

Unidentified Analyst

What are your thoughts or plans on resumption of a dividend?

Edward Nebb

As long as we are in this part of cycle where we consider buying out as a good opportunity. We do not foresee the restatement of the dividend. We think that we have a very good use of the money that we have in the company. And also we are afraid of a bulk market being with us that for a while and therefore we need to insure the survival of the company.

Unidentified Analyst

Okay. Thank you very much.

Edward Nebb

Thank you.

Operator

There are no further questions at this time. I would now like to turn floor back to management for closing comments.

Simeon Palios

Thank you again for your interest and support of Diana Shipping. We are proud of the company’s performance in a difficult marketplace. And we look forward to speak with you next quarter. Thank you.

Operator

Ladies and gentlemen, this concludes today’s teleconference. You may now disconnect your lines at this time. And thank you for your participation.

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