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Diana Shipping, Inc. (NYSE:DSX)

Q4 2011 Earnings Conference Call

February 28, 2012 9:00 AM ET

Executives

Edward Nebb – Head-Investor and Media Relations

Simeon Palios – Chairman and Chief Executive Officer

Anastasios Margaronis – President

Andreas Michalopoulos – Chief Financial Officer

Analysts

Gregory Lewis – Credit Suisse:

Justin Yagerman – Deutsche Bank Securities, Inc.

Fotis Giannakoulis – Morgan Stanley & Co. LLC

Michael Pak – Clarkson Capital Market

Brandon Oglenski – Barclays Capital

David Beard – Iberia Capital Partners

Operator

Greetings and welcome to the Diana Shipping Incorporated Fourth Quarter Conference Call and Webcast. 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, Edward Nebb, IR Advisor for Diana Shipping. Thank you. Mr. Nebb, you may begin.

Edward Nebb

Thanks very much, Melissa. Greetings. This is Ed Nebb, Investor Relations Advisor to Diana Shipping Inc., and I want to welcome all of you to the company’s 2011 fourth quarter and year-end conference call.

The members of the Diana Shipping management team who are with us today include Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice-President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice, which you could see in this entirety and today’s new release. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements of historical facts are forward-looking statements made pursuant to 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 materially from what the 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 of Diana Shipping.

Simeon Palios

Thanks, Ed. Good morning and thank you for joining us. Diana Shipping followed a consistent strategic course in 2011 as we have since the inception of the company.

We have navigated turbulent economic and market conditions by chartering our vessels in a balance and conservative manner while delivering a stable, reliable revenue stream and maintaining a sound balance sheet.

In addition, we have prudent and forward-looking in deploying our strong cash position to acquire our vessels at attractive valuations in a strategy designed to position the company for the next industry cycle.

Turning to some highlights of the year, we increased the size of the fleet by adding two Panamaxes vessels. The Arethusa agreed to purchase in May 2011 and the Leto acquire in November 2011.

The fleet now stands at 2076 including the two Panamaxes vessels. We count on it. They delivered in February this year in Philadelphia, which is scheduled to be delivered early in the second quarter of 2012.

As we go forward, we will continue our program of selectively and gradually adding to our fleet as market conditions permit us to acquire vessels at attractive prices. We’ll continue to manage the fleet in a responsible manner that promotes a balance of time-charter maturities and produces a predictable revenue stream.

Currently, our fixed revenue days are 89% for 2012. The majority of our vessels are chartered for periods ranging from 2013 to 2015 and beyond. We continue to enjoy excellent relationships with many of the industry’s strongest and most respected charter.

We have maintained one of the strongest balance sheets in our industry. Our cash position at December 31st, 2011 was approximately $417 million or about $71 million higher than a year in 2010.

We continue to operate with a very manageable degree of leverage, long-term debt including current position was $373.3 million compare to stockholder’s equity of $1.2 billion.

The company also has good access to credit facilities as demonstrated by our recent (inaudible) under our existing facility with the export/import Bank of China, which was used to partially finance the cost of the newly built Los Angeles.

Now, let me review some of the key aspects of our results for the fourth quarter and full-year 2011. Net income to Diana Shipping Inc. was $20.2 million for the fourth quarter of 2011 and it reached $107.5 million for the full year.

Time-charter revenues total of $57.4 million for the fourth quarter of 2011 and $255.7 for the whole year. Time-charter range [ph] average $25,714 for the 2011 fourth quarter compare with $31,602 in the fourth quarter of 2010.

Looking ahead, we believe that the global economy will remain challenging for the foreseeable future and a time-charter range will be under pressure for the oversupply of tonnage capacity.

In this environment, we will continue to apply our consistent, prudent strategies to maintain predictable revenues and profitable operations. We will continue to invest opportunistically in the growth of our fleet to enhance our long-term revenue generation capacity.

And we will use our focused [ph] balance sheet to provide stability in a volatile market and to support our growth strategy.

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

Thank you.

Anastasios Margaronis

Thank you, Simeon.

Dry bulk markets have made several negative records during the last quarter of 2011 and the first two months of 2012. We will attempt to explain what we believe are the main causes for this and to look up future trends by comparing demand with the available supply of large bulk carriers.

The Baltic Exchange Dry Index gives a pretty accurate picture of the dire straits of the dry bulk market. From a higher 2,173 and an average value of 1,549 last year, the Baltic Dry Index closed at 718 points last Friday. The Baltic Cape Index managed to reach 3,725 in 2011, average bulk of 2,237 during the year only to close at 1,504 on February 24th.

The Baltic Panamax Index went to 2,132 in 2011 at an average value of 1,749 and closed last Friday at 836. On February 4th, the Baltic Dry Index closed at 647, which was probably its lowest level since 1986 and a bit lower than we it saw in 2008.

The world economy cannot be held solely responsible for the poor earnings of dry bulk carriers. Nevertheless, the IMF has importantly marked down global growth to 3.3% for 2012.

This figure hides certain marked regional variances, which have an effect on world fee bond [ph] trade. The United States is forecast, according to the IMF, to grow by 1.2%, which is 0.7% lower than the September 2011 growth forecast.

The European outlook since the September forecast has been revised down from modest growth of 1.1% to -0.5%. Developing nations are still forecasted to grow by 5.4%; a contagion from the poor European performance is clearly spreading.

Japan’s economy shrank at an annualized rate of 2.3% in the fourth quarter of 2011 due to weak exports exacerbated by slowing global demand. According to Citigroup Global Market, in China, the domestic property market correction and the euro area recession, which they forecast, may slow growth to below 8% year-on-over during the first quarter of 2012.

Furthermore, foreign direct investment in China fell 0.3% in January 2012 from a year earlier. This will be third monthly decline in spending by overseas companies in that country.

The first decline since 2009 was seen in November last year and the drop deepened to 12.7% in December. The European Union companies reduced spending by 42.5% in January while investments by U.S. companies increased by 29%.

In the United States, there have been some encouraging signs. The housing market appeared to be stabilizing and recent labor market statistics show further improvements. Unemployment had fallen through a three-year low of 8.3%.

Let’s turn to steel now. According to (inaudible) Research and World Steel, crude steel production reached 1,527 megatons in 2011. This is an increase of 6.8% compared to 2010 and is a record for global crude steel production.

Annual production in Asia was 988.2 million metric tons, an increase of 7.9% compared to 2010. China’s crude steel production in 2011reached the 695.5 million metric tons, an increase of 8.9% compared to 2010.

Looking at steel stock pile, Commodore Research claims that Chinese stock piles have increased for seven consecutive weeks. This was partly due to the Chinese New Year, but also to the fact that Chinese’s steel demand remains low.

However, we also express the hope that within a few months, steel production will see a sharp increase. Commodore Research believes that additional monetary easing is likely in China as the government appears to have shifted its focus to stimulating growth.

The Chinese government’s recent lowering of bank reserve requirement for the second time since December 2011 seems to signify a major shift in government policy.

As for iron ore, Chinese iron ore imports in December totaled 64 million metric tons bringing imports for the full year to 665 million metric tons up 11% year-on-year.

According to Clarkson, China’s strong import growth is the principal driver of the 6% growth in global iron ore trade witnessed during 2011. Looking at 2012, Clarkson project world iron ore export growth to slow to 3%, mainly due to the slower expected growth of 6% in Chinese imports this year.

What is not very encouraging is that according to Commodore Research, approximately 99.3 million metric tons of iron ore are now stockpiled at Chinese ports. These stockpiles are very high in historical terms and remain close to the 101.5 million metric tons that was set earlier this month.

Going forward, Chinese iron ore imports remain poised to come under additional pressure mainly for two reasons. First, because of the large Chinese stockpiles of steel referred to above. And second, because Chinese mines continue to produce a large amount of iron ore.

Coking coal, here according to Clarkson, China’s (inaudible) imports in the first few months of the year could be relatively low as once again high stockpiles at the Chinese ports have reduced buying activity in the first two weeks of January.

A recovery in Chinese steel production would help to boost demand for coking coal, although the growth in Mongolian export is likely to limit the benefits to receive on March. That’s for the year as a whole. The forecast for coking coal shipment is that during 2012 they may increase to 225 million metric tons. It would be 2% higher than the year before.

Thermal coal now. Clarkson estimate that Indonesian export of thermal coal are expected to have reached 308.6 million metric tons during 2011, an increase of 6% year-over-year. Also according to Clarkson, exports are currently expected to increase by another 4% in 2012 to reach almost 320 million metric tons.

Overall, world exports of thermal coal are expected to increase by 45 million metric tons to reach 731 million metric tons.

As to the grain trade, the U.S. Department of Agriculture estimates that exports of U.S. grain in the 2011, 2012 crop year are project to drop 18% to 72.2 million metric tons compare to 2010, to 2011 crop years.

According to the International Grains Council, however, other parts of the world, such as Argentina, Australia and the Ukraine are expected to show positive growth in grain exports.

Overall, grain shipments are estimated to increase by 5% during this crop year and reach 254 million metric tons. The Chinese cost [ph] grain according to How Robinson [ph] is a star performer as they’ve got cargo volume increase during 2011.

It grows by a staggering 120 million metric ton to reach 640 million metric tons. This is certainly not a self-contained sabotage [ph] trade. This is a trade which gradually employs larger and larger bulkers and could create a pleasant surprise on the upside amidst [ph] the bloom and bloom [ph] which a supply of tonnage is creating across the size ranges of bulkers.

Congesting now has been reasonably stable over the last few weeks. According to Commodore Research, approximately 120 vessels are currently anchored outside major Australian coal and iron ore ports.

About 25 vessels were anchored outside major Brazilian iron ore ports, five [ph] fewer than about a week ago. Of these 145 vessels referred to above, approximately 85 are Capes [ph] and most of the rest are Panamaxes and Handimax bulkers.

As for Chinese ports, earlier this month, congestion decreased to 11 days, down 14% from a week ago but still above the trailing six months average of 6.5 days.

Let’s turn to supply now. The newbuilding order book continues to be a major concern for dry bulk shipping. As of the beginning of this month, there were about 81.1 million deadweight tons worth of capes [ph] on order representing 32.4% of the existing fleet.

Even more worrying, however, is the fact that 58.8 million deadweight tons of Panamax iron ore is representing approximately 37.4% of the existing fleet. About 64% of this tonnage is scheduled for delivery in 2012.

Even if 30% of these ships are rather delayed or even canceled, the Panamax market will be flooded with newbuildings over the coming months. These newbuilding deliveries are expected to result in a fleet growth of 17% this year net of expected scrappings [ph] according to (inaudible).

Overall, 189.2 million deadweight tons of dry bulkers are on order, representing 30.5% of the existing fleet. How Robinson [ph] estimates that in 2012 the bulk carrier fleet will increase by 16.9% net of scrappings [ph].

These newbuildings will have the capacity to carry around 650 million metric tons of cargo per year and represent a massive supply side challenge. The expansion of cape-carrying capacity in 2012 amounts to 175 million metric tons, a rise of 12.3% compared to last year.

According to How Robinson [ph], the sub-cape carrying capacity is expected to increase cumulatively by 378 million metric tons during 2012 or by 13.8%, therefore, prior to the deletions, the capes need according How Robinson’s [ph] model, 166 million metric tons extra cargo this year to maintain market levels in line with 2011, well, the sub-cape fleets needs about 378 million metric tons of extra cargo.

Their headline forecast suggests overall dry bulk cargo growth of some 301 million metric tonnage or 7.3% compared to 2011. This leaves the short fall of some 243 million metric tons for 6.4% of available capacity.

Scrappings. The market falls which How Robinson [ph] anticipates in the first half of 2010 will without doubt cause a substantial increase in the rate of scrappings. In 2011, 25 million metric tons deadweight of dry bulk shipping was deleted from the fleet. It is activated by How Robinson [ph] that this is very possible for this to double during 2012.

In the cap-size sector, there are 50 ships of about 9.4 million deadweight tons in excess of 25 years old that are natural scrapping candidates. There are an additional 64 ships in the small cape category totaling about 9.6 million deadweight tons, which we’ll find it increasing difficult to trade in competition to more modern, economical and larger vessels.

How Robinson [ph] estimates that it would take perhaps half of the scrapping candidates to be the scrapped for the cap-size to reach level of earnings seen in 2011. Therefore, demolition is very likely to increase approximately above the mentioned ships that are about 1,852 vessels in the smaller sizes of the bulkers which are already 25 years old.

Let’s look at the supply-demand balance for 2012 and beyond. In round numbers, How Robinson [ph] estimates that for supply and demand to balance in 2012, about 11 million deadweight tons of capes and 25.8 million deadweight tons of sub-capes will have to be scrapped this year alone.

These scenarios will deliver levels of earnings, as we said earlier, for the dry bulk sector similar to last year. This entire How Robinson [ph] forecast, however, is based on a fundamentally bullish approach to demand. It assumes the continuation of strong growth in Asia, generally, in China in particular.

It expects very little from the U.S. and nothing from Europe. That does not factor in the consequences of any catastrophic dislocation to either the world economy or the financial system. So, in concluding, How Robinson [ph] predicts that if there is no sudden rush to yard to place newbuilding orders, which would kill any recoveries, and if the current demand cycle stays intact, there is indeed reason to hope that by late next year, the dry bulker factor will turn. We find this theory credible even though it seems that something always happens to disturb one or more of the assumptions and bring about quite different developments.

It is within this rather pessimistic climate for dry bulk shipping that the equity markets have decided to push dry bulk stocks higher and higher. Apparently, oblivious of all the risks mentioned above and confidence that we have seen the bottom in earnings with dry bulk carriers. The popular belief in the investment community appears to be that things will improve from here onwards and higher earnings and ship values are on the way.

This is a very (inaudible) scenario indeed, which importantly lacks credibility in many respects. Companies in the public domain who will probably face the serious issues with their balance sheets by year-end unless earnings improve dramatically have seen their share prices in some instances doubled in a matter of few weeks, admittedly, from a very low levels.

A few are even creating a huge premiums to their net asset values for reasons which remain a ministry to the observers of the real world of shipping as well as the futures market for earnings, the FFA.

It is indeed possible that in the short-term, seasonal factors such as the start of the grain season, they push earnings higher. This will probably serve to convince optimists that their forecasts are materializing and the party will go on.

Unfortunately, unless we have an extremely pleasant surprise from the demand side, reality will suddenly sink in in the form of third and fourth quarter results and then disappointments will set in exactly at the time that optimism for the medium to long-term portions of dry bulk shipping could indeed be more justified.

As mentioned in previous conference call, the Diana Shipping investment strategy backed by our strong balance sheet will continue with ship acquisitions throughout the down cycle. These acquisitions will be financed by debt for as long as it is available and cash until recovery is well under way.

Once the market turns, we believe that our vessels earnings and our investment strategy will justify the resumption of the payment of dividends and the renewal of our fleet to further equity issuances.

Our recent acquisitions approve [ph] that will not deviate from this plan as we have served our shareholders well over the past six years or so and that help create a company with one of the strongest balance sheets in the shipping industry.

I will now pass the call on to our CFO, Mr. Michalopoulos who will provide us with the financial highlights of the fourth quarter of 2011 as well as the full year result.

Andreas Michalopoulos

Thank you, Stacy [ph], and good morning. I’m pleased to be discussing today with you Diana’s operation and result for the fourth quarter 2011 and year-end December 31, 2011, fourth quarter 2011.

Net income for Diana Shipping Inc. for the fourth quarter 2011 amounted to $20.2 million and the EPS was $0.25.

And charter revenue decreased to $57.4 million compared to $73 million in 2010. The decrease is attributable to decreased average time-charter rates that we achieved for our vessels during the period compared with the fourth quarter 2010, and also, the increased revenue due to de-consolidation of Diana Containerships Inc.

The decrease was possibly [ph] affected revenue derived from the vessels Alcmene and Arethusa added to our fleet in November 2010 and July 2011. Ownership days were 2,000 to 108 for the fourth quarter of 2011 compared to 2,251 in the same period of 2010.

Fleet utilization was 99.2% in the fourth quarter 2011 compared to 99.5% in 2010. The daily time-charter equivalent rate for the fourth quarter 2011 was $25,714 compared to $31,602 for 2010 of the revenues for the fourth quarter of 2011 amounted to $0.4 million and consist of revenue derived from the management and administrative agreements between Diana Shipping Services SA [ph] and Diana Containerships Inc.

Voyage expenses were $1.9 million for the quarter. Vessel operating expenses amounted to $14.9 the same as in the fourth quarter of 2010. And there was an increase due to increased crew [ph] cost and insurances compared to 2010, which was offset by decreases in the other operating cost.

Daily operating expenses were $6,734 for the fourth quarter of 2011 compared to $6,631 in 2010 representing an increase of 2%. Depreciation and amortization of the deferred charges amounted to $14.1 million. General and administrative expenses decreased to $6.3 million compared to $7.1 million in 2010.

The decrease was mainly attributable to the consolidation of Diana Containership Inc., taxes and legal fees. The decrease was partially offset by an increased salary compensation cost on restricted stocks and annual meeting expenses.

The interest in finance cost were $1.3 million for the quarter compared to $1.5 million in 2010. This decrease is attributable to decreased averaged interest rates during the period and the de-consolidation of Diana Containership Inc. and was partly affected [ph] by cost on increased average debt.

Gain from derivative instruments amounted to $0.2 million for the quarter compared to $0.3 million in 2010 and includes both realized and unrealized interest cost relating to $100 million of notional amount zero collar [ph] SWAP agreement terminating in May 2014.

Income from investment in Diana Containership Inc. gained from our investment in Diana Containership Inc. amounted to $.2 million.

Year-ended December 31, 2011 now. Net income for Diana Shipping Inc. for the year-ended December 31, 2011 amounted to $107.5 million. And the earnings per share was $1.33.

Time-charter revenues in 2011 decreased to $255.7 million compared to $275.4 in 2010. The decrease is attributable to decreased average high rates during 2011 compared to 2010 and the deconsolidation of Diana Containerships Inc. and what caused the offset by revenues derived from vessels in (inaudible), New York Alcmene and Arethusa delivered in January, March, November 2010, and July 2011, respectively.

To-date, we’re 8,609 in 2011 compared to 8,348 in 2010. Fleet utilization was 99.3% in 2011 and 99.7% in 2010 and the daily time-charter equivalent rate was $28,920 compared to $32,049 in 2010. Other revenues amounted to $1.1 million. Voyage expenses were $10.6 million in 2011.

The vessel operating expenses amounted to $55.4 million and increased by 5%. The increase is attributable to the 3% increase in ownership days resulting from the delivery of three vessels in 2010 and one vessel in 2011, offset by the days lost due to deconsolidation of Diana Containerships Inc.

The increase was also due to increase the crew cost and was partly offset by decreases in all other operating expenses. Daily operating expenses were $6,432 in 2011 compared to $6,299 in 2010. Depreciation and amortization of deferred charges amounted to $55.3 million in 2011.

General and administrative expenses amounted to $25.1 million compared to $25.3 million in 2010. The decrease was mainly attributable to the deconsolidation of Diana Containerships Inc. Office rents and taxes relating to the acquisition of the building in 2010 and legal fees and was partly offset by increases in salary and compensation cost on restricted stocks.

Interest and finance costs decreased by $0.3 million to $4.9 million compared to $5.2 million in 2010. The decrease was attributable to decrease average interest rates during 2011 compared to 2010 and the deconsolidation of Diana Containerships Inc. and was partly offset by increased cost due increase average debt during the period.

Loss [ph] from derivative [ph] amounted $2.7 million compared to $1.5 million in 2010 and increased – and includes both realized and unrealized interest costs. Income from investment in Diana Containerships Inc. amounted to $1.2 million and will present our participation in the Company which we account for under the equity method.

Thank you for your attention. We would be pleased 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. Okay.

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) 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

Good afternoon.

Gregory Lewis – Credit Suisse

Hi.

Andreas Michalopoulos

Hi.

Gregory Lewis – Credit Suisse

I didn’t catch the mention of Houston [ph] on the pre-remarks. Could you sort of provide an update on the delay of payments for the Houston and sort of where that stands at this point?

Ioannis Zafirakis

Hi, Greg. I think that – I think we have nothing material to report. If we had something, we would have reported it. You understand that there are some confidentiality issues there so there is nothing for us to report to that respect.

Gregory Lewis – Credit Suisse

Is it safe to assume the vessel is still operating on that charter?

Ioannis Zafirakis

Of course.

Gregory Lewis – Credit Suisse

Okay. Just – okay, perfect. I guess, my next...

Ioannis Zafirakis

I think Greg, if it was not, if it is something material, that we would have reported anyway.

Gregory Lewis – Credit Suisse

Okay. And so in thinking about that, this is – a delay of payment is just sort of normal course of – is that sort of just normal course of operation or...?

Ioannis Zafirakis

No. Greg, we have nothing else to report on that subject.

Gregory Lewis – Credit Suisse

Okay. Perfect. And then just switching gears a little bit to newbuildings, it seems like – it seems like Costco just actually, this (inaudible) shipyard took a – a secured newbuilding deliveries this week. When you think about deploying, clearly, you use a lot of cash from the balance sheet and are in an acquisitive mode. You’re about to take the delivery of your last newbuilding, how do you think about growing? Do you think it’s going to be a combination of newbuildings? I mean, where do you see more value, on the newbuilding market or in the second-hand marker right now?

Ioannis Zafirakis

Well, I think – first of all, you have to realize that we have not reached the bottom yet. We are approximately half the time-charter rate today, either Panamax or Cape [ph]. It is wise to run your expenses (inaudible). So, as long as there is still some profit to be made, we will be buying either re-sales or second-hand but almost brand new.

When the – time-charter rates goes back to the running expenses of the ships, then we’ll be ordering ships or we will be ordering even today provided the prices are good enough for us. So, we’re on the lookout.

Gregory Lewis – Credit Suisse

Okay. Perfect. Thank you for the time, gentlemen.

Simeon Palios

You’re welcome. Thank you.

Operator

Thank you. Our next question comes from the line of Justin Yagerman with Deutsche Bank. Please proceed with your question.

Justin Yagerman – Deutsche Bank Securities, Inc.

Hey, guys. A couple of questions.

Simeon Palios

Hey, Justin.

Justin Yagerman – Deutsche Bank Securities, Inc.

How are you doing? Good to talk to you. Wanting to get a sense on the share buy-backs, it didn’t look like we got anything in the quarter. How are you thinking about that as a means of deploying cash here?

Obviously, Stacy, you addressed a run up there we’ve seen in dry bulk share prices so far this year. But I’m curious to hear how you guys are thinking about deploying capital in that – in that realm.

Andreas Michalopoulos

Hi, Justin. It’s Andreas. We got – we initiated a small share buy-back program during the quarter and from which we basically repurchased and you will see that mainly on the 20th,; that will come out soon. So, there’s no – we repurchased 164,091 shares with the program that we put in place throughout the quarter.

So, as we said at the previous conference call, we – this time around, we – if needed or if we feel that it’s an opportunistic and an opportune time to use it, we will use the share buy-back program.

Justin Yagerman – Deutsche Bank Securities, Inc.

Okay. Maybe you could comment a bit. You said delivery of the first New Castle Max. It’s a ship that, obviously, isn’t all that different than the Capes probably that you’ve been operating for a long time but it’s a larger-sized vessel.

I’m curious to hear any thoughts or reflections on that vessels performance thus far and how you’re feeling about that size of vessel as you think about further acquisitions going forward.

Simeon Palios

Well, Justin, we are pleasantly surprised that the consumption and the speed is (inaudible) been better than the existing Capes, which is exactly what we wanted to achieve and I think that we have achieved that.

Although, the breadth of the vessel is (inaudible) more than the usual Cape, I think the characteristics of the hull prove that they produce a better performing vessel. So, we’re very happy there.

Justin Yagerman – Deutsche Bank Securities, Inc.

Okay.

Simeon Palios

Of course, for the new one, we will be using a different kind of engine, the long stroke and the slow revolutions and that’s what we have in mind.

Justin Yagerman – Deutsche Bank Securities, Inc.

Okay, so, as you think about acquisitions and, obviously, you said that buying re-sales or modern second-hand is something you would consider in today’s market. How should we be thinking about the pace of this as we go forward?

Obviously, it’s opportunistic as vessels come up in the market but if you had your kind of perfect line up of vessels to buy over the next three or four quarters, how should we think about that progressing if the way that you view the market plays out?

Simeon Palios

Well, I think, every three months, we will be buying something. And, of course, we have always to look what we have available, what sort of cash [ph] we have available and how the market is shaping up.

I think that our safety net is the existing time-charters with (inaudible) with.

And from there on, we will be playing the market as it comes along but approximately the thumb of rule every two to three months we will be buying.

Justin Yagerman – Deutsche Bank Securities, Inc.

Okay. And typically, stick to Panamaxes and larger, I would assume.

Simeon Palios

Yes. Panamaxes to Newcastlemaxes.

Justin Yagerman – Deutsche Bank Securities, Inc.

Excellent. Thank you so much for your time guys. I appreciate it.

Simeon Palios

Thank you, Justin.

Operator

Thank you. Our next question comes from the line of Fotis Giannakoulis with Morgan Stanley. Please proceed with your questions.

Fotis Giannakoulis – Morgan Stanley & Co.

Yes. Good morning, gentlemen. Thank you.

Simeon Palios

Yes, Fotis.

Fotis Giannakoulis – Morgan Stanley & Co.

I want to ask you. You seem to have not to agree with the market analysis and How Robinson’s [ph] predictions about the recovery of the market at the end of 2013. What I want to ask is what would be the surprises that they can accelerate this recovery or they can delay the recovery? How much scrapping do you expect that – do you think that is going to be required in order to see the scenario of How Robinson [ph] materialized?

Simeon Palios

Well, I think, for this AC [ph] market goes further down and from let’s say $12,000, $11,000 for the Panamax for two years or one year, we go down to $7,000, then of course, the scrapping will definitely accelerate.

And I think that we all know that if the special survey is due and the owner has to pass the special survey and the money needed is $4 million or $5 million, then he would thus think twice before he goes into passing the special survey. And it depends, of course, how is the scrap price saving up.

If the scrap price remains such it is today, I think a lot of scrapping will take place and especially to ships which are more than 50 years of age.

Anastasios Margaronis

In fact [ph], if I can add on the numbers of what the (inaudible) we need at least 40 million to 50 million tons of bulkers to be scrapped to get some of sort of balance, assuming that we get about 70% rate of delivery of newbuildings.

And on the surprise front that you mentioned, there is obviously a demand which could theoretically be pushed up by accessibility loosening up of monetary policy in China and loosening up of bank loans, which we do not anticipate but could conceivably happen for various reasons that only the Chinese government knows.

And this will bring demand growth in China, well in excess of 8% maybe 10% or 11%. With the other pleasant surprises on the volumes of real commodities which will be shipped to that country and to a certain extent to China in general.

Now, pleasant surprises from Europe, we do not expect, but from the United States, possibly as we are running an election year now, we could see something happening there, better than what the IMF is anticipating. So there, we could get a little bit more demand. Nevertheless, we feel that such demands will benefit more container vessels than bulk carriers.

Ioannis Zafirakis

As we are talking for this also, another factor that we have to take into consideration is how the banks are going to react and especially banks who have supplied the free delivery finance.

What are they going to do? Are they going to stick with their owners or are they going to – what is going to happen? Are they going to supply more capital to bridge the gap or are they going to let it go? I don’t know and we haven’t tested that. There is a lot of pre-delivery finance.

Fotis Giannakoulis – Morgan Stanley & Co.

So, I’d like to assume that nothing has really changed on the financing side, on the banking side compared to three months ago because we’ve seen all these newbuildings and order that a lot of people have been speculating for a long time that they won’t be able to be financed. But for the moment, we haven’t seen many five [ph] sales or many owners having difficulties or being forced to sell their assets. Have you seen any changes from that front?

Ioannis Zafirakis

I think every day that goes by, the difficulty of raising funds is very much. If there were six banks that used to lend money six months ago, I think today that look more than three and so on [ph].

Fotis Giannakoulis – Morgan Stanley & Co.

And given the negative outlook that you have for the freight market, does this also include the asset values, we’ve seen asset value already having dropped more than 70% in certain ages compared to the peak levels of 2008. Do you think that we are near the bottom of lifting [ph] the asset valuations or there is a further potential decline and how low can the asset values go given the newbuilding and Panamax looks to be around 30 or even below that?

Simeon Palios

Well, I think that the silent purchase carrier [ph] is directly proportional to the freight carrier [ph]. The only thing is that there is a lag. And as we said before, at the moment we are chartering the ships twice Panamaxes [ph] or the vessels. And we predict that – although we should not predict, I think, that the market has quite some room to go down.

Fotis Giannakoulis – Morgan Stanley & Co.

Is there a bottom in our view in the asset prices given your base case outlook? And how long can we see a new...

Simeon Palios

Don’t forget that in 2000, we’ve had order ships [ph] of $19.6 billion. We have ordered the Panamaxes. So today, to order a Panamax, similar to that one, you have to pay 28, 30. So there is $10 million to go further above.

Fotis Giannakoulis – Morgan Stanley & Co.

I just want to add though that the steel prices at that time was something like $6 million less.

Simeon Palios

The replacement cost is of no importance whatsoever.

Ioannis Zafirakis

Fotis, you will not – one is going to drop [ph] something because it’s costing to someone a specific amount. If the numbers do not make sense, either the yard will have to reduce their cost of producing the vessel or they will not produce a vessel at all. But no one is going to buy something just because of all the cost of that vessel being built. If the numbers do not make sense, no is going to buy it.

Fotis Giannakoulis – Morgan Stanley & Co.

Understood, understood. And then one last question. There is all these discussion across all asset classes about fuel efficiency, about new designs being able to deliver a savings of 5 tons or even 10 tons per day in banker fuel. First of all, I just want to ask your opinion if you share this view, if you think that these savings are real and then provided that the yard [ph] or to do the degree that these savings are real, how much of these savings can they really pass to the ship owner in the form of higher charter rates?

Simeon Palios

Well, 10 tons which you mentioned, Fortis, is out of the question because for a vessel which consumes 50 tons, 10 tons is 20%. And that’s out of the question, 100%. The maximum you should expect is to save (inaudible) approximately, 3% to 4%, maximum, 5%, the very maximum.

Yes, you can get some more efficient saves and especially, I think, with be long-stroke (inaudible) G-type engine and the slow revolutions, which is 70 revolutions, I think you will be able with special hull forms and the hull co-efficient to be such, I think the maximum you can achieve is approximately is 3% to 4%. Nothing more than that.

Fotis Giannakoulis – Morgan Stanley & Co.

Three to four percent. So, practically, you’re not going to make any material difference, you’re talking about 1,000...

Simeon Palios

Well, if we – because if it’s 50 tons a day, 4% is 2 tons. That’s it.

Fotis Giannakoulis – Morgan Stanley & Co.

So, the 2 tons, you think you can get it. So we are talking about the $1,500 higher rate in a cape-size vessel. Is that correct?

Simon Palios. Well, yes. But if you have the same construction, let’s say on the Newcastlemax, you have an extra 25,000 tons for your cargo that you are carrying, which is something, yes.

Fotis Giannakoulis – Morgan Stanley & Co.

Okay. Thank you very much for your time.

Simeon Palios

Thank you, Fotis.

Operator

Thank you. Our next question comes from the line of Michael Pak with Clarkson Capital Market. Please proceed with your question.

Michael Pak – Clarkson Capital Market

Good afternoon, gentlemen. A lot of my questions have been answered but I do have one last question. Stacy mentioned in the earlier part of the call about the market outlook on steel inventories in China.

Stacy, given where inventories and even where steel prices have been heading, could you give us an outlook in terms of the near term given that we’re already two thirds into 1Q about the Q2 prospects of a pickup in the dry-bulk market here given sort of the underpinning you went through.

Anastasios Margaronis

So, first of all, as we said earlier, we avoid making a specific forecast but what we see as a natural development in the market place is for some like (inaudible) Panamax market and when the grain season and especially from South America commences.

And also, if there is possibly some work for a capes coming from Asia. In spite of these high profiles in both iron ore and steel but that will not be significant in our views. We’d have to keep in mind that on occasions we get a couple of weeks of strength coming from the fact that newbuilding deliveries are not perfectly streamlined through the year.

And if there is a gap somewhere and we have a lull, let’s say, in newbuilding deliveries and therefore, (inaudible) of owners to fix their ships, which have remained unfixed and (inaudible) for delivery, then we could some sort of life.

It’s not difficult, you see, to push rates from where they are up by about 10% or 20 %. The question is how long they’re going to stay there. And our fear is that – come summer, we’re going to have, again, weakness setting in across the board of large bulk-carriers because of the numbers ships which will be delivered.

On the other hand, if we have pleasant surprises and they are not delivered for some reason, they will not be cancelled because most of them their buildings has commenced. But building, say, into 2013, then the strength might last a bit longer.

But eventually when these ships come, they have to find employment. And when scrapping is more or less happening at the rate that we mentioned earlier or 30 million tons, 40 million tons deadweight a year, it’s difficult envisage that picking up significantly from such high levels. So, we are a bit optimistic for the short term but not for the medium term.

Michael Pak – Clarkson Capital Market

Great. Just one last question, what are your thoughts of transshipment development in the Philippines related to the V-lock [ph].

Anastasios Margaronis

Well, theoretically there, we should see an impractice at picking up of the demand for chartering smaller ships but don’t forget that you are talking now about a relatively small number of ships, yet, which not going to make any significant difference to overall figures. Until we get a large number of these very large oil carriers going to ports and the requiring transshipments, we don’t see we’re going to see any significant impacts in the balance within demands and supply.

Michael Pak – Clarkson Capital Market

Great. Thanks for your time guys.

Operator

Thank you. Our next question comes from the line of Brandon Oglenski with Barclays Capital. Please proceed with your question.

Brandon Oglenski – Barclays Capital

Good morning, everyone.

Simeon Palios

Hi.

Brandon Oglenski – Barclays Capital

I just wanted to follow-up because when we look at from the industry data, we actually see spot rates that look like they’re below vessel off-cost [ph] today. So, is this an environment where you’re able to get a better on a longer duration charter?

Simeon Palios

As you have seen we are chartering our vessels for periods of one to two years, and we can still find numbers in the vicinity of $10,000 to $11,000 or even more than $11,000. What you are referring to as spot rates – what we are referring to, our time-charter rates going to that levels.

Brandon Oglenski – Barclays Capital

Okay. And if that’s the case, I mean, are you in forward discussions of the seven or eight vessels that you could potentially be looking to place later this year or is too early on those particular vessel?

Simeon Palios

Again, as we have said in the past, we will stagger the opening days of those vessels in the future and we will give them in such a manner that we will not have a lot of other vessels opening the next year.

It’s the simple staggering of our vessels. We – that’s the way we do the physical hedging ourselves.

Brandon Oglenski – Barclays Capital

Okay. And then, just very quickly on vessel OpEx. You said that you had an increase in crude cost but a decrease in other expenses. How should we be thinking about modeling that out for 2012?

Andreas Michalopoulos

I think it’s a safe assumption to moderate the increase for 2012 in the overall operating expenses for our vessels. And if you’re putting a model operating expenses around 6,600 or 6,700, you should be all right for your model.

Brandon Oglenski – Barclays Capital

Okay. I know it’s been a long call. Thank you very much.

Simeon Palios

Thank you.

Ioannis Zafirakis

Thank you.

Operator

Thank you. Our next question comes from the line of David Beard with Iberia Capital Partners. Please proceed with your questions.

David Beard – Iberia Capital Partners

Good morning and good afternoon.

Simeon Palios

Good morning.

Ioannis Zafirakis

Good morning.

David Beard – Iberia Capital Partners

Most of my questions have been asked but I wanted to hear your thoughts relative to the capacity of the scrap yards and potentially scrap, 37million tons a year?

Ioannis Zafirakis

The capacity of the world scrapping industry unfortunately is a rather vague number simply because the market is not so, say, disciplined in reporting figures for various reasons. But we hope that the world scrap yard could potentially scrap 50 million tons of deadweight of dry bulk carriers nowadays without great difficulty.

But we are not overtly sure because a lot depends on how many other types of ships that are going to go to the scrap yard. And we should remember that tankers, for example, are more profitable types of ships for scrap yards to deal with for various reasons. Having to do, of course, with the tanks, pipes, et cetera, that they have on board. And also refrigerate [ph] ship and a few container vessels, chemical carriers, especially stainless steel tankers are much, much more profitable.

So, it’s not only a matter of capacity, it’s also a matter of preference when ships are competing for the same, let’s say slot in a scrap yard program for scrapping. So, we would hope that up to 50 million tons of dry cargo ships could be accommodated if it isn’t significant pressure from other types of ships to go for scraps or scrapping.

David Beard – Iberia Capital Partners

Great. That’s very helpful. Thank you gentlemen.

Simeon Palios

Thank you.

Ioannis Zafirakis

You’re welcome

Operator

Thank you. And we have come to the end of our question-and-answer session. I would like to turn the floor back over to management for any closing comments.

Simeon Palios

Thank you again for your interest in and support of Diana Shipping. We look forward to a (inaudible). Thank you.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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