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Diana Shipping Inc. (NYSE:DSX)

Q1 2012 Earnings Call

May 3, 2012 9:00 am ET

Executives

Edward Nebb – Investor Relations, Comm-Counsellors, LLC

Simeon P. Palios – Chief Executive Officer

Anastassis Stacey Margaronis – President

Andreas Michalopoulos – Chief Financial Officer and Treasurer

Analysts

Michael Webber – Wells Fargo Securities, LLC

Erik Nikolai Stavseth – Arctic Securities

Brandon R. Oglenski – Barclays Capital Equity Research

Sal Vitale – Sterne, Agee

Operator

Greetings and welcome to Diana Shipping Inc.’s First Quarter 2012 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, Mr. Edward Nebb, Investor Relations Advisor for Diana Shipping. Thank you. Mr. Nebb, you may begin.

Edward Nebb

Thank you, Louis. Hello, everyone and welcome to the Diana Shipping Incorporated 2012 first quarter conference call.

The members of the Diana Shipping management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastassis 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 is attached as part of the new release. Certain statements made during this conference call, which are not statements of historical fact are forward-looking statements and made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act.

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

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

Simeon P. Palios

Greetings, good morning and thank you for joining us today. During the 2012 first quarter Diana Shipping, Inc. continue to publish an elaborate revenue stream operated in a profitable manner and maintain a surely balancing at volatile industry conditions. We also made significant progress in our future expansion strategy, which is intended to position the company for future profitable growth. In February 2012, we took delivery of the newly built Los Angeles, a Newcastlemax Dry Bulk Carrier that was contracted in 2010.

Today, we also announced the delivery of Melia, a Panamax dry bulk carrier. In addition, we recently announced agreement to purchase two Ice Class Panamax dry bulk carriers; the delivery is anticipated during the fourth quarter of 2013. In total we have three vessels that are anticipated to be delivered in 2012, 2013.

The two Ice Class Panamax vessels as I just noted as well as a Newcastlemax new building that is anticipated to be delivered in few days. With these additions, the size of our fleet will increase to 30 vessels. The fleet is increasingly diversified including vessels scheduled for future delivery we will have 17 Panamax’s, one Post-Panamax, 8 Capesize and 2 Newcastlemax and 2 new building Ice Class Panamax vessels. Considering that we own 21 vessels at the time we announced our fleet investment strategy in 2008, these represents a very substantial progress in the expansion and diversification of our fleet. We’ll continue to manage our 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 industries strongest and most respected charters.

Turning now to some of the highlights of our results for the first quarter of 2012. The net income to Diana Shipping Inc. was US$20 million for 2012 first quarter compared to US$33.1 million a year ago. Time charter revenues for the latest quarter totaled US$57.6 million versus US$69.4 million a year ago. Time charter rates averaged US$24,276 for the 2012 first quarter compared with US$31,592 in the same period of 2011. We have maintained one of the strongest balances in our industry.

Our cash position at March 31, 2012 was approximately US$442 million or above US$69 million a year ago. We continue to operate with a very manageable degree of leverage. long-term debt including current portion was US$424.5 million compared to stockholder’s equity of US$1.2 billion.

Our solid financial position helps to ensure stability in a volatile market and this also support for continued growth initiatives. While one of that conditions persist in the dry bulk shipping industry, we will continue to pursue the strategies that we believe will deliver stable and profitable results in the near term and will contribute to our growth for the long-term. We will continue our program of selectively and gradually adding to our fleet as much acquisitions permit as to our prior vessels at attractive prices. We will operate our fleet according to balance and proven (inaudible) policies and promote, predict wherever you stream and enable us to sustain profitable operations. And we will continue to manage our balance sheet to provide financial flexibility, provide the capacity to support growth and maintain an acceptable degree of leverage.

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

Anastassis Stacey Margaronis

Thank you, Simeon and we do welcome all the participants to this quarterly conference call. The first quarter of 2012 was quite depressing for owners of bulk carriers and one they would soon forget and hope will never return. The Baltic Dry Index surpasses a year of 1,624 and stood at a mere 934 during the last operating day of the quarter.

The Baltic Panamax Index lose from 1,619 to 1,061 ending the quarter and the Baltic Cape Index were worse starting the year at 2,965 and finishing the quarter at 1,412.

The second quarter Diana cargoes had given their owners some good news at least on the Panamax front. Both the Panamax Index moved from 1,051 mentioned above at the end of the quarter to 1,693 at close of business yesterday. Panamax rates have benefited from the encouraging the number of coal and grain pictures.

In China, demand for imported thermal coal have surged recently both to a certain extend by long going maintenance to China’s coal dedicated (inaudible) referred to be low. In the short-term, currently [composites] (inaudible) Panamax cause in the Atlantic, this could take some time to balance out. The slight increase coal being shift from the US Gulf and the U.S. East Coast.

For the past few weeks, currently I’ve have also noted that coal business out of Indonesia and Australia have helped support the rates of Panamax and Supramax. There few are ever impact their record high new business and delivery this year more about that later on. We put a cap on any further rate increases and then strength could be Salt Lake.

Let’s turn to microeconomic considerations first. (inaudible) broker to a growth coming at 3% to 10% for the quarter of 2011 and they are hopeful that this rate of growth will carry over into 2012. After the Euro zone, the European commission is forecasting a contraction of 0.3% in 2012, which is down from their November forecast of 0.5% growth. The downgrade was mainly due to the projected contractions of 1.3% in Italy and 1% in Spain.

Diana has lowered it’s economic growth target to 7.5% from an 8% per annum of rate, which has been in place in 2005. Most brokers believe that their Chinese leaders are determined to reduce reliance on exports and capital spending in favor of consumption. However, we are also forecasting that actual economic growth in 2012 will surpass that target as it has done for seven years before that.

The Chinese government has began to take more aggressive steps to stimulate the economy by lowering the bank reserve ratios twice since last December to 20.5% while our new bank lending has increased by 37% during the first quarter of this year compared to the last quarter of 2011. However, the results show another school of thought as expected by economists of Citibank, which (inaudible) need a certain degree of credibility.

As soon as that growth in China is slowing, then how fast as inflation will go down, this will help to distribute well away from the rich and toward the poor. In other words for growth sake, it might not be the most important factor driving policy decisions now in China, and it might be the distribution of that growth which matters more.

(inaudible) the distribution of worst case going forward, we agree with view expect that by further analyzing through most on the Wells Fargo Research that continued Chinese economic stimulus could help drive the demand for dry bulk commodity higher and in the long run help in the absorption of the huge number of new building vessels scheduled to join about various fleet this year and next.

As for India, if economy grew at the slower pace in two years during the last quarter of 2011, (inaudible) product rose 6.1% in the three months of December following the previous quarter of 6.9% rate of growth. For the capital rate of the inflation accelerating for the first time in five months the Capital Bank has shown courage in taking the both steps to cut key lending rates for the first time in three years in an effort to stimulate growth and boost investment. This on behalf of the Indian Central Bank trends up to both Brazil and Indonesia is liquidity.

Turning now to fee, during the first two months of 2012, working (inaudible) production totaled 241 million metric tons an increase of just 0.6% compared to the same period in 2011. However according to Commodore Research in March, Global Steel production took up to 13 billion metric tons, which was 11% more than it was produced in February this year. For the whole year, steel production is expected by most week 1.6 billion tons, an increase of 5% year-on-year, mainly on the lack of strong growth in emerging economy.

According to Commodore Research, Chinese steel mills will produce large amount of steel over the next few quarters and demand for imported iron ore should remain firm. Largely contribute that the recent decrease in steel prices should be monitored closely, they do not see anytime that steel production in China is quite to grow to a major collection.

According to most brokers, China and India together are expected to account for half of the world steel consumptions in 2012. Construction of public infrastructure and housing along that with the manufacturing of consumer durables support the strong consumption growth targets in both countries.

Now – and I don’t know, on a worldwide basis, I don’t know if (inaudible) are expected by (inaudible) to reach 1.093 billion metric tons up by 4% compared to last year. China is expected by most brokers to maintain during 2012, its proposition as we allowed the iron ore in quarters accounting for more than 60% of total import.

In the full year, Merck expects that China will import 735 million metric tons of iron ore up from 687 million metric tons of iron ore in 2011, an increase of 7%.

According to Commodore Research, China continues to import the growing amount of iron ore from minor exporters, such as Canada, Indonesia, Ukraine and Mauritania.

According to (inaudible) India continues to restrain its iron ore export and has raised iron ore export duties from 20% to 30%. (inaudible) expects that reduced iron ore exports from India will most likely be replaced by king sized cargoes, which could be negative for Panamax rate, but should support Cape rate going forward.

According to Clarkson, the projection of China’s 2012 imports of iron ore remain subject to considerable uncertainty are little than slightly different projections will see production growth this year. These vary between 4% and 6.8%.

We’re seeing demand increases in the coming month. The extents of recovering demand with the certain demand for iron ore. Assuming China sources 30% of its iron ore imports from Brazil in 2012, the total dry bulk (inaudible) demand growth will be 10.5% everything else remaining equal.

Clarkson considers the main ground vibrations in Chinese import growth of iron ore to be the lack of growth in [seaborne] iron ore supply iron ore supply. If this materializes the size of iron ore will go up and China will consume more domestically produced iron ore.

According [prediction] should brokers be major mining companies remain adamant of all the iron ore they produce (inaudible). One major mining says that total Chinese imports of iron ore will keep growing in the coming years, the fundamental shifting Chinese economy away from a high degree of investment might be to a peak provide imports in 2015.

Catching up on iron ore stockpile, during the second week of April of this year about 97.6 million tons of iron ore was stock piled in Chinese coals. This is a new record level, however Commodore Research forecasts stock piles coming under pressure going forward, as steel production continues to final industry and housing project. Now China have used 61.5 million tons of Group C, which was the record monthly volume of production.

On coking coal, Clarkson expect China’s seaboard imports may increase by 9% this year to reach 26.6 million metric tons. On a global basis Clarkson expects this 229 million metric tons to be exported, which will be a 3% increase compared to last year.

And thermal coal globally shipments are expected by Clarkson to reach 747 million metric tons, an increase of 4% from 2011. And looking our thermal coal stockpile, the Chinese stock piles of risk commodity have fallen to critically low levels in April, 5.5 million metric tons. Due to maintenance to China the coal dedicated Daqin Railway. It’s maintenance growth came to an end on 13 April of peak summer demand season is quickly approaching, which was coal and (inaudible) demand to continue to surge. The Chinese coal all stock piles remaining low, Chinese coal imports stood that’s a new record by July according to Commodore Research.

Now according to Clarkson Indian import of steam coal will be very strong this year and next as large coal-fired power stations are built and brought on-line to save the India’s increasing electricity demand and economics growth. Imports are projected by process to increase by 16% year-on-year in 2012, with much of this growth likely to be supplied from Australia and Indonesia.

Grain (inaudible) now, 2011, 2012 is expected to be a strong season for grain exports. According to the U.S. Department of Agriculture, global grain trade is expected to reach 299.67 million metric tons during the 2011 to 2012 grain season, up 6% compared to the 2010, 2011 grain season. The USDA has raised its grain trade forecast partially due to improved expectations for Brazilian coarse grain exports.

Furthermore, wheat exports from Argentina are expected to reach 9.3 million metric tons during the 2011, 2012 season up 22% year-on-year. Grain shipments from Argentina have increased over the last few years and should reach 28.2 million metric tons during the 2011, 2012 grain season.

Let’s look at supply now. According to Commodore Research about 410 Panamax bulkers and 209 Cape’s are expected to be delivered in 2012. This staggering number of ships should put a cap on any upward move in the earnings of these vessels. The all encouraging news is that next year the numbers were up significant to 210 Panamax and 80 Cape’s, these are the (inaudible) that in 2013 about four Panamax’s will be joining the fleet every week.

(inaudible) building these vessels Diana holds 55% of the dry bulk order book with Japan are just in second with 24%, followed by South Korea with 13%. The rest will be (inaudible). If we’re looking India, we have dominant here in Europe, it is encouraging to also note that according to Clarkson, so far this year only 62 vessels have been contracted compared to 1,311 during the whole of 2010 and 450 during 2011.

The total large bulk carrier in order book broken down by sector is according to Clarkson as follows. 787 Panamax in order, totaling 62.4 million from (inaudible) representing just under 39% of the existing fleet. Also 388 Capesize vessels are in order, the total dead weight capacity of 78 million dead weight tons should present in 30.4% from this increase.

It is worth noting that according to Pareto Securities assuming that whole new building orders have had about 30% content payments made, this could lead an unfounded requirement of US$60 billion. This would create doubts as for the actual deliveries of a large part of the order book. However, cost experience has shown that somehow, someone always seems to come up with money to take delivery of each vessel, which might be faced in financing problems. A number of analysts have therefore put the percentage of cancellations and delays for this year that’s about 30%. And for 2013, this is expected to drop to about 16%. (inaudible) range materialized, this will mean that about 100 million dead weight tons of ships will be delivered in 2012 and about 18 million dead weight in 2013.

As for excessive deliveries of new buildings, a growing trend has emerged according to Commodore Research. More and more Chinese shipyards have been (inaudible). In order to combat the declining orders 2011 some various Chinese yard including the (inaudible) group placed orders at their own yard. Commodore Research expects that such decisions to continue simply to keep some scrapping yards alive.

Let’s turn to congesting now. According to (inaudible) congestion is either at or below long-term average levels. Iron ore core congestion in China in the middle of March took about 4.5 days; the ship is waiting for an average of 12 days to load four types of cargos in Australia.

Air Force scrapping, the U.S. shipping analysts at (inaudible) is that if the market remains weak during 2012, there is potential for the pace of demolition to quicken. We saw 319 bulk carriers over 20,000 (inaudible) scrap last year and there are already 99 (inaudible) have been report so for scrap during the first three months of this year. There are over a thousand ships, which are already over 25 years old, and a further 400, which are between 21 and 25 years old. But it is also encouraging as we’ve got future scrapping in large bulk carriers however is that the mere 8% of the king size fleet is over 25 years old and 12 more than 11% of the (inaudible) fleet is in that [8%].

As of the end of this year out of the 1,068 bulks, which will be older than 26 years 658 will be Handysize bulkers and 206 Handimax’s. Only a 160 will be Panamaxes and post Panamaxes, and a near 29 will be Cape’s. These are definition places a limit from the number of ships that are likely to be scrapping in the next three years to relieve the pressure created by the huge number of new business being delivered this year and next.

So where does all that leave us; we at Diana Shipping Inc. take a cautious view of the short and medium term, and are more optimistic on earnings and asset values of large bulk carriers from the middle of 2013 onward. The reason is that core quick markets over the next few quarters will make our decision to scrap aging furnace easier. Once a reasonably large advantage of the peak has been scrap, the absorption of the new building time is joining the market will become that much easier.

In order however for these forces to play out and the balance to emerge time is required. The amount of time naturally depends on world’s growth in general and more particularly growth in China, India and the rest of the emerging markets. The effect (inaudible) whatever reason then you might be safe to prolonged recession and the end of 2013 maximum shows the signs of recovery that we expect to see. Hopefully this will not happen and more importantly, (inaudible) will not get carried the and all the ships once again in expected the records, manners as they did in 2010. This will bring the market coming back down again, (inaudible) we gain the 2014 and begins to show decent earnings throughout the bulker size ranges.

Diana’s investment strategy has not changed and we have an intend to continue acquiring ships through the downsize and managing the chartering program in what we’ve been referring to as the portfolio of stagnant maturity. We have been convinced that this is by far the best way forward, which will not only protect growth, but bring this about in a novelly manner and without taking a twist in balance sheet, which we have tried too hard to create for our shareholders.

I’ll now pass the call over to our CFO, Mr. Michalopoulos, who will present you with the first quarter 2012 financial highlights.

Andreas Michalopoulos

Thank you, Stacey and good morning. I am pleased to be discussing today with you Diana’s operational results for the first quarter of 2012. Net income for Diana Shipping Inc. for the first quarter of 2012 amounted to $20 million and EPS was $0.25. Time-charter revenues decreased to $57.6 million compared to $69.4 million in 2011. The decrease is attributable to decreased average time-charter rate that we achieved to our vessels during the period compared with the first quarter 2011. This decrease was partially offset by revenue derived from the vessels Arethusa, Leto and Los Angeles delivered in July 2011, January and February 2012 respectively.

Ownership days were 2,313 for the first quarter of 2012 compared to 2,106 in the same period of 2011. Fleet utilization was 99.8% in the first quarter of 2012, the same as in 2011. The daily time-charter equivalent rate for the first quarter 2012 was $24,276 compared to $31,592 for 2011. Other revenues for the first quarter of 2012 amounted to $0.6 million and consist of revenue derived from the management and administrative agreements between Diana Shipping Services SA and Diana Containerships Inc.

[Voyage] expenses were $2.2 million for the quarter. Operating expenses amounted to $14.7 million and increased by 19%. About 10% of this increase is attributable to the addition of new vessels in the fleet, which resulted in the ownership days to increase. Additionally, operating expenses increased due to increased crew costs, but mainly increased, spares and repairs and (inaudible) have set by decreased average insurance costs.

Daily operating expenses were $6,337 for the first quarter of 2012 compared to $5,873 in 2011, representing 3.8%. Depreciation and amortization of deferred project amounted to $14.6 million. general and administrative expenses decreased by $0.4 million or 6% for the first quarter 2012 to $6.1 million compared to $6.5 million in 2011. A decrease was mainly attributable to the (inaudible) in January 18, 2011 and also decreased compensation under (inaudible) and legal fees.

Interest and finance costs were $1.5 million for the quarter compared to $1.3 million in 2011. This increase is attributable to increased average interest rates during the period and increased average debt.

Income from investments in Diana Containerships Inc., will gain from our investments in Diana Containerships Inc. increased $2.3 million compared to $0.1 million for the same period in 2011.

This increase was due to the increase in our ownership percentage of Diana Containerships Inc., which as of March 31, 2012 was 14.35% compared to 10.9% at March 31, 2011 and also due to the increase (inaudible) Diana Containership Inc. in the first quarter of 2012 as in quarter 2011.

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

Question-And-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Justin Yagerman of Deutsche Bank. Please proceed with your question.

Unidentified Analyst

Good day, everyone. It’s Josh standing upon for Justin.

Simeon P. Palios

Hi, Josh.

Unidentified Analyst

Stacey, I just want to maybe start off with, what’s the macro thought? Appreciate you updated in times, if you guys are still I guess, negative over the next year. Does that mean you see further downside for asset prices?

Anastassis Stacey Margaronis

Yes. We do as a matter of fact and we’re witnessing this now as we speak nearly across all ranges. If we strengthen the Panamax sector continuously we might see a pause there in the original values, but I think Mr. Palios has been monitoring asset values on a daily basis. We’ll confirm that ships that he’s looking up now on behalf of the company are being offered per say at lower prices than we were looking at during the first quarter.

Simeon P. Palios

Let me help (inaudible), Justin is that there are more buyers around and especially more Greeks, some Chinese and a few Taiwanese and that concludes the (inaudible) buyers. But there are a need for more active (inaudible) and the price is a little bit lower than three months ago.

Unidentified Analyst

Are those buyers well capitalized, I mean they have the firepower to reach our purchasing asset and maybe bank support?

Simeon P. Palios

Yes, but not on a continuous basis I think, they may buy the aggression, but there are a few around.

Unidentified Analyst

Got it. And I guess on that note, we saw the new building acquisitions and the one Panamax acquisition, I guess you guys have historically counted one, I guess few purchases per quarter, should we expect something coming in the next couple of months.

Simeon P. Palios

Yes, indeed, (inaudible).

Unidentified Analyst

Got it. And I guess with regard to how you plan to fund finance those acquisitions, are you still looking maybe 40% to 50% debt?

Simeon P. Palios

Yes, that’s correct something like that. We have no problem in financing industries. Not at all.

Unidentified Analyst

Just one last question before I turn it over, I guess on the Houston, can you maybe provide any commentary around that or also whether there are any other kind of all the issue?

Ioannis Zafirakis

This is Ioannis. When we have something to report we are doing that immediately, and therefore having not heard from about anything there is nothing much to report, but as if you look at the numbers that we have just starting to see what we’ve done with the situation of moderate system.

Unidentified Analyst

Got it. Thanks for your time.

Simeon P. Palios

Thank you.

Andreas Michalopoulos

You’re welcome.

Operator

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

Michael Webber – Wells Fargo Securities, LLC

Hey good morning guys, how are you?

Simeon P. Palios

Fine.

Anastassis Stacey Margaronis

Fine.

Andreas Michalopoulos

Fine, how are you, Mike.

Michael Webber – Wells Fargo Securities, LLC

Good, I wanted to jump back on to the gains charter. I know you guys haven’t put out an announcement yet, but there is not a lot of detail cash flow information provided either, so I think are they paying you still? I know you filed and I think it was, in Q4 they had to pay you 90 days, is that cash flow actually coming in the door?

Andreas Michalopoulos

I have to repeat the question, the answer as I gave earlier, look at the numbers (inaudible) we’re not paying in to (inaudible) from us.

Michael Webber – Wells Fargo Securities, LLC

Okay, so from an accounting perspective, you wouldn’t mean to start striping at out of your – at what point would you start striping out of your revenue?

Andreas Michalopoulos

(inaudible) the number was the bigger one, the one that we have to file a press release for, maybe the number now is zero, but there is nothing for us to report.

Michael Webber – Wells Fargo Securities, LLC

Okay, all right. That’s helpful and maybe we can follow-up offline. I wanted to touch on buybacks, can you guys – you had the authorization in place and it seems like you guys have be enabled it a little bit last quarter and then there is a whole lot on this quarter, you guys still kind of trading and do you think proximity to your NAV, discount you need your NAV to really step in and start buying shares? And maybe you can talk a little bit about the value proposition that you could see there versus what you’re seeing in the market right now from your ship obviously you’re spending more money on steel and then stock at this point?

Andreas Michalopoulos

There is a lot of specific discount that we are waiting to see. It all depends on the current environment that is down of course to the NAV and where we stand on the cycle for us to decide to step in. Well, we think we have explained the reasoning behind of share buyback and when we are there to (inaudible). In few words we are there to buy some of our stock back when we feel that we are grossly under value.

Michael Webber – Wells Fargo Securities, LLC

Great, okay that’s helpful. (inaudible) quick modeling questions, and Andreas maybe there’s a question for you, given the significant cash you’re guys are running in, can you talk a little bit about what instruments are there in, and maybe what banking system and there’s a little bit of color in terms how you guys are actually using cash flow benefiting?

Andreas Michalopoulos

The cash is relatively used to acquire vessels, and that’s why, you see it in cash and cash equivalents, that means that we haven’t seen no currency stock rate forward, because there is bank. we of course, don’t put our legs into the same baskets, try to be diversifying between surplus banks, the U.S., European or even sometimes bank as well. So we guess – that’s the way we manage our cash, nothing currency cash forward, and that’s it. We have gone, we do sometimes because we have some need for euros in a very small amount some dual currency deposits, but that’s the accounts we have to get.

Michael Webber – Wells Fargo Securities, LLC

Fair enough. And is it fair to say that money kind of evenly progressing in the U.S. and Europe or is it more heavily allocated with your spends?

Andreas Michalopoulos

No. I think – even these spreads maybe not evenly spread every time, because we changed the mix, and we are actually not to have cash increasing every quarter. but we work also among you with the banks that we have degradation ship with due to a kind of...

Michael Webber – Wells Fargo Securities, LLC

Fair enough, that’s helpful. Andreas, also there’s one more, I’ll turn it over. Your G&A picked down a little bit in the quarter, I guess sequentially. Can you guys maybe provide a little bit of guidance for the remainder of the year and what do you think you’re going to come out?

Anastassis Stacey Margaronis

Not really guidance. I can tell you that around those levels it hit down a little bit, I think around those levels you start to see that we are close to our (inaudible) as we are for like (inaudible) and – we are search as that one of the reasons we went down is that (inaudible) has many traveling during the first quarter. I think for the conference is coming up in the quarter be it next month or month after we will have some time (inaudible). Having this levels are the levels to cut along so we (inaudible) that you shall see during the quarter.

Michael Webber – Wells Fargo Securities, LLC

That’s fair enough. There is one more and then turn over. Stacey you spoke some time earlier kind of going through obviously your market update and yes you answered some questions on growth. Clearly the acquisition base has kicked up pretty hard in the first quarter. If we started looking kind of beyond acquisition I guess, you guys were saying you’re confirming cash and nothing out of distribution because you want to spend on cheap assets. What do you look for to kind of change that methodology or change that process. I think, well you might be more comfortable actually paying a dividend again. I know we’re not probably close to that point, is it pure asset depreciation. I mean, are you starting to see assets move up 10% and 20% in the time before guys start thinking and you’re going to start redistributing cash your shareholders, or just how do you think about that?

Andreas Michalopoulos

This is, Andreas again. We have to see the – our industry, the business cycle of us is changing and moving towards the upper part of the cycle. We have to go through the bulk carriers and start moving upwards. Usually, there is a change in the start delays at first, then the psychology changes positively and then you have the acted moving upwards, but as Stacy said earlier, we won’t see that for the near future and this beginning of moving upwards, we expected to be at the end of 2013 in the best case scenario.

Michael Webber – Wells Fargo Securities, LLC

Okay. All right that’s very helpful thanks guys, I appreciate the time.

Simeon P. Palios

Welcome.

Operator

Our next question comes from Fotis Giannakoulis from Morgan Stanley. Please proceed with your question.

Unidentified Analyst

[Ole Slorer] from Morgan Stanley on behalf of Fotis Giannakoulis.

Simeon P. Palios

Hi, Ole.

Unidentified Analyst

Thank you. (inaudible) first quarter, you guys seemed Panamax rates move higher, how much of this increase is due to the grain season in South America and what is our outlook when it’s over?

Simeon P. Palios

Well, I think you’re right to assume that this is for the grain season and do not expect a substantial change to the rates of Panamaxes.

Unidentified Analyst

Okay, my next question is how do you see Capesize market developing and why would rates I’ve seen so low, how many ships that you estimate that could order supply?

Andreas Michalopoulos

Each station has zero number, which we are expecting to come from the [year] and there is a possibility that these vessels were Simeon (inaudible) not be financed because finance is very scarce, and there will be substantial, how to product that the age of the cape fleet is not very old. I think there is a slight problem and we may see values and rates even lower for the Capes.

Unidentified Analyst

Okay, understood. And as you’re seeing your business prices developing, very recently forecast sales, resales sold for $36.5 million, even the time-charter rates and lack of ordering, where do you see prices go both for Capes and Panamaxes from the regressions we jumped with (inaudible). What kind of terms are now available? Do you see that will into the low prices order?

Simeon P. Palios

Well, the prices directly proportional to (inaudible) canal. The replacement cost has nothing to do with the prices of vessels. The vessel is unable to move cargo then it’s actually and price should be adjusted accordingly. So the replacement cost has no bearing whatsoever. So if it rate down and if you rates at par to the running expenses from the ships then the vessels will be laid up and that is the real bottom.

We are not there yet and that’s why we see that vessels are not laid up if you are reaching Panamax, they have $10,000 or $11,000 daily. We are at (inaudible) running expenses, and third the vessel rate will grow and the freight rate will grow. It will be the time charter rate will be the running expense of the ship which is around 5.5 to $6,000 daily.

Unidentified Analyst

Okay. And last question. Even the time charter rates, any of your competitors are facing significant cash flows showed some difficulties in repaying their debts, how were the bankruptcies of the company, was that actually willing like durable rates.

Andreas Michalopoulos

Well, there is a and in fact there will be a shock to the system that effectively be supply of ships through the world bulk carrier trade, isn’t going to change, except the manner that there will be charters, and it’s going to be affected temporarily, if there is a bankruptcy. so we don’t see the supply demand being affected too much by any bankruptcy, operationally and on the chartering size, there will be distractions, no doubt, some portion out there declarations might be made, charters cancelled by some charters, but the ships will remain there to be chartered and to carry cargo and that’s what found ultimately in the supply demand balance.

Unidentified Analyst

Okay, thank you for your time gentlemen. I do appreciate that.

Simeon P. Palios

You’re welcome.

Andreas Michalopoulos

Thank you.

Operator

Our next question comes from the line of Erik Stavseth of Arctic Securities. Please proceed with your question.

Erik Nikolai Stavseth – Arctic Securities

Good morning, guys. Just a question regarding our new growth, I mean I know you’ve been 34, but all petrol bunks with fuel efficiency eclipsed and again, I mean you noted that the rest of (inaudible) month, which is significantly lower than what other (inaudible) you have in your fleet, consume that stable receipts. However, we’re taking through (inaudible) there will be some increase in (inaudible) engines, but could you show a point of the daily savings number as you would be coming forward?

Andreas Michalopoulos

I think there is a slight misunderstanding to what we have said. I think we were referring to balanced positions and (inaudible). And I think that I have given some different thinking of what will be the next (inaudible) consumption of the Panamex. I have a feeling that the crude Panamex is not going to be all that different of what we have been facing today. It will be better, but more substantially. And certainly, if we see alone price drops that will have a different bearing on the whole issue again. I remember several times before we’ve had the same issue of increasing the [speed] and the decreasing the consumption. But at the end it has not improved immensely. So, I think we have all played that game of better efficiency.

Erik Nikolai Stavseth – Arctic Securities

Okay. Thank you. I mean there is I’m asking you – I’m trying to mix the number here, so that and I know what those new impact from the (inaudible) I mean you didn’t talk you’re sound quite strongly and this seems to me that several other players are embracing the fuel efficiency of I mean this is represented as I, but this seems to me that you are talking it now that you are falling to efficiency so I was just curious if you see any other players thinking the same as you think.

Andreas Michalopoulos

Well, there is a lot of talking in the market from the ship builders and from different other (inaudible), but we have not changed in practice as concrete as some they say that going to improve the efficiency of the system.

Erik Nikolai Stavseth – Arctic Securities

Okay, thank you.

Simeon P. Palios

Welcome.

Operator

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

Brandon R. Oglenski – Barclays Capital Equity Research

Yeah, good morning and good afternoon every one.

Simeon P. Palios

Hello.

Brandon R. Oglenski – Barclays Capital Equity Research

I just want to follow-up on Simeon’s comments about the incremental buyers that are entering the marketplace right now, is this just also saying asset prices are whilst we’re going to make a longer term call in the cycle, do you think that’s occurring right now?

Simeon P. Palios

To a certain degree that is indeed the case, and people with the liquidity are taking a long term view, I mean there is no other view you can take today’s rate unless you believe that the recent thing, the Panamax revenues and income is going to be a permanent phenomenon stay with us for the next few quarters, if you don’t or if you doubt that this is the case, then of course you’re buying ships looking at the long-term like to discuss 2015 and beyond.

Andreas Michalopoulos

I think you should note also that the spot rates have increased, have not (inaudible) rates, so the (inaudible) Pacific indeed (inaudible) rules for the Panamax’s have increased today at 13,677, but it was not reflected for the period due to accounting for the spot rates, and that’s why we would take the position that it is short-lived due to the grain season. There is another very important (inaudible) at this time as regard to potential purchase sales around the market. Having money in your balance sheet and the ability to be able to buy vessels that they are not going to be a profit making from day one and then they may take longer to start making some profits and begun much easier by strong companies like ours, where those vessels are going to be place in the same balance sheet together without the vessels that they are producing money and their net effect is going to be still a positive number rather than a private ship owner or a (inaudible) on the size and they want to put them at work and start making profit from day one, which is usually the case. And this is how something very important for our shareholders and the U.S. analysts understand and to realize the strong position that Diana Shipping Inc. is today.

Andreas Michalopoulos

It’s up-to-date.

Brandon R. Oglenski – Barclays Capital Equity Research

No, we definitely understand that but I guess what our concern is that if there is incremental capital entering the marketplace right now and I think you even (inaudible) that maybe 30% to 15% of the order book over the coming years should get canceled or its just never delivered, but if there is cash showing us and I want to get assets at these prices maybe we have we actually see one of the more (inaudible) one this process, I mean how financially stand and how the incremental buyers more of those fund type owners that don’t necessarily have it to the distributors portfolio, or should we be thinking as more of like Diana that’s the incremental buyer right now?

Andreas Michalopoulos

When we see the scenario Diana, the portfolio of (inaudible) maturities, gives you the opportunity of not trying to spot the particular moment of entering. you are entering in a period of time, which is substantially big. so you can make some purchases today and after two months, you can make another one and so on. So you are not pinpointing the day, which is the broker day to just into the cycle. you have perhaps two, perhaps three, even three and a half years to play with, and that’s very important (inaudible). let’s take a very (inaudible) gives to (inaudible). If this vessel is big and we rate good. We do see the vessels between 5 and 6 minutes to reply whether he wants to listen or not. They know what the shipping means, but you have two or three or twice, it has to play with, it’s a good advantage of the more specifically average value question of all the incremental buyers, there are few players even private ones that’s having disabilities to sustain a better environment, not too many around. We feel that more are going to be private people and less rather than funds that they’re going to be the incremental buyers that to mention, but there are not a lot of that those around, and their appetite should be confined.

Brandon R. Oglenski – Barclays Capital Equity Research

All right. Thank you, okay.

Operator

Our next question comes from the line of Sal Vitale of Sterne Agee. Please proceed with your question.

Sal Vitale – Sterne, Agee

Hi, good afternoon gentlemen.

Simeon P. Palios

Good afternoon

Andreas Michalopoulos

Hi, good afternoon

Sal Vitale – Sterne, Agee

I just have a question regarding the comment earlier about the Chinese shipyards essentially building vessels on speculation to maintain employment. I think I’ll just ask for a few clarifications on that. I guess, the first question is, how long has this been going on. Is it purely anecdotal at this point? Can you provide any detail on the number of vessels for which this (inaudible) has already been cut?

Andreas Michalopoulos

The short answer is no. The longer answer is that, we have been growing on since 2011, it is a trend which hasn’t gain huge momentum yet, but had another category of buyer to the question that was made earlier as to, who are the buyers who are buying ships today. And this is a category of buyers that nobody had expected would show up and start contributing to the increasing supplier tonnage over the next few quarters. So, if you got a (inaudible) of ship that’s been come from that category of purchase or a ship owner, but it is not a welcome trend and we hope it will not gain momentum. The buyers are basically people who have the liquidity and take a long-term (inaudible) which are earlier on the market, that leave by historical standards for us today are not and attractive even though they are not particularly cheap and they start investing in the way that have been described earlier on, on tonnage or the second hand (inaudible) sale. All those back to the point where I said earlier, that historically always someone comes up with the money to take delivery of the ship, which appears to be in huge difficulty of the owner finding money to take delivery and finance delivery. Yes there is money around and when the price becomes cheap enough, it should be sold to the person, who have the liquidity. And that is what counts, what counts is one of the ship will be added to the supply side of the chain or not.

And regrettably we feel that the risk is more that more ships withdrawing than what we have been assuming will not. The 30% might be lower rather than higher. In other words for 2012, and this 16% for 2013 again might be a lower number than it might actually appear.

Sal Vitale – Sterne, Agee

Right, okay. So to what extend are you incorporating this new trend into your forecast of going the bottom is going to be, I think you should have rates 2013, in terms of the bottom.

Simeon P. Palios

(inaudible)

Sal Vitale – Sterne, Agee

You can’t call the bottom.

Andreas Michalopoulos

We have factor our company (inaudible) that we have eliminated that’s unknown, and that’s the key issue here. To eliminate the frequency of these (inaudible), which is very, we don’t when it’s going to go up or down. We know when is down, for certain, and we know when we it’s up also, but we don’t know when it’s going to take place. And the beauty of Diana Shipping Inc. is that you are moving in the cycle knowing what you’re doing. And at this particular moment we have to increase the capacity of our ships that’s what we are doing at the low cycle of the market. And it is below the regression line.

So we are at the stage we can buy now and we have to buy and we are the company (inaudible) that at the end of the period, we find ourselves with approximately 50% financed with bank lending, not with equity finance that with bank lending, and that’s what we are doing. And we will keep on doing it until the market starts picking up. and then other things will take place. we’ll go back again to the capital markets and we will start again being really then (inaudible).

Sal Vitale – Sterne, Agee

Okay, that’s very helpful. And then just a follow-up on that, can you give us a sense of the economics currently at the ship dead level, I guess in terms of rebuilding price declines have outpaced the decline of steel prices. I understand what you said earlier that prices are generally based on the supplying demand of ships and not steel prices, but do you think that there’s a floor at some point of, which we are simple, we’ll not take orders at uneconomical prices?

Andreas Michalopoulos

Prices for new business have been going down, Mr. Simeon mentioned earlier and you I think noted that the replacement cost and the cost of contraction is not directly related to the retail price of a new building battle, it is a supply and demand and the income screen that (inaudible) ship is going to have in her life time that determine her price.

So and I’m not sure we believe that prices for new buildings have more to grow on to downsize and the same holds for the second hand ship. Now if in the process, the cost of building ships actually goes down as well full year accounting that the suppliers of the machineries and the steel as well as labor costs are going to determine in their negotiations with each individual shipyard, but the fact that they will be able to sell the ships highly is going to – determine by supply and demand and the yards don’t have much influence over that.

Sal Vitale – Sterne, Agee

Okay, thank you very much.

Andreas Michalopoulos

You’re welcome.

Simeon P. Palios

Thank you.

Operator

There are no further questions at this time. I’d like to hand the floor back over to management for closing comments.

Simeon P. Palios

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

Operator

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

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