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Executives

Edward Nebb – Investor Relations

Simeon Palios - Chairman & Chief Executive Officer

Anastassis Margaronis - President

Andreas Michalopoulos - Chief Financial Officer

Ionnis Zafirakis - Executive Vice President, Director and Secretary

Maria Dede - Chief Accounting Officer.

Analysts

Jonathan Chappell - J.P. Morgan Securities

Justin Yagerman – Wachovia Capital Markets, Llc

Greg Lewis - Credit Suisse

Urs Dur - Lazard Capital Markets

Kevin Sterling - Stephens Inc.

John Mims - BB&T Capital Markets

Brian Luster - The Abernathy Group

Diana Shipping Inc. (DSX) Q2 2008 Earnings Call July 31, 2008 9:00 AM ET

Operator

Welcome to the Diana Shipping Inc second quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Edward Nebb, Investor Relations for Diana Shipping.

Edward Nebb

The members of the Diana Shipping management team who are with us today are Simeon Palios, Chairman and CEO; Anastassis Margaronis, President; Andreas Michalopoulos, Chief Financial Officer; Ionnis Zafirakis, Executive Vice President, Director and Secretary and Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice which you can see in its entirety in the release we issued this morning. .Certain statements made during this conference call which are not statements of historical fact are forward-looking statements made pursuant into the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995.

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

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

Simeon Palios

I am pleased to report that Diana Shipping continued its robust performance during the second quarter of 2008 resulting in record revenues and earnings for the quarter and the year-to-date. Our investment in building a young fleet, our proven chartering strategies and our relationships with high-quality charterers have resulted in a highly visible and consistent revenue stream for the balance of this year. The company also is well positioned to benefit from the positive long-term momentum in the dry bulk shipping market and we are confident that our strategies will continue to produce strong results for shareholders during the months ahead and well into the future.

Now, I would like to point out some of the highlights of the recent period. Then the members of our senior management team will review our market outlook and discuss the financial results in greater detail. Net income was a record US$56.7 million for the second quarter of 2008, an increase of 118% from the comparable results for last year. Our earnings for the 2008 second quarter also reflected a positive trend from the first quarter of this year arising approximately US$3.5 million as compared to the first quarter.

For the six months ended June 30, 2008 our net income was US$109.9 million, an increase of 131% as compared to the first half of 2007. This strong performance for the second quarter and year-to-date was largely the results of higher voyage and time charter revenues reflecting our ability to capture the increase in prevailing time charter rates as well as the expansion of the company's fleet. For the quarter ended June 30, 2008, we operated an average of 19 vessels or three more than the average number for the second quarter of last year.

As you know, we have been working successfully to diversify the fleet and have grown our capacity significantly in the Capesize plus in the recent years. By pursuing a chartering strategy that provides a high degree of revenue visibility in the current market, we have already fixed revenues of between US$163.8 million and US$167.8 million for the 98% to 99% of the days remaining for 2008. Visibility of our revenue stream is a strong indication of our ability to deliver consistent result and lucrative dividends to shareholders throughout the balance of this year.

With respect to the dividend, the company has declared a cash dividend on each common stock of US$0.91 per share for the second quarter ended June 30, 2008. This represents our tenth consecutive quarterly increase in the dividend and clearly demonstrates our commitment to rewarding shareholders through an attractive dividend policy. The cash dividend would be payable on or about August 28, 2008 to shareholders of record as of August 14, 2008. Looking ahead to the balance of 2008, our stable and consistent revenue stream is a source of great confidence and stands in self-contrast to the uncertainties that have impacted many sectors of the global economy.

We believe that our strong balance sheet, prudent fleet management and chartering strategies and excellent relationships with the world's leading charterers have positioned Diana Shipping for continued solid performance in the near-term and will allow the company and our shareholders to benefit from the opportunities in our industry over the long-term.

With that, I will now turn the call over to our President Stacy Margaronis.

Anastassis Margaronis

We will start with a brief look at the freight market development since the end of the first quarter.

On March 31, 2008, the Baltic Dry Index stood at 8,081 points while July 30, 2008 closed at 8,388. The Baltic Panamax Index started the second quarter at 7,867 and at the end of July, stood at 7,524 while the Baltic Cape Index moved from 11,993 to 13,077 during the same period. During this period, the prices of modern ship firm together with long term time charter employment rate across the board. Back to economic data now.

During the year, the IMF lifted the 2008 world growth forecast from 3.7% to 4.1% from the basis that the world economy had remained more resilient than expected in the first half of the year. However, it warned that the world economy is still facing some serious challenges from high oil prices, slowing economies and falling house prices in several Western economies. The OECD, the composite leading indicator of China was up by 2 points in May and 1.9 point higher than a year ago.

China's economic growth slowed for the fourth quarter in a row with second quarter GDP growth at 10.1% compared to 10.6% during the first quarter 2008. This was not a terribly bad news especially in view that with the June drop of the consumer price index to 7.1% year on year from 7.7% in May. Japan's economy grew 3.3% in the first quarter of 2008 as export to Asia and the emerging markets worldwide estimation weathered the US economic slowdown. During the same period, Europe grew at a higher than expected 0.7% led by a 1.5% expansion rate in Germany. The US economic growth was very positive during the first quarter.

In production. We are seeing production numbers are again pretty encouraging. According to Maersk Brokers, broker steel making capacity is expanding rapidly and is projected to increase from 1.6 billion tons in 2007 to around 1.9 billion tons per annum in 2010. Both of the increase was basically in Asia. As regards to iron ore, after a speedy increase in the shipment volumes of iron ore during the first few months of 2008, Chinese stockpiles at port have reached record level. Even though they recently came down to around 73 million tons from 82 million tons, they are still daily double the average volumes over the last couple of years.

Therefore, we would not be surprised if the Capesize trade markets soften slightly for a few weeks while the steel mills work through the stockpile. Another reason for the softness could be the hoarding of production by some of the northern Chinese steel mills due to the Olympic Games. Further we agree with shipping analyst Maersk Broker that the second half of 2008 would see increase in iron ore supply growth if the available logistics and infrastructures can accommodate the existing expansion plans of the mining company.

Looking at the longer term picture, commodity analyst Louis Dreyfus anticipates growth in steel and iron ore trade to double in volume between 2007 and 2015. Chinese composite data showed that China’s imported iron ore in the first nine months of 2008 was up 19.6% year on year at 192 million tons. A lot of it came from Brazil which exported 140 million tons of iron ore worldwide from January to June this year almost 13% more than the equivalent period last year. The ton-mile beneficial effect on trade market was quite obvious.

Australian iron ore export reached the new monthly record of 28 million tons in May, almost 6 million tons more than during May last year. This took the January to May 2008 exports to 126 million tons compared with 104 million tons during the same period in 2007. In the same period, shipments to China increased to 73 million tons, 19 million tons more than last year. Finally, Clarksons Research are forecasting total volumes of iron ore shipments for 2008 to reach 850 million tons, an increase of about 8% from last year with Australian export estimated to increase by about 13%, Brazilian and South African export increasing by just under 10%, Indian export estimated to be reduced by around 2.5% at 88 million tons.

Turning our attention to coal, according Clarksons Research, total seaborne exports of coking coal are estimated to reach 224 million tons during 2008, an increase of 6% compared to last year. Preliminary data suggests that in the first five months of 2008, Australian exports of coking coal was slightly down year on year at a 102 million tons versus 104 million tons last year as a result of the flood which hit Queensland. This will reduce the iron growth of Australian exports of this commodity after the 9.8% increase we witnessed in 2007.

However, the logging shipments from Australia are being counterbalanced by a surge in US export relieving some of the pressure on supply and benefiting freight rate through the ton-mile effect. According to the US Department of Commerce, US coking coal exports to destinations excluding Canada reached 4.13 million tons in May this year. This was more than double the shipments of May last year. As regards to thermal coal, seaborne exports are estimated by Clarksons Research to rise by 3% during 2008 at 589 million tons.

US steam coal export excluding again Canada tipped for the second consecutive months in May at 1.18 million tons but were still more than five times the volume shipped in May last year. Thermal coals stockpiles in China have fallen to around 9 days worth of supply which is lower by about 1/3 compared to the average inventory level. There is little doubt in most shipping analysts' minds that following the conclusion of the Olympic Games in Beijing, demand for thermal and coking coal in China will continue growing and will underpin the growing demand for Panamaxes and Capes.

Grain. International Grain Council are actually forecasting a drop in the seaborne export volumes of grain product during the July to June 2008 to 2009 crop year with volumes dropping to 224 million tons. The main reduction is expected to come from US exports which are estimated to drop by 20% year on year while Australian exports are expected to increase by 80%. Looking at the breakthrough, it is difficult to ascertain the ton-mile effects on demand from seeing the large swings if it will indeed materialize.

Looking at the anticipated increases of imports of China and Vietnam of 29% and 40% respectively, coupled with anticipated reduction in European Union imports by around 50%, we could conclude that the overall ton-mile effect on demand will probably be negative. However, the volumes of grain imported by China and Vietnam are relatively small by world standard hence the inconclusiveness of the calculation.

Wheat production in Australia, forecast to be the world's third largest exporters of this grain, may miss the government estimate as dry weather is expected to cut the yield potential. That would maybe 19.5 million tons this harvest which compared with 23.7 million tons government projection. However, overall the IGC projects the global wheat production to rise during the 2008 to 2009 crop season but taking increased trade will probably be offset by a falling May trade as a result of minimum growth in production.

Congestion now, the weary weather during early June has exacerbated the already chronic port congestion outside new customer's pledge. The terminal operators BWCF has now made a mandatory reduction to quota allocations of 1 million tons for the third quarter after receiving an insufficient response to requests for voluntarily quota reduction that is lowering the previously declared expectation of 91 million tons of shipments in 2008.

SLQs, (Stock Level Quantities) in the meantime, rose again to reach 40 vessels as of June 16. Nevertheless, export capacity from that area is expected to rise to 140 million tons per annum after 2010 from the present shipping capacity of 95 million tons. Apart from the above development, congestions have not changed much since our last conference call and continue to play a role in effectively reducing the supply of available tonnage in the above carrier trade.

Turning to the order book for above carrier tonnage, it has moved on slightly higher since our last conference call standing at 62% of the existing fleet. For Panamaxes, the order book at the end of May this year stood at 45% of the existing fleet while for the Capesize sectors, the equivalent number is 98%. A much analyzed and discussed Greenfield yard problems, as well as credit related issues not forgetting the vital ship building material constraints, will have the effect of dragging out into the future some of these orders while a good number of them will be cancelled all together.

No one can say with certainty the net effect on ship supply figures of all these factors. Most shipping analysts seem to agree that about 25% to 30% of the new buildings on order might never be delivered while the order book should be looked at over a period of about 4 years from now to take into account delay in the delivery of vessels that will indeed be delivered.

But virtually, no large bunker scrapping has taken place this year; the Panamax fleet has grown by about 6% year on year and the Capesize tonnage by 7% year on year. These 28.9 million tons of Capesize bunker is scheduled for delivery in 2009. The Capesize fleet might increase by more than 16% if there is no scrapping or other ship withdrawal. It does not include the by now infamous VLCC [1952] conversion. Over the last nine months, Clarksons estimate that 32 VLCCs have been sent for conversion. Information is difficult to get but Clarksons assumed that 25 are being converted into all carriers and another seven to offshore structure.

Now that the VLCC markets have recovered and earnings increased, some conversion plans are being reevaluated and compared to the double scheme conversion. Only time will tell what the outcome of such deliberations by owners of single house of VLCCs will be. The picture for Panamax ship building is coming on stream during 2009, if much more benign with about 11.2 million tons joining the fleet in 2009, representing only 10% of the existing fleet, assuming again no scrapping or other Panamax withdrawals.

The dry bulk overage fleet will be reaching 30% of the total by yearend, that is ship over 20 years old, it is likely that the wear and tear beyond economic repair and national and international regulations will lead to the scrapping of bulk carrier tonnage over the next few quarters. As usual the numbers will be determined by the freight market and more importantly, the anticipation of future freight market movement.

Future supply and demand balance. We agree with most shipping analysts’ predictions including Maersk and Clarksons that the new building deliveries during the second half of 2008 are expected to be matched by strong growth in demand. However, it is possible that the current high levels of both congestions and the continuing high demand for iron ore and other steel making raw materials will continue to put upward pressure on rates. This appears to be the view of the paper market traders as well. During July, FFA for the fourth quarter was taking upward which seems to indicate that the lower level seen in the physical market would be short lived.

This bullish time for the market would indicate that rate might drive in the coming quarter and stay robust well into the New Year. Looking at the prices of FFAs contract felt into 2009 once again, prices seem to indicate significant market confidence going forward. Another factor often missed by the popular shipping press and some shipping analysts is the availability or rather lack thereof of ship repair facilities for routine vessel maintenance regardless of accidents requiring repairs in dry docks. And it was the case that was filed including the American Bureau of Shipping.

We have noticed a dramatic rise in requests by owners for expansion of those surveys. They ascribed this partly to the strength of the trade market and partly to the lack of available space at ship repair facility. While it is extremely difficult, according to ABS, for a new building shipyard to convert into a ship repair facility. It is not uncommon for surcharges to be paid by some owners to ship repair to adjust the cue for repair and dry docking. This is a new problem owners have to contend with and it has to be dealt with respectively in order to avoid running expenses going higher and/or downtime increasing significantly by ship due for survey waiting for a dry dock.

Risk factors now. We have indeed mentioned in past conference calls the main risk factors affecting this relatively optimistic scenario for dry bulk shipping over the next several quarters. They range from lack of basic ship building materials, to the faltering of demand for commodities, the flooding of the market with new buildings that nobody wants and finally the possible failure of the world financial system on which all shipping transactions depend.

Many observers compared the present banking crisis to what happened back in 1929. In this book, The Great Crash, 1929, Prof. John Kenneth Galbraith identified five weaknesses with an especially intimate bearing on the ensuing depression. One of these weaknesses was the bad banking structure. In 1929, the weakness of the bank was implicit in the large numbers of independent use. When one bank failed, the assets of the others were frozen and depositors elsewhere have decided in wanting to go and ask for their money. Thus one failure led to other failures and these spread with a domino effect. When income, employment and values fell as a result of the depression, bank failures could quickly become epidemic.

This happened to us in 1929. It would be hard to imagine a different arrangement for magnifying the effect of fear. We will use a quote from the above mentioned book, "The weak destroys not only the other weak but weakens the strong. Needless to say that the banking system once in the convulsion of failure but they uniquely with impressive respect on the spending of its depositors and the investment of its client".

It is encouraging to note that governments and central banks worldwide with the exception perhaps of the European Central Bank have taken concrete measures so that the economies in Asia and the Americas both North and South not fall into depression because of the credits crunch and possible bank failure. It is nice that we are well aware of the above disaster scenarios as promptly and wisely when the banking crisis started looming in the horizon with softening clouds gathering fast as a result of fear and speculation as well as poor risk controls on the part of many banks.

This should make us hopeful that the 1929 type of banking crisis has been averted and with that consider the risk for world shipping. Ironically, the credit crunch might come to the rescue of cruising ship owners by causing the cancellation of a number of new building contracts that is because yards cannot get the finance they need to build the ship or because speculative owners cannot raise debt to partly finance the acquisition of new building.

We have repeatedly stressed that our company's strong balance sheet will help our CEO and senior management to safely navigate them in shipping to the stormy waters of any future downturn in the trade market so as to emerge stronger and bigger than before. Having taken advantage of opportunities which will have presented themselves during the down cycle.

I will now like to pass you on to our CFO, Andreas Michalopoulos who will present our second quarter and first half 2008 result.

Andreas Michalopoulos

I am pleased to be discussing today with you Diana's operational results for the second quarter and six months ended June 30, 2008.

Second quarter of 2008. Net income for the second quarter of 2008 amounted to $56.7 million, an increase by $30.7 million or 118% compared to $26 million for the same period in 2007. This increase is attributable to increase average hire rate and also to the enlargement of the company's fleet that went from 17 vessels at the end of second quarter of 2007 to 19 at the end of the second quarter of 2008. The earnings per share of Diana Shipping amounted to $0.76 for the second quarter of 2008 compared to $0.41 for the same period in 2007.

Voyage and time charter. Revenues increased by $42.8 million or 97% to $86.8 million in the second quarter of 2008 compared to $44 million in 2007. The increase is attributable to increased average hire rate and the increase in the number of vessels in the fleet after the acquisition of the Semirio in June, the Boston in November, the Salt Lake City in December 2007 and Norfolk in February 2008. This increase was partially affected by the decreasing revenue due to the delivery of the Pantelis SP to its new owners in July of last year.

Ownership days were 1,729 for the second quarter of 2008 compared to 1,444 in the same period of 2007 due to the enlargement of the fleet mentioned earlier. Fleet utilization was 99.9% in the second quarter of 2008 and 99.8% in the same period of 2007. The daily time charter equivalent rate for the second quarter of 2008 was $47,844 compared to $29,081 for 2007.

Voyage expenses increased by $2 million or 100% to $4 million in 2008 compared to $2 million in 2007. The increase in voyage expenses is attributable to the increase in revenues which created high commission payments. Operating expenses increased by $3 million or 43%, to $9.9 million in 2008 compared to $6.9 million in 2007. The increase in operating expenses is attributable to the 20% increase in ownership days, resulting from the delivery of the new Capesize vessels to our fleet and increases in crew wages, insurances, and repairs and the exchange rate of US dollars to euros. Daily operating expenses were $5,702 for the second quarter of 2008 compared to $4,784 in 2007 representing an increase of 19%.

Depreciation and amortization of deferred charges increased by $5.6 million or 104%, to $11 million for the second quarter of 2008, compared to $5.4 million for the same period in 2007. This increase is attributable to the increase in the number and size of the vessels to our fleet. General and administrative expenses increased by $1.6 million or 70%, for the second quarter of 2008 to $3.9 million compared to $2.3 million in 2007. The increase is mainly attributable to increased expenses relating to our annual meetings, company promotion and traveling expenses to accrued employee cash bonus and compensation on restricted stock which did not exist in 2007 and to the exchange rate of US dollars to euros.

Interest and finance costs decreased by $0.3 million to $1.5 million for the second quarter of 2008 compared to $1.8 million for the same period in 2007. The decrease is attributable to the decrease in interest rate which resulted to reduced interest costs relating to long-term debt outstanding during the period. For the six months ended June 30, 2008 compared to six months ended June 30, 2007 now. Net income for the six months ended June 30, 2008 amounted to $109.9 million an increase by $62.4 million or 131% compared to $47.5 million for the same period in 2007. The increase is attributable to improved trading condition and the increase in the size and number of the vessels in our fleet.

Voyage and time charter revenues increased by $83.1 million or 101% to $165.6 million in the six months ended June 30, 2008, compared to $82.5 million in 2007. The increase is attributable to increased average hire rates in 2008 compared to the same period of 2007 and the enlargement of the company's fleet. This increase was partly offset by the decrease in revenues due to the sale of the Pantelis SP and its delivery to its new owners in July 2007 which derives revenue during the first six months of 2007 that did not exist in the same period of 2008.

Ownership days were 3,417 for the six months ended June 30, 2008 compared to 2,794 in the same period of 2007. The increase in ownership days resulted from the enlargement of the fleet. Fleet utilization was 99.9% for the six months ended June 30, 2008 and 98.9% for the same period of 2007. Daily time charter equivalent rate was at six month ended June 30, 2008 was $46,533 compared to $28,212 for 2007.

Voyage expenses increased by $2.9 million or 78% to $6.6 million in 2008 compared to $3.7 million in 2007. Voyage expenses mainly consist of commissions and income or loss from bunkers during the delivery and redelivery of the vessels. Increased in voyage expenses is attributable to the increase in commission which are a percentage of revenues and was partly offset by income resulted from the sales and purchase of bunkers at the delivery and redelivery of vessels amounting to $1.1 million for the second quarter 2008 compared to $0.2 million in the same period of 2007.

Operating expenses increased by $5.7 million or 43%, to $19.1 million in 2008, compared to $13.4 million in 2007. The increase in operating expenses is attributable to the increased ownership days resulting from the increase in the number and size of the vessels to our fleet and increased crew costs, insurances, repairs, stores and spares and the exchange rate of US dollar to euros. Daily operating expenses were $5,582 in 2008 compared to $4,806 in 2007 representing an increase of 16%.

Depreciation and amortization of deferred charges increased by $11 million or 108% to $21.2 million for the six months ended June 30, 2008 compared to $10.2 million for the same period in 2007. This increase is the result of the increase in the number and size of the vessels to our fleet.

General and administrative expenses during the six months ended June 30, 2008 increased by $3.1 million or 70% to $7.5 million compared to $4.4 million in 2007. The increase is attributable to $1.6 million of accrued cash bonuses and compensation costs under restrictive stock during the six months ended June 30, 2008 which did not exist in the same period of 2007 and to the exchange rate of U.S. dollar to euro.

Interest and finance costs during six months ended June 30, 2008 decreased by $0.9 million or 23% to $3 million compared to $3.9 million in 2007. The decrease is attributable to reduce interest as a result of the significant decrease in LIBOR rates for the period, partly offset by the increase weighted average debt outstanding during the first six months of 2008 compared to the same period in 2007.

Insurance settlement for vessel un-repaired damages amounted to $0.9 million and relate to cash received in the first quarter of 2008 for un-repaired damages claim for the motor vessel Coronis during the previous year. Turning to dividend policy, for the second quarter of 2008, the Board of Directors has decided to declare a dividend of $0.91 per share. Diana declares and pays quarterly dividends that are substantially equal to available cash from operations during the prior quarter. In calculating the cash dividends, we take into account expenses; dry docking reserves, contingent liabilities, and capital needed to support the company's operations.

Pursuant to our amended dividend policy of December 22, 2006, the second quarter dividend has not been increased with interest expense and is not calculated as if we were to finance with equity for the outstanding debt as the qualifying debt on our balance sheet was on or about $150 million. Thank you for your attention.

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

Question-and-Answer Session

Operator

(Operator Instruction) Your first question comes from Jonathan Chappell - J.P. Morgan.

Jonathan Chappell - J.P. Morgan

My first question is what most people would think as an enviable position of having eight Panamax up for renewal by the end of the first quarter of 2009, with the market sentiment that Stacy kind of laid out of a stronger fourth quarter, what kind of chartering strategy are you looking at for those eight ships? I mean will you do a mixture of short term and long term charters and also would you start to look to lock in today or do you want to wait until you are closer to the renewal period?

Simeon Palios

Yes, indeed we have seven vessels which are coming open until the end of the first quarter now if you take the average of these seven vessels that are implying today, you will see that the average rate is $51,000 a day. Now, as we are coming closer to the delivery of those vessels, it looks that for the three year period we have in front of us excess of $55,000 from first class charters. Now, you have to come a little bit closer to the redelivery to get 75 today or one year. So, we are going to play it between the three years and one year. That is what the intention is.

Jonathan Chappell - J.P. Morgan

On the growth side, two questions, first of all, no ships scheduled for delivery in 2009 and relative to some other public companies you have been kind of quiet on the acquisition front. Is there just not enough quality tonnage that attracted prices out there or can you not make the returns work given current asset prices and current charter rate?

Simeon Palios

We are, of course, certainly on the lookout for Capes and Panamaxes and there are ships which are accretive to the dividend per share. So, we have very much in mind to do something, provided of course the capital markets are there for the quarters.

Jonathan Chappell - J.P. Morgan

Now actually it did lead into that final question regarding financing. Would any growth in 2009 be reliant on capital market or if the right acquisition came along that the capital market might not be open, would you adjust your debt strategy and take the financing on short term to fund that acquisition?

Simeon Palios

No, we will always be consistent to what we have said. So, we are not going to get bank debt at this particular moment. We are only going to raise equity from the capital market.

Operator

Your next question comes from Justin Yagerman - Wachovia.

Justin Yagerman – Wachovia Capital Markets, Llc

My first question, yes it has to do with the timing of the Cape deliveries that you have. Right now they are scheduled for 2010 but at different points you have alluded to the possibility of early deliveries from the shipyards as well as we have seen at least a few examples of early deliveries take place in the market with other companies. So, we are just curious what you are hearing from the shipyards now in terms of the progress of those vessels and what you think the timing of those Cape deliveries will actually be?

Simeon Palios

I think Justin we will be in a better position in the beginning of the year to give you a more accurate info as far as to when we expect delivery of those two ships. The yard is a very strong yard. They are very reputable and they always have a reputation of delivering ships well ahead of schedule but we cannot, at this stage, tell you a more accurate delivery position than what we have on the contract but we are expecting delivery to be closer or earlier than what we have on the contract but we will know in the beginning of the year, 2009.

Justin Yagerman – Wachovia Capital Markets, Llc

And I am right in remembering that the contract that you have signed on one of those Capes allows for an early delivery and actually incentivize you on it?

Simeon Palios

Well, yes. The incentive was there because the yard is always delivering the vessels earlier than schedule but I am not in the position to tell you at this particular moment because they have not started cutting the steel for that particular ship. They would be cutting the steel in the early 2009 and then I will be more accurate on the delivery.

Justin Yagerman – Wachovia Capital Markets, Llc

Sure and then I guess piggybacking on Jon's question with the Cape delivery coming, you still got one of them open for 2010, how far in advance of the delivery of that vessel do you think you want to sign it and I guess how are you thinking about that over the next year or so?

Simeon Palios

We are very relaxed on this because we have quite a number of first class people who are sniffing around and if you take into consideration the price we have paid for acquiring this tonnage, the daily rates are quite handsome and we are looking to see what we can get and we know what we can get from a first class star vessel and we are watching it.

Anastassis Margaronis

I may add on delivery timing, the issue here has become even more complex by what I incurred quickly on the supply of ship building material. More and more pieces of equipments from machinery to steel are becoming a problem for even an established shipyards to procure on time so where they might be a willingness of the shipyard to actually devote the labor to produce and deliver the ship early, there is very little they can do if they do not have the ship building materials in place. So, Simeon is very correct in answering this question cautiously and personally I have some doubts that even in early 2009, shipyards will have a clear picture as to the procurement timing of their ship building materials. This is not a very new phenomenon but beginning to become a more serious problem and we are seeing delays in delivery by yards that have no problem in actually delivering with the financial or otherwise but purely ship building material related. So, we have to watch very carefully what our shipyards will be doing.

Justin Yagerman – Wachovia Capital Markets, Llc

Looking at OpEx and thinking about current cost and the rise in other components that go into that line item, are there any contracts that would influence the timing of increases in OpEx as we go out over the next 12 months and I guess my other question would be what kind of magnitude of OpEx increases are you guys anticipating as we look out over the next 12 months or so?

Andreas Michalopoulos

I think that there is nothing extremely specific that would indicate having increase of OpEx apart from the usual increases that happened. For example, we know and we said many times on this conference call that crew costs are renegotiated during the third quarter and once we negotiate it and agreed upon they are given retroactively for the entire year during that quarter. Apart from that and apart from not being able to very well guess the euro dollar type rate which influences some of the crew costs and some of the staff, we have not seen something that is really indicating to us something different than what you see for the moment in our operating expense..

Justin Yagerman – Wachovia Capital Markets, Llc

Andreas, do you have color on the Q3 negotiations on crew costs, is that something that you can share, it is some kind of magnitude of increase that you are expecting in Q3 or is that already kind of baked into this quarter's numbers? How should we be thinking about that?

Andreas Michalopoulos

There is nothing into this quarter's numbers and unfortunately we do not have yet color if this happens during the end of the quarter so we do not have yet color of where the negotiations are going to go.

Justin Yagerman – Wachovia Capital Markets, Llc

The actual impact would be more in Q4?

Andreas Michalopoulos

On Q3, it will be. We expect it be on Q3. If this drags along, it might be on Q4 but we expect it to be on Q3.

Justin Yagerman – Wachovia Capital Markets, Llc

Okay and then finally on G&A, I saw little kick up there and was just curious at how you expect that to run as we go through the rest of the year.

Andreas Michalopoulos

Actually the uptake of the G&A was really due to this cash bonus accrual that we have decided to make from the first quarter. You are asking that that increase if you compare the first quarter to the first quarter of last year, you will also see an increase and this is really due to this cash compensation accrual that we have cautiously decided to have and that we did not have last year because we did not know we will going to get any kind of cash compensation. So, I would not expect that number also to change significantly over the next quarter. It should be where you are at the moment.

Justin Yagerman – Wachovia Capital Markets, Llc

When you are talking about the equity markets needing to be there for an acquisition, how do you guys internally evaluate that because your stock is been above net asset value for quite a while and I guess in terms of thinking about the health of the equity market when evaluating acquisitions, is that just one part of the criteria? Is your fear that if you did an equity offering in this type of an environment that the stock would take a hit that could take a down towards net asset value or potentially below, where are your fears about the equity market that have constrained you thus far from making accretive acquisitions?

Anastassis Margaronis

I think, Justin that there are series of things that we look at internally when we consider either an acquisition or [a new fleet 4901]. I think the most important one is the fact as Mr. Palios stated, we do not want to change our strategy at this moment and therefore we do not want to be forced to change our strategy and you can very well imagine the scenario where we acquire vessel accretive to a dividend per share, try to go for an equity offering, get on a very volatile market, as it was during the past months and then be forced to acquire that vessel we have got. This is something we have said to our investors very openly that we are not too glad to do at this point in time. So, this is one part of the equation. I guess the most important one and the other one is that, obviously, we look at the volatility of our stock and we would like to see equity markets be a bit more stable and we feel this might happen and also we are looking at the yield which is the main criteria we would like investors to focus on. So, all that I think makes us evaluate internally but still being focused on continuing to grow.

Simeon Palios

Justin just to add something regarding your question whether we are afraid of going below net asset value, this we do not think that this is something that is going to happen to our company because every time we do an offering, it is accretive to the dividend per share that you guys foresee and we have proven that in the past. So, basically we are not afraid of getting a big discount to our stock price. What we hope is an increase to our stock price because we are improving our numbers every time we do an offering.

Operator

Your next question comes from Greg Lewis - Credit Suisse.

Greg Lewis - Credit Suisse

Looking at depreciation, it was up quarter-over-quarter and I am just wondering why you need, the fleet did not really change. Was there like a different accounting policy for that?

Anastassis Margaronis

Not at all. No change in accounting policy just because of the Capesize vessels that one, we were bigger and two, we were more expensive and this is we had more Capesize vessels in our fleet since last year.

Greg Lewis - Credit Suisse

No, I am talking about Q1 of 2008.

Anastassis Margaronis

Oh, well for Q1 of 2008, in Q2, we had motor vessel Norfolk that was in full steam and in Q1 it was delivered only on the 12th of February so that is why you saw an increase. Apart from that, there was no change in that standard calculation.

Greg Lewis - Credit Suisse

Okay and then just more of a broad question, have you been approached by either owners that cannot get financing and want to sell their new building contract or by shipyards that has contracts with owners that are skeptical on their ability to deliver payment that can potentially get any vessels?

Simeon Palios

Not yet but we are expecting something to come.

Operator

Your next question comes from Urs Dur - Lazard Capital Markets.

Urs Dur - Lazard Capital Markets

I would like to, if possible, revisit the growth strategy here, I do see even though it was mentioned in the call that in our next year calendar 2009 especially in the FFAs that it is very firm but it is sloping down more than it has been in recent weeks. If the equity markets are volatile here and you would like to use them and we have a downward sloping curve, I mean what is the optimal timing of growth or is it just simply going to be opportunistic and accretive on the share when you see it?

Simeon Palios

Well I think that the slope pointing south today can easily change and point north tomorrow.

Urs Dur - Lazard Capital Markets

I think people even though the order book is large, a lot of it is going to be delayed but some of it, we do look at that but most people are still figuring the order book is exceeding demand growth.

Simeon Palios

The paper may look south but the actual long-term charters looking vessels on what they were last May for example…

Urs Dur - Lazard Capital Markets

Oh, I can see that. The long term activity is very healthy so that is excellent for you guys. Alright, excellent and thank you for that and then the other thing is, I am just wondering, are there any adjustments on the balance sheet coming out that might effect operating cash flow in the next quarter next year, Andreas that we should be aware of?

Andreas Michalopoulos

Not specific adjustments in the balance sheet, no.

Operator

Your next question comes from Kevin Sterling - Stephens Inc.

Kevin Sterling - Stephens Inc.

It relates to the levels of, I do not know, with the Chinese portion. As you mentioned, it is relatively high compare to the historical norms but I was wondering if I could get your sense of the inventory levels, actually at steel mills. Are this inventory levels relatively low?

Anastassis Margaronis

There is a very little information on the steel mill inventory and from what we have seen which is by no means reliable that a relatively small compared to the fourth stock pile but we do not have any reliable figures for the steel mill stock piling.

Operator

Your next question comes from John Mims - BB&T Capital Markets.

John Mims - BB&T Capital Markets

So, in the earnings and some of the recent reports we have seen some indications of rising scrap steel prices over the last quarter. Are you seeing that in you market and you think that will have any impact on ships scrap rates?

Anastassis Margaronis

Well, under different circumstances it would have but considering now the earnings of all the units compared to the scrap values or any increase in the scrap value that we have witnessed over the last couple of quarters, no we have not seen any impact yet. The earnings of the old ship are too strong for the impact of any increase in the scrap values to change the decision over the owners to trade or scrap. It is mainly because of passing the survey still that are going to be determining factor together with their anticipation about the future trend of the trade market.

John Mims - BB&T Capital Markets

Looking at the Baltic spot rates, it seems to have fallen off in the last month, is that softness? Would you say that is mostly Olympics related as looking ahead of that or is there is something out there that you have some colors about?

Simeon Palios

Well, it is the combination of the excess tonnage and the lack of fresh port cargoes could put further pressure on rates but then we believe that come September, October, we will have a different scenario all together.

Operator

Your next question comes from Brian Luster - The Abernathy Group.

Brian Luster - The Abernathy Group

Currently your equity is yielding somewhere depending upon the day between 10% and 13% which is equivalent to sort of type of financing that you might be entering into if you use equity for purchase of new equipment. Can you help us understand why you would consider equity more attractive than debt given the latitude or the ability that you have to increase debt on the balance sheet at rates somewhere in that 6% to 7.5% level?

Simeon Palios

Correct, you see we have first to understand where we stand in the shipping cycle nowadays and we are certainly in upper half of the business cycle in shipping meaning that we are in the cut flow environment. Being in a cut flow environment we have an expensive asset, the only way you can purchase them is by using equity and then rewarding yourself as by giving back as a dividend the nice cash flow that you have. If you were to purchase a vessel today, let us say, at $150 million and get a debt amount of the 50% that is $75 million, you are entering into a different risk profile as a company. It is not difficult or it is not something that we have not seen in the past. Of the $150 million asset going down to $50 million and then you are financed a 120% on that asset meaning two things. First of all, you would have an issue of survival in the vat market and secondly, equally important, you will have missed a lot of opportunities of buying lots of vessels at the $50 million fee.

This is the policy of Diana over the last years; we have considered the benefit of being strong in the full cycle as more important than the difference of the cost between debt and equity. We feel that the difference between those two is justified because of the opportunities that will arrive one time in the future.

Brian Luster - The Abernathy Group

Either way it though it seems as if you are taking on the exposure of the new equipments whether you are using debt or equity and currently the market is forcing you to pay something in the area of 10% to 12% for using the equity's market versus the debt market requesting something in the 7%, you have 1% one way or the other market so you are seeing like the road to less finance charges will certainly be the debt market. I understand your thesis on being above the midpoint in shipping cycle and its valid but given the financial situation of the world now, it seems like some of the supply that we thought were sort of schedule to come on maybe constrained and I hope you will just reconsider all of those options for the shareholders interests. At some point, we shareholders I am sure all appreciate you are protecting us but using financing the least expensive might be possible to…

Anastassis Margaronis

You are forgetting your way of thinking something by creating as a premium to net asset value; you understand that our currency everytime we issue equity is much stronger than the cash, meaning that we are not paying the full price of the asset that we are buying. This is something that you should put in your calculation when you are referring to a difference between debt and equity cost. That is one issue and secondly, provided we are buying more than assets the difference of the asset value today and where the market growth is irrelevant because we are not going to be forced to sell it though in a best situation, it is not going to be relevant because you are going to have some clauses in your debt financing deficits that the banks will take over about that and this is very important.

So, we have from the one side the strong currency by trading at a premium to net asset value therefore we do not pay the full price for the vessel in effect and secondly, we do not have to worry about net asset value and values to acquire vessels.

Brian Luster - The Abernathy Group

One further question, the equipment that you are looking at, is the equipment that you are focusing on likely to be from shareholder's options? Meaning new builds that was having an earlier delivery than normal or is it more focused on equipment that is in use?

Anastassis Margaronis

Our policy and our model is we stayed in a sense that we put the money that we raise at work as soon as possible, very quickly in order for not being dilutive for the period as we do not have the equipment as you say. So, basically we prefer assets that they are in the water or just about to enter the water in order to put them at work accretive to our dividend per share.

Brian Luster - The Abernathy Group

How old do we go with equipment that is in the water?

Anastassis Margaronis

The other we want to buy something relative below our average rate of today which is below four years. So, basically we have to choose the modernity of our fleet.

Operator

Thank you and that concludes our Q&A for today.

Simeon Palios

We are proud of the strong results that our company has produced for the first half of 2008 and we look forward to sustain our performance as the year progresses. As always, we thank you for your interest in and support of Diana Shipping Inc. Thank you.

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Source: Diana Shipping Inc. Q2 2008 Earnings Call Transcript
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