Diana Shipping Inc. (DSX) Q3 2014 Earnings Report, Transcript and Summary

Greetings and welcome to Diana Shipping’s Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Ed Nebb, Investor Relations Advisor. Thank you Mr. Nebb, you may begin.

Thanks very much Robb and thanks all of you for joining us for the Diana Shipping Inc. 2014 third quarter conference call. The members of the Diana Shipping management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Operating Officer and Secretary; and Ms. Maria Dede, Chief Accounting Officer. Before management begins their remarks, let me briefly summarize the Safe Harbor notice. Certain statements made during the conference call, which are not statements of historical fact, are forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act. The forward-looking statements are based on assumptions, expectations, projects and beliefs as the future events that may not prove to be accurate. For a description of the risks and other factors that may cause future results to differ from what is expressed or forecast in the forward-looking statements, please refer to the company's filings with the Securities and Exchange Commission. And now with that, let me turn the call over to Mr. Simeon Palios, Chairman and CEO of Diana Shipping.

Thank you Ed. Good morning and thank you for joining us today to discuss the results of Diana Shipping Inc. for the 2014 third quarter. During the recent quarter Diana Shipping delivered positive net income while also utilizing our strong capital position to enhance shareholder value by expanding our fleet and repurchasing of our common shares in the open market under our share repurchase program. To review our financial results the company’s net income was US$7.7 million and net income available to common stockholders was US$6.3 million for the third quarter of 2014. This compared to a net loss and net loss available to common shareholders of US$3.2 million in the third quarter of 2013. The results in the 2014 third quarter included income from the company’s investment in Diana Containerships Inc. Time charter revenues increased to US$45.1 million for the third quarter of 2014, from US$41.9 million for the same quarter of 2013. The 7.6% increase over the year-ago period was mainly due to the enlargement of our fleet partially offset by decreased time charter range. The company ended the 2014 third quarter with a solid balance sheet reflecting cash and cash equivalents of more than US$201 million. Long-term debt including the current portion was US$452.2 million compared to stockholders equity of over US$1.3 billion. Our solid capital position enabled the company to take advantage of the share repurchase plan previously authorized by the Board of Directors in May 2014. Specifically Diana Shipping repurchased and retired 1,038,645 shares at an aggregate cost of approximately US$10.0 million during the recent quarter, reflecting an average repurchase price of US$9.65 per common share. As a result the company issued an outstanding shares as of September 30, 2014 decreased to 82,352,725. Additionally the company has deployed it’s financial resources to continue the strategic expansion of its fleet. In November 2014 we took delivery of the motor vessel G. P. ZAFIRAKIS a newly built Capesize size dry bulk vessel of 179,492 tons dead weight. Including this vessel Diana Shipping Inc.'s fleet now consists of 39 dry bulk vessels. Two new Kamsarmaxes, 11 Capesize, three Post-Panamax, three Kamsarmax and 20 Panamaxes. As you may recall we also expect to take delivery of two new building Newcastlemaxes dry bulk vessels and one new building Kamsarmax dry bulk vessel during the second quarter of 2016. We continue to manage the fleet in a manner that we believe reflects a prudent balance of time charter maturities and produces a predictable revenue stream. Currently, our fixed revenue days are 99% for 2014 and 35% for 2015. Our recent time charter -- reflect our emphasis on doing business with highly respected partners. For example, the G. P. Zafirakis was time chartered to RWE Supply & Trading GmbH, one of our Kamsarmax dry bulk vessels the motor vessel [indiscernible] as well as Panamax, the motor vessel [indiscernible] also were charter to RWE. The motor vessel [indiscernible] at Panamax was time charter to Cargill International S.A. in quarter. Glencore Grain charter the Panamax [three ton] [ph] and Bunge S.A. charter the Panamax [indiscernible] in July. These relationships underscore the company’s ability to serve the needs of some of the industry’s most prominent charters. We are pleased with the Company’s financial and strategic progress during the latest quarter and we look forward to continuing to pursue our efforts to strengthen and maintain our financial flexibility to grow our fleet and to deliver a long-term shareholder value. With that, I will now turn the call over to our President, Stacey Margaronis, for a perspective on the industry conditions. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a financial overview. Thank you.

Thank you Simon. Good morning and a warm welcome to all the participants to this quarterly conference call of Diana Shipping Inc. During the last few months we witnessed extreme volatility as we got large [indiscernible] earnings. On June 30th Baltic Grains explore that 650 and on the last trading day of September it stood at 1,053. Yesterday the index closed at 1,317. The Baltic Cape Index started at the third quarter of this year at 1,871 and yesterday closed at 2,975 having reached a peak of 3,781 on November 4th of this year. And for the Baltic Panamax Index on June 30th it closed at 423 and yesterday it stood at 1,059 having reached a peak of 1,241 on November 3, 2014. Sentimentally the large rolling these wide movements and from euphoric it became pretty negative within the space of a few weeks. Capesize average earnings for 2014 stand up to 14,089 per day while on October 31st it has gone up to 24,625 per day. For the Panamax numbers were less spectacular with a beautiful average of $7,705 per day for 2014 and $9,660 per day on October 31st. We’re trying to explain these movements and look at the forecast made by some of the most profitable dry bulk shipping analysis. The current economic growth according to the IMF is forecasted to grow at 3.3% this year and 3.8% for 2015. This was primarily caused by downgrades in their outlook for the Eurozone, Russia, the Middle East and Japan. For 2015 the rate of growth is estimated to be 3.8%. This represents a slight downward revision of the forecast given in July which was 4%. The U.S. economy is expected to grow by 2.2% this year. The IMF's forecast for growth in the Eurozone as a whole is 0.8% for 2014 and 1.3% for 2015. We also warned of the downside risk to growth projection the prices are allowed by the European Central Bank to drift lower. According to [indiscernible] ACM, China’s industrial output grew 7.7 in October from a year ago while retail sales grew 11.5% in the same period. Economies were expecting growth of 8% and 11.6% respectively. Sluggish factory production in recent months and the weakening housing markets have been putting the Chinese’s government's annual growth target of 7.5% at risk. According to the World Bank growth in China will fall to 7.4% this year, and 7.2% in 2015 a further drop to 7.1% is envisaged for 2016. Chinese gross domestic product grew 7.3% during the third quarter of this year compared to the same period in 2013. The euro zone saw a marginal upturn in the growth of business activity in October with October’s PMI rising to 52.2 from 52 in September. However the German government announced its growth forecast for this year to be 1.25%, down from an earlier estimate of 1.8%. For 2015 the forecast is now down to 1.3%. These downward revisions were the result of a slowdown in growth in the euro zone which has affected German export to the region. Let’s look at steel production now. According to the World Steel Association global steel use will increase by 2% to 1.562 billion metrics tons in 2014 following growth of 3.8% in 2013. For 2015 world steel demand is expected to grow by another 2% and will reach 1.6 billion metric tons. As for Chinese steel demand this is expected to grow by only 1% to 748.3 million metric tons this year mainly due to the cooling down of the real-estate sector and the government’s efforts to rebalance the economy. The weak growth momentum will probably continue into 2015 and the WSA forecast that steel use will grow by 0.8% in 2015 and reach 754.3 million metric tons. Iron ore now, as regards iron ore Clarkson's forecast an increase of 7% in the volumes shipped worldwide. The main factor in this increase is as usual Chinese demand. The forecast input to China to reach 994 million metric tons which will be 8% higher than this year’s total. Clarkson's however the Chinese government’s intention to reduce both pollution and overcapacity in the country's steel sector as a down size risk to growth next year. Large miners such as Rio Tinto, Vale and BHP Billiton all planned production increases in their 2015 financial year which ends in June 2015. They also wish to improve supply chain productivity, this will ensure ample supply of this commodity over the next few months which will probably keep prices in check. Additional growth in overseas production will accelerate imports of iron ore to China as iron ore prices will continue to be pushed down below Chinese mining company's breakeven cash cost. Howe Robinson reports that Chinese iron ore production will decline 15% to 339 million metric tons this year compared to 2013 and drop to 236 million metric tons in 2015. As regards iron ore [for supply] [ph] these have been declining recently and now stand at approximately just over a 100 million tons. However they still remain at near record level and they are 24% higher than at the same time last year. Strangely enough though, these high profiles have not at least for the time being restricted Chinese iron ore imports. Coking coal now, Clarkson's are forecasting an increase of about 2% in the total shipments of coking coal in 2015, for them to reach 273 million metric tons. This year Clarkson cited the newly imposed import duty on imported coaking coal in China and the general decline in import as the main reasons for the drop in 2015 Chinese imports of coal to 45.6 million metric tons compared to 48 million in 2014. However according to Commodore Research, China and Australia have finalized their free-trade agreement talks and the tariffs on Australian coking coal imports have been removed. This is in contract to the tariffs on thermal [ph] coal imports from Australia which will remain in place for another two years. Meanwhile according Clarkson Indian steel outsource capacity is expected to continue to expand which is likely to support Indian imports of coking coal in 2015. Currently India’s coking coal imports are projected to rise 9% year-on-year to 46.2 million metric tons in 2015. The main downside risk to this forecast is the Indian government’s promotion of domestic coal production which policy started last year and is expected to continue for the foreseeable future. Thermal coals now exports are expected by Clarkson to reach 960 million metric tons which if it materializes will be a 2% increase compared to last year. Clarkson expects in 2015 growth in Indian steam coal imports will slow to 7% from 11% projected for 2014. The reason is again the Indian government's pressure on domestic miners to raise coal production. Against this trend comes the fact that power plant profiles in India are in need of urgent restocking as there are only 8.4 million metric tons. This should work in favor of coal imports to India at least in the near-term. Chinese steam coal imports are projected to soften in 2015 as the current introduction of restrictions on the quality of coal that Chinese allow to import and a 6% tax on import will limit trade next year. Coal stockpiles in Chinese ports have been rising recently but more importantly power plant profiles remains stubbornly high at 93.5 million metric ton. A possible explanation for this is the fact that China have seen larger year-on-year increases in hydro power production which may have limited thermal coal derived electricity production and allowed power plants coal stockpile to rise to a very high level. In the next quarter Indonesia is expected to remain the largest seaborne supplier of steam coal with initial projections indicating that exports will rise by 1% to reach 421 million metric tons in 2014. Turning to the grain trade now. Unfortunately this trade is not expected by Clarkson to provide much support to the bulk carrier earning during the 2014, 2015 grain season. And total import has expected to go down 299 million metric tons which if it materializes will be 5% lower than the previous season. A couple of factors may have contributed to this gloomy forecast and they are: first, an anticipated recovery of China’s wheat crop during the 2014, 2015 crop year leading to a decrease in wheat imports and secondly imports of maize that are anticipated to decline due to very high stockpiles in China which have reportedly built-up this year due to slower growth in Chinese domestic demand and the increased government purchases of corn. In combined wheat and cost grain exports from the United States are currently projected to decline 9% to 71.9 million metrics tons in 2014, 2015 crop year partly reflecting the expected reduction in import demand for wheat by countries such as China referred to earlier on. Quick look at slow steaming now, according to Clarkson's in the bulk sectors operating cost gains from slower speeds are less dramatic than other sectors due to their location at the shallower point from the speed consumption curve. This means that we lower [indiscernible] prices and improve markets, operating speeds will probably increase again quite quickly. This might bring more tonnage to the market. The same does not hold for other [indiscernible] ships such as container vessels which require [indiscernible] prices to drop quite a bit further in order for them to operate again at higher speed. Let’s turn to contracting activity. According to Clarkson’s contracting activity indicates the sector has slowed somewhat this year with 114 vessels order down 11% year-on-year in terms of that way. However, in the first nine months of 2014 the Capesize order book grew 3.6% in terms of deadweight to stand at 377 vessels of a combined 74.9 million deadweight tons. During the same period 22 vessels were scraped. As of Panamaxes from January to September this year 108 vessels were ordered mainly Kamsarmaxes while 45 ships were scraped. Let’s look at the new building order book. According Clarkson the bulk carrier order book at the end of October this year stood at 2,092 vessels with a combined 174.5 million deadweight ton capacity representing 23.1% of the existing fleet. The Panamax order book consisted of 436 vessels of a combined 35.4 million deadweight ton which represented 18.3% of the existing fleet. The standard Panamax vessels in order represent a near 3.95% of the existing fleet. Most ships on order in this size category are indeed Kamsarmax. Again according to Clarkson the Panamax fleet is expected to grow by 6% this year and by a further 4.3% in 2015. As for Capes, at the end of October, there were 371 vessels in order representing a total of 73.4 million deadweight ton and 23.9% of existing fleet. The Capesize fleet is expected grow by 5% this year and by further 5% in 2015. According to RS Platou slippage was around 28% last year and so far this year it has been running at an annualized rate of just 13%. Demand now, according to Clarkson this year total dry bulk carrier trade will reach 4.525 billion tons, an increase of 4% compared to last year. In 2015 they see this number going up to 4.69 billion tons, if this materializes it will be an increase of a further 4% from this year. What will the supply now look like? According to Clarkson as the order book runs down fleet growth will move into more realistic territory and they project 5.2% growth in 2014 and 4.6% in 2015. This is much more in line with the growth in demand discussed above suggesting that over the next two years, the total surplus bulk carrier capacity will mark time as the volume delivery continues to edge lower. This shows the importance of new contracting or rather the lack of thereof to the arrival and longevity of healthier bulk carrier earning. Capsize delivered in 2013 ended at less than one-third of 2007 delivery according firmly. However in 2014, deliveries of Capes were higher than in 2013 and then fortunately in 2015 they are expected to be even higher. The capsize fleet is expected to grow as we said earlier by 5% this year. The Panamax fleet grew by about 12% last year and is expected to grow by a further 7% this year. Malaysian, according to Clarkson’s only 20 Capes and 30 Panamaxes were sold for the Malaysian thus far in 2014. These numbers are 33% and 25% lower than last year respectively. As recall the dry bulk fleet has seen only 184 vessels scarp so far this year, compared to 434 during 2013. According to [indiscernible] about 21 million deadweight tons of bulk carriers which scrapped in 2013 down from 33 million in 2012. This year’s scrapping is expected to be no more than about 60 million deadweight tons. One of the factors which is discouraging owners to scrap their vessel is the low average of the fleet which was standard Panamax’s 11.5 years but this Kamsarmax and Post-Panamax’s are included it is much lower than that and for Capes' just 7.6 years. The market will need to deteriorate much further for such young vessels to be scrapped, this becomes even more obvious if we take into consideration the fact that only 8.5% of the bulk carrier fleet is over 20 years old, most of these vessels are indeed small bulkers. Let's turn to the supply demand balance. According to RS Platou, China is the largest importer of dry bulk commodities accounting for 40% to 50% of demand for seaborne transportation of dry bulk. Consequently the recent signs of a slowdown have caused serious concerns. Add to this a more pronounced shift to find solution to imposing a ban on polluting coal, import tariffs mentioned above and finally vale for during more of its own tonnage to haul long distance iron ore and the dry bulk markets have taken a hit which are as Platou believes will continue for a while. We expect the result of demand growth being closed to expect the supply growth to be volatility and further expect average time charter rates for next year of about US$18,000 per day for Capes and no more than $11,000 per day for Panamax. According to Commodore Research, the Panamax market continues to show signs of severe over supply. Expansion of the Panamax fleet is expected to slow the 6.5% in 2014 and 4.3% in 2015. However, unlike Capesize fleet very large growth has continued in the Panamax fleet again this year up until the last few months. It will still take time for the Panamax sector to truly recover from robust fleet growth that has only recently begun to ease. As for Capes, Clarkson believes that continued strong Chinese iron ore input demand in conjunction with a reduced base of fleet growth could provide some upside to capsize for the earnings in coming years. However as mentioned below, the cumulative build-up of oversupply in the sector could still take some time to be fully absorbed. As for the bulk carrier sector as a whole, Clarkson sees a fleet growing in line with demand for at least a couple of years ahead and probably longer given the size of today's order book it could be quite a few years before the accumulated surplus is totally cleared. I think I have mentioned on several occasions in the past, our cautious view of the future does not affect to repeatedly announce investment program and ship acquisition plan of the company. We’re always on the lookout for quality tonnage and the ships we have purchased thus far have proven their superior technical standard and high construction quality to their claims records. The market will undoubtedly recover in due course and will find the company ready to take advantage of improved earnings through their large fleet of quality bulkers with characteristic attractive to charterers with whom we have been working closely for many years. I’ll now pass the call to our CFO, Andreas Michalopoulos who will present us with the financial highlights and results of the third quarter and first nine months of 2014.

Thank you, Stacey and good morning. I am pleased to be discussing today with you Diana’s operational results for the third quarter and nine months ended September 30, 2014. For the third quarter 2014, net income amounted to $7.7 million, net income to common stockholders amounted to $6.3 million and the earnings per share $0.08. Time charter revenues increased to $45.1 million, compared to $41.9 million in the third quarter of 2014. The increase was attributable to the revenues derived from the vessels Artemis delivered in August 2015 and Myrsini delivered in October 2013, PS Palios delivered in December 2013, Crystalia delivered in February 2014, Atalandi delivered in May 2014 and Myrsini delivered in August 2014. This increase was partially offset by decreased revenues due to the decrease in average time charter rate that we achieved for our vessels during the quarter, compared to the same quarter of 2013. Ownership days were 3,537 for the third quarter of 2014, compared to 3,072 in the same period of 2013. Fleet utilization was 99.7%, as in the same quarter of 2013, and a daily time charter equivalent rate was $12,295 compared to $12,990 in the same quarter of 2013. Voyage expenses were $2.6 million for the quarter. Vessel operating expenses amounted to $22 million, compared to $19.7 million in the third quarter of 2013, an increase by 12%. The increase was attributable to the 15% increase in ownership days, resulting from the enlargement of the fleet. Despite the increase in total operating expenses daily operating expenses decreased mainly to due to decreased group cost, taxes and other operating expenses. This decrease was partly offset by increased repairs and maintenance and environmental costs. Daily operating expenses were $6,219 for the third quarter of 2014 compared to $6,424 in the same quarter of 2013 representing a decrease of 3%. Depreciation and amortization of deferred charges amounted to $18 million, general and administrative expenses increased to $6.2 million compared to $5.4 million in the third quarter of 2013. The increase was mainly attributable to increased number of employees and salaries. Interest and finance costs were $2.2 million for the quarter compared to $2.1 in the same quarter of 2013. This increase was mainly attributable to increased average debt and average interest rates in the third quarter of 2014 compared to the same period of 2013. Interest and other income amounted to $0.9 million compared to $0.5 million in the same quarter of 2013, the increase was due to interest income and finance fee deriving from our loan agreement with Diana Containerships Inc. Income from investment in Diana Containerships Inc. amounted to $12.5 million and was mainly due to our additional investment of $14 million during the quarter. After this acquisition our share ownership in Diana Containerships Inc. increased to 26.34%, this compared to a loss of $0.1 million for the same quarter of 2013. Turning to the nine months ended September 30, 2014 now, net loss for Diana Shipping Inc. amounted to $4 million, net loss of common stockholders amounted to $7.7 million and loss per share was $0.09. Time charter revenues increased to $129.4 million compared to $124.5 million for 2013, the increase was attributable to the enlargement of the fleet and was partly offset by decreased average time charter rates. Ownership days were 10,234 compared to 8,808 for 2013. Fleet utilization was 99.4% compared to 99.2% for 2013 and the daily time charter equivalent rate was [$12,079 compared to $13,422] [ph] [indiscernible]. Mortgage expenses were $7.2 million for 2014. Vessel operating expenses amounted to $64.6 million compared to $57.3 million for 2013, an increase by 13%. The increase was attributable to the 16% increase in ownership days resulting from the enlargement of the fleet. The increase was partly offset by decreased insurance costs. Despite the increase in total operating expenses daily operating expenses decreased mainly due to decreased average crude cost, insurances, and other operating expenses, this decrease was partly offset by increased repairs and maintenance and environmental costs. Daily operating expenses were $6,311 for the nine months ended September 30 of 2014 compared to $6,501 for the same period of 2013, representing a 2% decrease. Depreciation and amortization of deferred charges amounted to $52.2 million for 2014. General and administrative expenses amounted to $18.7 million compared to $16.3 million in 2013. The increase was mainly attributable to increased number of personnel, salaries and employees retirement indemnity. Interest and finance costs amounted to $6.3 million compared to $6.1 million in 2013. This increase was mainly attributable to increased average debt and average interest rate during the nine months ended September 30, 2014, compared to the same period of 2013. Interest and other income amounted to $2.7 million, compared to $2.9 million in 2013 and the increase was due to interest income and finance fees, deriving from our loan agreement with Diana Containership Inc. partly offset by decreased interest income due to the reduction of our average cash balance. Income from investment in Diana Containerships Inc. amounted to $12.4 million, this compared to a loss of $4 million in 2013. Share repurchase program. During the third quarter we initiated a share repurchase plan under which until September 30, 2014 we repurchased and retired 1,038,645 shares at an aggregate cost of approximately $10 million. So sequentially in October 2014 we also repurchased and retired an additional number of 1,760,488 shares at an aggregate cost of approximately $15 million. Thank you for your attention. We’d be please to respond to your questions and I will turn the call to the operator who will instruct you as to the procedure for asking questions. Thanks.

Thank you. We’ll now be conducting the question-and-answer session. [Operator Instructions] Thank you. Our first question is from the line of Fotis Giannakoulis with Morgan Stanley. Please proceed with your question.

Yes, hello and thank you. It seems that the market has been developing the way that you have been expecting and telling us for quite a long time but looking forward then without trying to ask you to make any forecast, at this point what do you see being better opportunities for investing your excess capital that you have given the fact that you made -- you have open stock buyback program and you acquired some shares, how does this influence your investment decisions vis-à-vis your share buyback program?

Hi Fortis. This is Ioannis speaking. The share buyback program is there as we have said in the past to buy shares to invest in our company. At the moment while we do not find a vessel that technical fits our needs and certainly we are there to invest as we have said, a particular amount of money every two months let`s say either by buying a vessel or two or buying back our shares from the moment they are priced attractively. So the share buyback program by itself does not influence at all our investment strategy. Don’t forget also that it is the same for us to buyback our shares or by a vessel regardless of what we think about the market. As we have said in the past, we are here to keep the investment program intact and don’t change our investment strategies, meaning that we will keep investing a particular amount of money every two months as I said earlier.

Thank you Ioannis that’s very clear. And regarding the different asset classes, I know that you have mentioned many times in the past that the dry bulk market moves the same direction, but you mentioned earlier that the order book for a Capesize this next year is going to be around 5% higher than what it is this year. We know that Panamaxes this year they have significantly underperformed the other asset classes. Do you see this discrepancy between Panamaxes and Capesizes in the rate performance to be normalizing next year and how do you view the relative asset values?

As we have said in the past we feel and we know because we have seen that in the past that in the medium to long-term the pricing is similar for every type of vessel in our sector. In the short term and while there is an optimism around for a particular sector you may see these discrepancies but eventually market prevails and the pricing goes to the same direction for every sector in our part of the wall. The fact that the vessel cost today at Capesize cost $50 million and a Panamax $25 or $30 million is reflecting the charter rates and expectations but in the medium to long-term is going to be purely on market conditions and the pricing is going to be better. By better I mean more appropriate as regards Panamaxes and Capes and you can understand you know better that this is going to happen because if for example people see a sustainable rate for a Capesize which is more than two or three times than a the Panamax, the charterers will change their partialling to go for Panamax instead of paying expensive charter rates for a Cape and the opposite. But these can only happen in the medium to long-term.

Thank you Ioannis, with regarding the drivers for next year, I understand that according your expectations you see that there is an oversupply and that demand and supply they will move very closely to each other, but what can drive the demand higher? There is a lot of discussion about increasing iron ore imports from China, but given the fact that you mentioned that still production growth in China is not going to be that size it's going to be around 1%. Do you think that the decline of domestic iron ore production will be sufficient driver? And what other drivers do you see ahead but they can surprise to upside on the demand and if you can give us some timing of the potential increase in iron ore imports next year that a lot of discussion has been made about?

We strongly feel that we should not rely on demand factors for the market to improve, we should not rely our thesis on demand getting much better for the market to improve. What it should happen is on the supply side of the vessels, the demand is already very, very, very strong as occurred in the past and expecting something which is really, really strong to become stronger, much stronger is not an easy bet to take. What we should concentrate that is to look at the supply of the vessels, the new building orders, relaying up of vessels or the scraping of the vessel in order to have faith about the market. And making the bet for demand to become worse than what it is today are higher than the market improving on the demand side. And if you are asking us for iron ore to be particular, about iron ore prices or production is something that we are not in a position to say, we read the same report as you do and we are not here to predict something like this.

And in terms of supply and how discipline do you see the industry -- the side of the ship owners being in terms of ordering and there is some discussion about the potential cancellations of last year further for issues with the letters of credit. Is this something that is real and how do you view the ordering activity going forward?

What is real is that we recently had analyst, banker, private investors saying that they don’t like what they see, this is a good starting point. You remember that we were the only ones that we were talking about something like this. Now that people start seeing clearly that things are not so good, but we’ll make the market better and on the supply side as you are saying, we are seeing a better attitude from the investors, form the ship owners stalwarts, new building stalwarts putting more and more vessels into the water. We are on the right direction as regards thinking about the market not being so well for the near future. I know that it sounds contradicting but it's a bad thing when everyone -- it's a good thing rather when everyone thinks that the market is really bad and we are going towards that direction, because that’s the way the market is going to turn positive at day point.

Thank you Ioannis. One last question is probably more for Andreas, just trying to understand your income statement. There is a significant contribution from the Diana Containership at $12.5 million. Can you at elaborate on this please?

Yes, this is basically a U.S. GAAP accounting issue and we are using the [indiscernible] method as we have from the beginning and this is why you see with our share of $40 million that I think have increased in Diana Containership and the asset value of $2.51 per share you see a positive effect on the income statement.

Our next question is from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question.

Yeah, thank you, good afternoon and let me just reiterate congrats on a very good performance in a tough environment. Couple of macro-questions to begin with. First I just want a follow-up on the earlier commentary vis-à-vis demand and I completely agree with you given how demand has been so strong it’s hard to make the case of it going stronger and talking about the rest of the upside or the downside, but my question is really more to do with sort of the -- are there any sort of structural sifts in the demand side of the equation. And so there is clearly restructuring going on in China’s economy, India seems to be as much of a risk as it is an opportunity. So I am curious in terms of not just what the outlook next year or the year after that for demand in your view how are you seeing the structural implications of all the different moving parts on the demand side of the equation?

Well structurally we tried to touch upon the most important element on the demand side in particular, and those are things that are happening in China and India, the rest are moving so slowly compared to these two that really will not have any significant effect on the supply-demand balance. What worries us a lot is the realization now in China that the country cannot continue on the path that they have been following up till now as regards pollution. Now that may have profound effect on the production of sea the importation of coal and general movement of bulk commodities that we have been talking about. Now that only shown is far more important than any other structural changes might take place worldwide, either in developing nations or developed countries, because if they all these influences in structural changes fail in significance compared to what might happen if China imposed strict regulations in an orderly way on pollution. So that’s worrying in our view and we don’t see anything else which is more important and more following than what is happening in China now and that’s what we are going to be doing. Unfortunately we don’t see any beneficial structural changes as regards demand for bulk commodities, whatever we look at and whatever it seems to be significant tends to be negative and that’s why I reinforce what again as [indiscernible] mentioned earlier that supply is the issue here. And unless we rein in supply in a proper manner we are not going to have the any sustained period of healthy earnings in the large bulk carrier sector.

Okay, that’s very helpful. Just a couple of specific questions, one is the coverage in 2015 I apologize, if I missed it if you already mentioned it but if I remember correctly you were around 30% covered as of the end of July for 2015. Can you just update us on that where that stands today?

Around 35%, but as we have said in the past many times you know that we are consistent with our strategy. We will keep staggering the way we are fixing the vessels. And by that we will have a spot exposure together with some fixed revenues and at the end of the day we are aiming for the average of the market for the entire year for the entire of our fleet. Logistically though this is not so easy to choose a particular moment when your vessel is going to be opening for the next charter but we are doing a good job there. And famous graph that you know that we have with the yellow bars that they are fixed revenue base is the same as it used to be a year, two years and three years ago, the only thing that has changed is the number of vessels that we keep adding more and more vessels.

Okay. And then just last question from me on cash deployment, you put some money into Diana Containership and you have done a buyback now. I guess the only sort of missing piece is a dividend and you haven’t paid a dividend since the end of 2008 and I clearly understand the current market environment and dividends are sticky but from your standpoint it could be a nice sort of another differentiating factor for the company versus some of the other shippers in the group overall. So how do you sort of think about balancing all the cash deployment that you are doing in a positive way which maybe also throwing in a dividend there and restarting a dividend albeit maybe small in the beginning but growing it as you move forward?

The best differentiator is being factor that we have as a company is being consistent with the strategies that we have stated back in 2005. And consistency says to us that as the lower part of the cycle, we should keep our dry bulk to invest in order to create shareholders value, differentiating in a manner by introducing a dividend just to gain $0.20 on the share price, or $0.30 is something that is not an option for us. We find this part of our industry, this timing a very attractive one to invest as much money as possible and by doing that we will create a much greater value for our shareholders rather than giving them a small or a big dividend at this stage.

Right, but I mean then the question begs, your comment begs the question, are you implying that you’re going to see, that you'll be putting a lot of cash into building a vessel and what you to be potentially as the bottom of the market or the sentiment has gotten very negative. So is that what we can expect over the next several quarters? Is Dina Shipping investing in acquisitions whether in the second hand market most likely.

This is the strategy, but certainly it will not be at a particular moment it will be during the next year and half, in fact in the manner as we have explained many times we will try to invest most of our dry powder.

And also use leverage together with every investment of about 50%, so every vessel we keep buying you can expect us to leverage out to around 50%.

Okay just a last question I promise, can you just comment on what level you think your dry powder is at this point?

The cost that you see together if you add to that 50% finance so you can come up with --

Some vessels that are mortgaged, so you can add 50% on the un-mortgage vessels as well and we will find it very quickly.

Our next question comes from the line of Jon Chappell with Evercore. Please proceed with your question.

Just one quick follow up from me, Andreas, could you explain a little bit more the impact of the Diana Containership. I’m just bit confused, the [indiscernible] 1.4 million in net income in the third quarter, yet your contribution was 12.5 million. I know you still have with your investment, is this basically just marking your investment to market and is this a one-time in nature type markup and going forward we’re just going to see the percentage that you own of the net income, what was that line again?

Basically what we do, we purchased as I said but maybe unclearly before $40 million worth of share at a price of $2.51 per share. But if you take the difference between our book value which was around $3.5 per share the ECI book value that is together with a purchase price you see that we have an income there of a bit lower than $1 which gives you the difference that you see here and the impact in the income statement. So that’s basically the equity method that we use and this is where you find a difference of $12 million to $148,000 dollars.

Okay. But that’s essentially one-time in nature right, if you don’t buy any more of containerships in the fourth quarter that won't shift anymore.

Our next question is from the line of Spiro Dounis with UBS. Please go ahead with your question.

Hi, good morning gentlemen. Thanks for taking my question. I’ll just keep these brief hopefully. So we’ve seen some consolidation among the bulkers and I know you mentioned one-off vessel purchases going forward. I was just wondering if you could comment on moves to consolidate among bulkers and if that makes sense for Diana at some point.

We have stated our opinion on that. We think that consolidation involve large amounts of money to be spent at a particular moment in the cycle, something that we’re really opposed to having a dry powder of $500 million, $600 million and spending $400 of those in one acquisition is something that we don’t like. The other thing that we want to say is that we have noticed recent measures in acquisitions but I think most of them they were out of necessity rather than anything else. Having not the ability to go public leads some people to merge. That's it.

Makes sense, thanks. Then just one last housekeeping I’m sorry if I missed it, could you just remind us again how the 2015 deliveries are being financed and where you’re in that process?

No, a bit early to finance the 2015 deliveries although we have started talks and very confident that we will -- it will be easy to find finance for those and attractive finance, but typically we wait a little bit in order not to pay a very hefty commitment fee.

[Operator Instructions]. The next question is from the line of Salvatore Vitale with Sterne, Agee. Please go ahead with your question.

Hello all and thank you for taking my question, I appreciate I know it's been a long call. Really the question I have is just looking at your chartering strategy and looking at that in the context of your outlook for the market next year. So, you sound very conservative in your forecast for the dry bulk market next year and yet you had about 35% coverage and I look at the say for Panamax vessels, I look at the difference between the current spot rates of about $8,500 and then look at the -- when your time charter rate are on the 75,000 deadweight ton vessels about 10,200. So, do you need to see a much wider spread and if so what kind of spread do you need to see there to increase your charter coverage for next year?

The charter coverage is not going to be increased as such, what we are doing is we are fixing our vessels and we are trying to position them to open at a point where we don’t have other vessels opening. And we are in the fortunate position to have more than in total more than 40 vessels and that allows us to do a physical hedging and by physical hedging we mean that we do not have to worry a lot about fixing a vessel for a year, or two years or three years since by doing what we are doing, we can have more or less the average of the market and this is what we are aiming for. I have said in the past that our strategy is to be 50% correct rather than 100% wrong.

Right, that’s very helpful. Thank you very much. And then just the follow-up Andreas on the question earlier on the income from Diana Containerships, if you exclude the effect of the -- of that difference between the price at which you acquired an additional stake and the book value what would that amount have been, I calculate roughly $300,000 to $400,000 positive is that about right?

Come again on your question.

Yeah, so in other words if you just look at the income that Diana Containerships generated in the third quarter and you exclude any other effect, what would that line item have been?

Around -- I think around the number you said.

At this time, I would like to turn the call back to management for closing comments.

Thank you again for your interest in and support of Diana Shipping. We look forward to speaking with you next quarter.