Diana Shipping Inc. (DSX) Q1 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the Diana Shipping Inc. 2015 First Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ed Nebb, Investor Relations Adviser. Thank you, you may begin.

Thank you, Christine and thanks to all of you for joining us on Diana Shipping Inc.'s First Quarter 2015 Conference Call. The members of the 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 this conference call, which are not statements of historical fact, are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. The forward-looking statements are based on assumptions, expectations, projections and beliefs as to future events that may not prove to be accurate for a description of the risks, uncertainties and other factors that may cause future results to differ from the forward-looking statements, please refer to the company's filings with the SEC. And now with that, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer.

Thank you, Ed. Good morning, and thank you for joining us today to discuss the results of Diana Shipping Inc. for the first quarter of 2015. During the quarter, we pursued a number of strategic actions to position the company well for the future. Specifically, we continue to expand our fleet by enhancing our financial flexibility with new long facilities. More recently, last week, we announced a new fleet management joint venture, which should provide an attractive opportunity to generate additional revenue over time. To review our financial results, the company recorded a net loss of USD 10.8 million and a net loss attributed to common stockholders of USD 12.2 million for the first quarter of 2015. This is compared with a net loss of USD 6 million and a net loss attributed to common stockholders of USD 6.8 million for the first quarter of 2014. Our time charter revenues were USD 42 million for the 2015 first quarter compared to USD 41.1 million a year ago. The increase over the year-ago period was mainly due to the expansion of our fleet, partly offset by reduced time charter rates. Diana Shipping continued to maintain a fortress balance sheet, reflecting cash equivalent of more than USD 231 million. Long-term debt, net of deferred financing costs, including the current quarter was USD 540 million compared to stockholders equity of USD 1.27 billion. I am pleased to note that on May 8, the company announced the formation of a new 50-50 joint venture with Wilhelmsen Ship Management, a leading fleet manager. The joint venture named Diana Wilhelmsen Management Limited will begin operations later in the second quarter of this year and will initially provide management services to a limited number of vessels of Diana Shipping's fleet. Our goal for the future is to provide fleet management services to an affiliated third-party vessel operator. We are excited about the opportunity to monetize our world-class fleet management expertise by partnering with Wilhelmsen to create an additional potential revenue source. After our established strategy, we have continued to expand our fleet. We took delivery in January 2015 of the motor vessel Santa Barbara, a 1,794,026 new-building Capesize dry bulk vessel that we agreed to purchase late in 2014. Last month, we announced agreements to acquire a 2010 [ph] new-building Kamsarmax dry bulk vessel to be renamed [ph] with expected delivery in the 2015 second quarter as well as a new-building Capesize dry bulk vessel to be named New Orleans, with expected delivery in August 2015. Our fleet currently consists of 14 dry bulk vessels. In addition to the 2 vessels purchase that I have just mentioned. We have also 2 new-building Newcastemax dry bulk vessels and 1 new-building Kamsarmax dry bulk vessel expected to be delivered in 2016. We continue to finance the fleet in a prudent manner that promotes a balance of time charter maturities and produces a predictable revenue stream. Currently, our fixed revenue days are 79% for 2015. We continually seek to optimize our financial capacity and flexibility. In this regard, we signed a term loan facility in March with Nordea Bank AB, secured by 8 vessels and drew down USD 93.8 million. Also in March, we signed a term loan facility with ABN AMRO Bank N.V. secured by 3 vessels and drew down USD 50.16 million. And in April, we completed the drawdown of USD 30 million under a term loan facility with Danish Ship Finance A/S in connection with our purchase of the motor vessel Santa Barbara. We also continue to employee our financial strength to enhance shareholder value by repurchasing and returning approximately 0.4 million shares during the first quarter of 2015 at an aggregate cost of approximately USD 2.7 million. In summary, we continue to take deliberate action to enhance shareholder's value also by the continued growth of our fleet, our new fleet management joint venture and our share repurchases. With that, I will now turn the call over to our President, Stasi Margaronis, for a perspective on industry conditions. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a financial overview. Thank you.

Thank you, Simeon, and good morning to all the participants in this quarterly conference call of Diana Shipping Inc. Unfortunately, the poor market conditions present in the [indiscernible] market since the beginning of the year have not changed much thus far. This can be easily seen by the levels of the Baltic Cape Indices and the amount of pessimism, which have crept into the market steadily over the last couple of quarters. On January 2 this year, we bought the dry index to the 771 and closed today 634. The Baltic Panamax Index started the year at 827 and closed a few hours ago at 584. As for the Baltic Cape Index it fared rather better and started the year at 456, only to close today at 942. It is worth noting that nearly half this increase came over the last 24 hours. According to Gibson Shipping Energy, the Capesize Baltic's 5 time charter rate on May 13, which is today, was USD 6,976 per day and the Panamax Baltic's 4 time charter rate was USD 4,661 per day. Just look first at macroeconomic development. The International Monetary Fund has kept its forecast of global growth in 2015 unchanged from January estimates at 3.5%. For 2015, the advanced economy was staging a comeback as the IMF has forecast 2.4% growth in 2015 against 1.8% in 2014. But as the emerging markets and developing economies, assets grow by 4.3% this year against 4.6% last year. The Eurozone is expected to grow by 1.5% this year and the U.S. by 3.1%. As far as India is concerned, the IMF projects 7.5% growth in both 2015 and 2016. China is expected to grow by 6.8% this year and by 6.3% next. Looking at supply and demand in general, according to Clarkson's current projections indicate a 3.1% year-on-year rate of growth in overall seaborne dry bulk rate this year to total 4,673 million metric tons. This rate of growth would be lowest since 2009 and is largely due to a slowdown in Chinese coal imports. Meanwhile, the iron ore trade is expected to grow 6% year-on-year, supported by the current ramp-up in Australian mining production and import demand from China. According to Clarkson, the bulk carrier fleet is expected to grow 4.4% year-on-year in 2015 after growing 4% last year, 6% in 2013 and a massive 11% in 2012. The current rate of fleet growth is more in line with the demand, but significant surplus capacity still exists. So even though in the Cape market, iron ore trade growth is likely to continue outpacing Capesize fleet expansion this year, the extent of weakness in rate suggests that the pressure from past oversupply is likely to remain considerably. The Panamax fleet is expected to grow by 6% this year and the Capesize fleet by the same rate. At this level of growth, the oversupply in the bulk carrier fleet would certainly not ease any time soon. However, Clarkson has pointed out that fleet growth may be impacted by the current terms in scrapping. So demolition continue at current levels, it may help moderate the pace of fleet expansion in the short-term. More about scrapping later on. Let's look at steel production. According to Commodore Research, Chinese steel output is expected to decline this year from the 2014 level. This could mark the first year-on-year decline since 1981. On the other hand, the World Steel Association forecast is for steel demand to grow marginally by 0.5 percentage point to 1.544 billion tons in 2015 and increase by a further 1.4% in 2016. Meanwhile, Chinese steel prices have already declined by 17% so far this year, whereas during -- all of last year, they declined by only 14%. So price of this commodity are down by 3.8 million tons so far this year and are 21% down year-on-year. On a worldwide basis, Gibsons report that as of early May, steel prices are relatively weak. In Europe and the United States, prices are under pressure due to low Chinese price, as mentioned above, and lower price expectations going forward. However, Gibsons believe that growth of the steel production will be down over time and could possibly even contract. This, according to Commodore Research, would support prices, but will also put pressure on future seaborne iron ore trade. Let's look now at the iron ore. According to Clarkson, total seaborne iron ore trade is expected to grow by 6% this year compared to 2014 and reach 1.42 billion metric tons. Strange enough, according to Clarkson, even though the Chinese government expects economic growth to drop to just under 7% this year, with the potential negative impact on steel production, this is unlikely to significantly affect iron ore imports, which are expected to grow 8% year-on-year in 2015 to reach 982.3 million metric tons. Analysts believe that Chinese iron ore imports this year will largely be dictated by the volume of global iron ore miners want to keep producing. It goes without saying that this trend cannot continue for very much longer, as China will end up eventually drowning in mountains of iron ores stored import and steel plant, unless there is a radical change in demand for steel. Chinese port iron ore stock price amounted to 94.5 million tons late last month, which is 6% down on a year-on-year basis. This is [indiscernible] with a large amount of iron ore, especially in the case of reduced steel production in a country. Iron ore prices have been dropping steadily over the last few months and started moving a bit higher last month. According Maersk Broker, iron ore is traded in March at around USD 50 per ton, which was a new low. According to Commodore Research, the 3 biggest trade and iron ore producers will be ultimately posted to lower their robust iron ore expansion production target, and the recent drive in iron ore prices has been the result of stipulation on the price of this commodity. Australian and Brazilian iron ore production is said to increase significantly during the second half of this year as it has been doing for every year. And Commodore Research believes that iron ore prices may fall even below the low seen in March this year. Look at coking coal now. According to Clarksons, coking coal seaborne trade is expected to grow by 2% this year and reach 267 million metric tons. Japan, China and India are expected to be the largest importers of this commodity, in that order. In 2014, China's coking coal import dropped by 21%, while Indian coking coal imports grew at the fastest rate among all major Asian importers last year, increasing by 24% year-on-year to total 47.4 million metric tons. The growth in imports was due to poor domestic production. Current projections suggest that India's coking coal imports will increase a further 9% year-on-year in 2015. Thermal coal. Clarksons report that global seaborne thermal coal trade is expected to reach 951 million metric tons this year, an increase of just 1% compared to 2014. In China, regulations were introduced in the first few months of 2015, which are designed to support the domestic mining industry as well as improve the quality of air in urban centers. For now, Chinese thermal coal imports are expected to drop 10% year-on-year to reach 172.3 million metric tons in 2015. However, Chinese coal port stockpiles and power plant stockpiles are at low levels this year, which makes Commodore Research hope that there is finally a chance to see a jump in Chinese thermal coal import sometime in 2016. Increased imports this year by the U.S., the Philippines and Morocco will help make up some of this lost Chinese seaborne trade in thermal coal. According to Commodore Research, prospects of Indian coal imports this year are not as bullish as they were at the end of 2014 when Indian coal stockpiles were extremely low and Indian coal production was still under pressure. However, Commodore Research remained very concerned for what the upcoming summer [indiscernible] in September. They believe that trade rates of Panamax and Supramax vessels might come under pressure due to this developing trend. According to Banchero Costa, hydropower generation in China during the first quarter of this year was 18.7% higher than it was during the first quarter last year. The flooding of the thermal coal market in 2014 by Australia depressed international prices to the point that 1/3 of the Australian thermal coal industry is reportedly making a loss under current market conditions. Look at the grain trade. According to Clarkson, in the 2014, 2015 crop year, global combined wheat and coarse grain trade is projected to decrease by 1% to total 304 million metric tons. The drop is expected to be driven by a 30% year-on-year drop in European grain imports where attractive prices and the large harvests lifted consumption of the domestic crops. Similarly, a strong recovery in Chinese domestic production is expected to contribute a projected 16% drop in imports during the current crop year by China. Cracking now. According to Maersk Broker, a total of 131 vessels, with a 10.4 million metric capacity was scrapped so far this year. This was equivalent to around 50% of total bulk carrier demolition during the entire 2014. Total bulk carrier scrapping this year is expected to reach 21.2 million deadweight tons, an increase of around 30% year-on-year. However, if the current rate of scrapping continues throughout this year, then the total tonnage scrap will exceed 35 million deadweight tons. If it materializes, this will have the beneficial effect of slowing the rate of the growth of the bulk carrier fleet to around 2.5%, which would represent the slowest fleet growth rate in more than a decade. As a result of heavy scrapping of Capes, Maersk Broker report that the Capesize fleet has shrunk by 1.7% during the first 3 months of this year. According to Clarkson, total Capesize demolition is currently projected to increase significantly this year compared to 2014 and reach around 9 million deadweight tons. However they also point out that if the current rate of scrapping were to continue, this total would most likely increase substantially. Even though only 7% of the Capesize fleet is over 21 years old, this does not necessarily mean that there will be fewer scrap candidates going forward if the market does not improve. Nearly 10% of the fleet, which is between 16 and 20 years and a further 13% between 11 and 15 years. Judging by past experience, ships in any of these age brackets could become scrapping candidate given the appropriate circumstances. The equivalent numbers in the Panamax sector are 10% over 21 years old and 15% between 16 and 20 years. That will become another pool of scrapping candidate if the present depressed rate persists much longer. The average scrapping age so far this year dropped to 24.8 from 27.3 last year, which was a step down from 28.1 years in 2013. New building order book. According to Clarkson, at the end of February this year, the total bulk carrier order book came to 151.4 million deadweight tons, which represented 19.9% of the existing fleet. For Panamax bulk carriers, the order book was 431.2 million deadweight tons, representing 16.1% of the trading fleet, while for Capes, the order book was made up of 61.9 million deadweight tons of vessels, representing 20.1% of the existing fleet. In the bulk carrier world, the most over ordered price range is the Handymax segment, where the 43.3 million deadweight tons in order represent a rather massive 26% of the existing fleet. From the total order book, China is responsible for 61% of the dry bulk orders, with Japan, 51% and Korea, only 4%. The remaining 4% accounted for by nations, such as the Philippines and Vietnam among others. Delivery. According to Banchero Costa, 65 million deadweight tons of boxes will be delivered this year, which is if it materializes will mean the slippage will be around 15%. According to Clarksons, the remainder of this year will be 10.2 million deadweight tons of Capesize vessels joining the fleet and this number will reach 11.7 million in 2016. As for Panamax, the equivalent numbers are 4.5 million tons this year and 4.3 million tons in 2016. Contracting activity. According to Maersk Broker, during the first 3 months of this year, only 1.9 million deadweight tons for 21 vessels have been ordered, which number is down 93% year-on-year. In 2014, new contracting has already dropped by 39% compared to 2013 with 113.2 million tons having been ordered. Finally, let's turn to the outlook now for the industry. According to Maersk Broker, Capes and Panamax earnings are working from the absence of coal cargo going into China and this will keep the Pacific market low for a while. The Atlantic Panamax market will be positively influenced by the South American grain season, but they predict that rates will remain below those seen in previous years. For Capes, Gibsons suggests that by the second half of 2016, the steady level of scrapping and the start of the phasing out of the ore carrier helps the LCC conversions to start to fix the balance in [indiscernible] ships. However, for 2015 and the first half next year, they also remain rather bearish. [indiscernible] Chief Shipping Analyst reported that in his view, China is becoming a relatively more closed economy, driven forward by domestic demand rather than foreign demand like for example in The United States. This translates into lower level of shipping demand going forward compared to what it has become accustomed to during the past decade. According to the World Trade Organization, a rough 2:1 relationship that prevail for many years between World Trade growth and World GDP growth appears to have broken down. It is illustrated by the fact that the trade and output have grown at around the same rate for the last 3 years. This has made trade forecasting particularly difficult and this will cloud the outlook for 2015 and 2016. We agree with Banchero Costa in their assessment of the bulk carrier market, which is that the current situation remains difficult for ship owners. However, if strong demolition continues, fleet growth comes down and there is very limited contracting going forward as there has been so far this year, we could see some light at the end of the tunnel. In this not so promising environment, the management team at Diana Shipping will continue implementing the investment plans stated repeatedly in past conference calls and analyst investor presentations. The supply of second hand and retail new building tonnage is increasing due to the poor market conditions and the prices are dropping steadily, reflecting poor earnings prospect. This creates opportunities for buyers not dependent on commercial banks or the capital markets to invest in competitively priced passage. We're confident that when the recovery comes, which will surely happen, the company will have a modern fleet ready to take advantage of improved earnings and increasing asset values. When we are close to the upper part of the shipping cycle, some older vessels will be sold and the company will reintroduce dividend. These future developments have also been explained in the past and nothing in that respect has changed for us in, thus far. I will now pass the call to our CFO, Andreas Michalopoulos, who will provide you with the first quarter financial highlights. Thank you.

Thank you, Stasi, and good morning. I'm pleased to be discussing today with you Diana's operational results for the 3 months ended March 31, 2015. Net loss amounted to $10.8 million, net loss attributed to common stockholders amounted to $12.2 million and loss of common share was $0.16. Time charter revenues increased to $42 million compared to $41.1 million in the first quarter of 2014. The increase was attributable to revenues derived from the vessels Crystaila delivered in February 2014. Atalandi, delivered in May 2014, G. P. Zafirakis delivered in August 2014 and Santa Barbara delivered in January 2015. This increase was partly offset by decreased revenues due to the decreased averaged time charter rates that we achieved for our retros during the quarter compared with the same quarter of 2014. Ownership days were 3,588 for the first quarter of 2015 compared to 3,280 in the same quarter of 2014. Fleet utilization was 99.1% compared to 98.8% in the same quarter of 2014. And the daily time charter equivalent rate was $10,532 compared to $11,820 in the same quarter of 2014. Voyage expenses were $4.9 million for the quarter compared to $2.4 million for the same quarter of 2014. The increase in voyage expenses were due to bunkers resulting from the redelivery of vessels in the quarter. Vessels -- vessel-operating expenses amounted to $28 -- $21.8 million compared to $20.7 million in the first quarter of 2014, and increased by 5%. The increase was attributable to the 9% increase in ownership days resulting from the enlargement of the fleet. Daily operating expenses decreased mainly due to the decreased crew cost, stores, spares and taxes as a result of the decrease of euro compared to the U.S. dollar. The decrease was partly offset by increased insurances, repairs and maintenance cost and environmental planning sanctions [indiscernible]. Daily operating expenses were $6,073 for the first quarter of 2015 compared to $6,298 in the same quarter of 2014, representing a decrease of 4%. Depreciation and amortization of deferred charges amounted to $18.4 million. General and administrative expenses decreased to $5.7 million compared to $6.2 million for the third quarter of 2014. The decrease was mainly attributable to the change in the exchange rate of the euro to U.S. dollar. Interest and finance costs were $2.5 million for the quarter compared to $2 million for the same quarter 2014. This increase was mainly attributable to increased average debt and average interest rate in the first quarter of 2015 compared to the same quarter of 2014. Interest and other income amounted $2.9 million and was the same as in the first quarter of 2014. Loss from investments in Diana Containerships Inc. amounted to $0.8 million and reflected a change based on the equity metric valuation at the end of the our investments in Diana Containerships Inc. Shares repurchase program during the first quarter of 2015, we repurchased and retired 0.4 million shares for an aggregate cost of about $2.7 million. Thank you for your attention. We would be pleased to respond to your questions now and I would turn the call to the operator who will instruct you as to the procedure for asking questions. Thank you.

[Operator Instructions] Our first question comes from the line of Amit Mehrotra with Deutsche Bank.

I joined a little late as I was on another call, so apologies if you've covered this. But if I'm correct, I believe you have a very quantitative process engaging the sentiment in the dry bulk market, which sort of compares the second-hand S&P activities to time charter rates over time. So can you just tell us specifically how you look at that and what the data is currently telling you?

Amit, this is Ioannis Zafirakis, speaking. It's a bit difficult to answer your question because today, we saw, again, rates going to $12,000 for a 2-year period for a Cape, somewhere there. So if you want to utilize this rate or the 1-year time charter rate to see the sale and purchase activity in the sentiment of the market, we have to say that we are still -- have the exact real values of the vessels, still on the high side based on the earnings capacities of the vessels. Certainly, we have ended up in a situation where people are more pessimistic than previously, but still, to cut the long story short, we think there is some way to go if we want to end up in the real values of the vessels based on the revenue capacity and the future earnings capacity.

So you think over the next 3 to 4 months or 6 months, either the earnings capacity is going to go up or the asset value is going to come down?

Yes.

Okay. All right, let me just have a follow-up. Stasi, I was a little disappointed that there was no Shakespeare quote this quarter, but with respect to sort of the light at the end of the tunnel, scrappage just clearly accelerated, but we've also obviously had unprecedented supply growth. So can you just tell us, where does net supply, in your view, need to go to at the end of the day to sort of drive some supply-driven recovery? And we've obviously thought a lot -- hearing a lot about scrappage, but maybe can you also give us some thoughts on how many vessels you think are currently laid up, either warm or cold lay-ups in the current market, just some information what you think needs to happen on the supply side to drive recovery?

Thank you. As for Shakespeare or other classics, we have to wait for some inspiration to come and then we will revert to that. But on scrapping, which is a little mundane, we will say the following. Scrapping will continue for as long as ships are particularly trading at rates that cover their operating expenses. For Panamax, this still seems to be the case. For Capes, as of lately, it's not, or in case, marginal. So if scrapping continues at what we saw during the first 3 months, we will have a good chance of having supply of bulk carriers increase this year by September, 3%. Now that might bring a turnaround in the market overnight or over a quarter event. But it will be very encouraging if it is followed, as I said earlier, with a controlled ordering or hopefully, no ordering, or further new building. So in answering your question, we need supply to grow just under 3% for a couple of years and hopefully, scrapping to increase over 30 million, 35 million deadweight tons for a couple of years, especially now for larger ships because up to now, we have been seeing smaller ships being scrapped. And now we're beginning to run out of the old vessels and we have to tap the older large bulk carrier pool, which is growing age wise. So I hope that answers 3 parts of your question, maybe I'm missing one.

Just one clarification. The sub 3% growth, does that include the accelerated scrappage, or is that exclusive of the scrappage?

No, that's -- is a net-net increase.

Okay. And then, the last -- you didn't address the lay-ups, that was the last question, what you're seeing there.

Yes, on lay-ups, we haven't seen any official figures on cold lay-ups yet. There are some ships that are waiting for orders, I heard, and it's probably correct, October 17, Panamax is heading for the River Plate to be there for the grain loading, which is not very encouraging. It means that they've got nothing better to do than to ballast South America, so this is not a lay-up, officially. But for all intents and purposes, these ships will have been without business until they load for between 5 and 8 weeks. So yes, there are no official yet figures on cold lay-ups, but there are ships which are drifting and waiting for orders, whether in Singapore or heading for South America or elsewhere in the world, like East or West Africa.

Our next question comes from the line of Gregory Lewis with Crédit Suisse.

Stasi, it sound like -- it seems like we don't go a week now without seeing at least -- hearing about one shipyard in China or elsewhere that seems to be in financial trouble or distress. Have you guys tried to quantify that at all in terms of what that means for supply over the next couple of years? And potentially, how much of the order book are you seeing at that risk.

It's going to be very difficult because -- bear in mind that the reports from China are very limited. But overall, there is a slowdown process in building ships in China and especially from yards. There are not states on yards. The private yards have some difficulties in finding [indiscernible]. So this will create some problems in building and maybe some of the vessels which are about to be completed, they will not be completed on time, and that will create a sort of problem and a slippage of course. So I think the psychology is that we are moving the forces on the right direction. But to give you a number will be very difficult because it involves time.

And just following up on that. Given some of the these ship yards positions and Diana's position, have they -- have yards been approaching you to potentially take on some of these more riskier orders, and is that something that the company is thinking about potentially doing?

Well, not really the yards. But there are some [indiscernible] in the marketplace today that you can put your hands on, but not that necessarily from the yards. From the present owners, yes, there are.

Okay. Great. And then just one more for me. Clearly, you guys have a fair amount of cash on the balance sheet. But as the company has built out its fleet, there are still a couple of new builds. That's still at a very manageable level, but it has picked up a little bit. Given the uncertainty out there, at a certain point, does Diana go into an even more defensive mode and just really try to keep existing cash on the balance sheet and just manage the vessels that it's scheduled to take delivery over for the next few years?

We have been very conservative with our modeling, and the most pessimistic number still gives us a leeway to continue with our investment strategy for the periods that we have discussed before, and certainly, at the same time, make sure, that the company will have no problems whatsoever meeting its obligations and surviving in case of a prolonged down market. We do not intend to change the pace of purchases and you should expect us to -- you should expect Diana to keep buying or investing $15 million to $20 million every 2 months or so.

Don't forget, Greg, that we have also increased our liquidity in the last quarter by making sure that we leverage the vessels that we had on mortgage up until now. We use to file extension at the beginning of the call, with 3 new launch, 1 extension of 4 vessels that were on mortgage with Nordea, and the Santa Barbara, with Danish Ship Finance, et cetera. And we intend to also leverage, as is our strategy the new vessels acquired.

Our next question comes from the line of Ben Nolan with Stifel.

My first question, just in listening to your commentary, I don't know, is it just me, you do sound, although very guarded, maybe a little bit more optimistic about at least the longer-term outlook for the market than maybe had been the case in the past? Are you starting to feel like maybe we're close to a bottom here, or is that just me maybe sort of drawing too much in the way of conclusions?

Actually, what we are saying is that certainly, when someone sees the scrapping that we saw recently, there is no doubt that he or we can say that this a move over the right direction. Nevertheless, the problem that we had -- all of us have created throughout the years is much bigger than something that can change with half a year of good scrapping. For example, the fastest you can steel charter for $12,000 in Capesize for 2 years is not something that leads our way of thinking to be optimistic about the near term. As we have always said, the market at any point is going to turn, but we still have a long way to go, especially, we need more scrapping, we need rates to go further down and vessel prices to go further down and people to get really pessimistic about the market. This is not the case yet.

Right. Okay. And then, you just mentioned that sort of the strategy is still to maybe acquire a new vessel, maybe every 2 months or so. I'm curious how you think of your capital availability to be able to do that? How much -- given where the balance sheet is today, how much capital do you feel like is within range without overly stressing the balance sheet for you guys?

We still have a very low leverage even with the increased finance that our CFO described earlier, our net debt position is still very low and if you are at the bottom of the market, the absolute bottom of the market being at 70% or even 80% financing, something that we are not afraid doing, we are still far away from there, and therefore, our liquidity, we feel, as we said earlier, is sufficient that we can keep our investment program intact.

Okay. But no sort of rough number we could -- you could spend as of now?

We're saying that we can spend another $150 million from our own equity easily and still be left with some kind of size to -- as a safety valve. 250 equity, it $300-plus million in new purchases.

Sure, sure. Yes, absolutely. And then lastly, just sort of along the same lines, you guys have, I believe, 4 new buildings scheduled to come on line in the next 12 months or so. Do you have all of the financing in place for those? Or where does that stand for those vessels?

We are in a very good shape with the financing of those vessels, yes. But as soon as it will be fully in place, we will come up with an announcement as we do every time.

Our next question comes from the line of Donald McLee with Wells Fargo.

A couple of my questions have already been addressed. But I just want to touch on scrapping again. Based on your comments, accelerated scrapping and demolitions remain kind of the primary avenue, just from a sentiment and the dry bulk market. And basically, you've come in as playing a waiting game at this point. I was wondering whether some of the competitive advantages you think you have at DSX enables you play that waiting game longer than your peers?

Yes. I think what we've mentioned up to now regarding the balance sheet strength and the methods we apply in acquiring tonnage means that yes, we have -- or we feel we at least a better chance of succeeding in the waiting game that we have been engaged in over the last couple of years. And of course, we don't have scrap candidates ourselves, but we feel that the market conditions, as they will be over the next couple for quarters, will dictate that certain owners faced with the uncertainty of spending considerable sums of money marketing, survey, special surveys, and on occasions, even [indiscernible] will consider the scrapping option, especially in lieu of the fact that prices have been holding up rather better than we had thought they would up to now. So at around $400 per lightweight ship displacement, a Capesize fleet is worth quite a bit of money sold in scrap.

Our Next question comes from the line of Fotis Giannakoulis with Morgan Stanley.

I want to point out some of the market remarks that Mr. Margaronis has made earlier, and there seems to be some contradiction in the different research reports among analysts on close of iron ore. On the one hand, we have this is very high supply of -- seaborne supply from Australia and Brazil. On the other hand, we have seen that the iron ore demand in China is quite weak. It has declined -- it will be declining at the beginning of the year. How do you think that this is going to balance?

Well, we don't have, unfortunately, a crystal ball, which will enable us to see how the Chinese are going to handle their future iron ore imports, and that is why my remarks may appear a little bit fuzzy and sounds like an oracle from Delphi temples. But unfortunately, what we have here is the desire, obviously, by iron ore traders in China to take advantage of low prices, which means that they're trading the commodity. And the stockpiles of these commodities that exist and will, I think, personally increase these large quantities of iron ore, which are not used at the same pace from steel mills keep being imported in China and this is what is worrying us a lot at this point in time. So unless we see steel production increasing and steel exports from China increasing, I don't think it is feasible to assume that China will continue importing the iron ore that we have seen it import over the last few quarters. And I also doubt whether again to see seaborne iron ore trade increase at 6%, the rate drops we are predicting for the whole of the year. As I said, there's too much here at play between speculation on the price of the commodity and actual demand, all this under the fear of possible reduced steel output.

That was very helpful. I think that you mentioned about if we see a couple of years of declining fleet growth below 3% and this kind of scrapping that we have been seeing in the last few months, then, the market will balance. Is this assumption or this conclusion that we came to base on a growing steel production with China, or that would be sufficient to absorb the excess tonnage even in a scenario where a Chinese steel production is not increasing?

Well, obviously, the slower China grows, the slower it will take to absorb surplus of tonnage. However, we have to keep an eye on Capesize earnings primarily. Panamax earnings, unfortunately, remain dismal as you saw from the full [indiscernible] rates. If the Capesize earnings blip that we seem to be witnessing over the last couple of days, it's taken as the time of a better period for earnings starting now and lasting for a couple of quarters. Then, as you can imagine, fewer Capes will head for the scrapyards then our assumptions take into account. So we have to watch this very carefully. It's a very recent movement in rate. If we didn't have this up to now, we will feel much more confident that the balance in between supply and demand would start and be well on its way as the middle of this year, and increase based towards the end of this year and early 2016. But let's watch now the Capesize earnings because as you can imagine, it's a 12-month or 18-month contract and bringing in over $11,000 a day for an owner. He will naturally be reluctant to scrap a 15-year-old Cape as we have been assuming might be the case.

One last question with -- you mentioned that the prices -- either prices might have to come further down or raise the capital to move up. We tend to focus a lot on the sale of assets from the public companies, but the majority of the industry is still private and I assume that you probably see, every day, a deal that is out there in the market. Have you seen an increase in these distressed sales or from owners that they are trying to get rid of the assets that they cannot support anymore? And what is the view of the banks? How are they reacting to the fact that most of the borrowers they cover are probably servicing their debt?

Well, Fortis, if we go to the container market, you will see how nicely the banks have been nursing their fleets for the last 4 or 5 years. And the reason is that the interest rate is very low. So we expect the interest rate to play a part in the dry bulk market to. So I think that they will be nursing, but up to a point. So the psychology part will play a very big role also. And the forces will be in place, one way or another, will be in place and in -- the different equilibrium will definitely come. It may take a bit longer because the rates -- the interest rates are low, but it will come.

What I was trying to understand is, if the pressure that we have seen in asset values has reached a bottom or do you think that there is still a lot of shipowners out there that they will have to sell their assets in order to deal with their obligations? Because on the public side, most of the public companies, they have already reacted. They have done a lot of sales, but we do not have a very good fixture of what is happening in the private world?

But the prices of the assets today are so low, that you cannot solve your problem by selling your assets. You are rationing your problem by selling your asset. If you can understand what I mean. So that's the way out of it.

Fotis, also, we don't entirely agree with your comment that we have seen most of the sales that are scheduled to come from publicly listed companies. As you know, some of them have rather large order books. We don't know what they and their bankers have in mind as regards the new building tonnage, what they're going to be taking delivery of over the next couple of quarters or 3 quarters. So I don't think we have closed that chapter. As regards private owners, again, they are -- the longer the weaker earnings last, I mean, you know that as well as we do, the greater the pressure on private owners and the more ships may have to come out not by choice, because as Mr. Palios said, the problem is not solved -- but by necessity, a sale might transpire. [indiscernible] maybe have to be sold for short-term liquidity, but the problem will remain because of the low values.

Our next question comes from the line of Spiro Dounis with UBS.

I just wanted to follow up on that last question and your comment. I guess just last night, we saw a pretty big equity deal for a peer of yours with some private equity backing, which I know you've been critical of in the past in terms of private equity. But it looks like the pipeline, the equity is still open even after 30-year lows in Capesize market. And I guess that comes as opposed to scrapping vessels or selling right out of the yard. Does it make you nervous, I guess, private equity is still sort of in this space in this way? Is that consistent what you're seeing broadly just outside the public companies?

It is not a 100% correct that private equity is still here, interested in the shipping industry. Last year, most of the private deals that you have seen in the last 6 months, it is our understanding that they have come out of necessity rather than as being an attractive deal for anyone. So at a point, all of the private -- or most of them that will get are really tired and then, will really exit the shipping industry. Certainly, those are -- they are clever enough and they have the strength to stay alive by having done the right choices in the past. They may produce a nice return, but we're still far away from that point.

Okay. Fair enough. And then just a quick follow-up on lay-ups. I was wondering if you could walk us through maybe some of the economics and maybe the true cost of laying up of a vessel and how we get to that decision. You, as an owner, I'm not saying you're going to be laying up, but just as you're thinking about rates, are you looking out at rates saying, they're going to be bad for 6 months, a year, over a year? And then, does drive your decision to lay up? Or maybe just through some of the numbers.

The laying up decision is not an easy one. It has to do current rates, but also, it has to do with the anticipation regarding the future. You need to spend money to lay up the vessel and you certainly need money to reactivate a vessel. So you should not expect market to react quickly as regards laying up even if rates are really, really bad. It’s take some time and it takes a lot of blood out in the street for people to start laying up vessels.

Okay. So I guess, with that in mind, given where the market is and maybe the outlook, maybe, for the rest of the year not being that great, would you expect now that maybe some cash balances have been cut down, we could see that acceleration soon, given that things haven't really improved all that much? Or would you say that it's still too early?

Certainly, the $12,000 for a 2-year period for a Capesize vessel, to date, doesn't help at all. It will decelerate the procedure.

In the Panamax side, on the other hand, we might be seeing some lay-ups over the next few months, always depending on the sentiment and anticipate the grade. This is a key factor. And you need also pessimism for the foreseeable future to prevail, not only low rates at present, low current rates, in order to make a decision. As Ioannis said, it's not an easy decision to make. It depends a lot on the location of the lay-up, on the type of ship and also on the type of lay-up that you want to place your ship on.

And if I may add, you have all noticed that we are wasting most of our time discussing the supply of vessels, scrapping and laying up and we keep forgetting the real dependency on the Chinese trade as regards the demand side in the equation. And this is going to play a very important role to what is going to happen in our industry and it remains to be seen what demand is going to do.

Our next question is a follow-up question from Amit Mehrotra with Deutsche Bank.

Just a quick follow up on the acquisition discussion. Up until now your acquisition strategies and very disappointing that...

Sorry, Amit, can you speak up a bit because we are not hearing you. We cannot hear you.

Okay, sorry about that. So until now, your acquisition strategy have been pretty disciplined, one-at-a-time incremental approach. But like you said, your competitors do have pretty significant new building commitments and that may give rise to potentially attractive sort of end block sales. And so I'd love to get your perspective on, would you sort of entertain a deal where you're acquiring a relatively large amount of shares, whether it’s 4, 5, 6, 7, with a staggered delivery schedule as a way to sort of maybe locking your growth profile over the next couple of years and at the same time, get a little bit of a more attractive price?

No because that does not show initial strategy. If we buy 5 ships, today, we lock today's values for the 5 ships, and I think that's not our idea. Our idea to buy every 2 months, 1 ship. Thus, you are buying at prices which are the stated at all these long time and you take a better advantage of the market.

The delivery dates, is relevant, except that is helpful, logistically, the fact that in your example, we're going to be getting a staggered way of deliver is irrelevant. What we worry about is spending a lot of money at [indiscernible] at one point you decide. And what you described is more exactly that. So the answer from our voice was clear, no.

We have no further questions at this time. I would like to turn the floor back over to management for closing comments.

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

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.