Diana Shipping Inc. (DSX) Q2 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Diana Shipping Second Quarter 2015 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. It is now my pleasure to introduce your host Ed Nebb, Investor Relations Advisor. Thank you sir, you may begin.

Thank you, Christine and thanks to all of you for joining us today for the Diana Shipping second quarter 2015 conference call. 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. 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. Forward-looking statements are based on assumptions, expectations, intentions and beliefs as to future events that may or may not prove to be accurate. For a description of the risks, uncertainties and other factors that may cause future results to differ from what is expressed in the forward-looking statements, please refer to the Company’s filings with the SEC. And with that, I will now 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 second quarter of 2015. Through the first half of the year, we have continued to maintain a solid balance sheet, further strengthened by the proceeds of our senior and secure notes offering and have invested in the ongoing expansion of our fleet. To review our financial results, the company recorded the net loss of $14.1 million and a net loss attributed to common stockholders of $15.5 million for the second quarter of 2015. This compared with a net loss of $5.7 million and net loss attributed to common stockholders of $7.2 million for the second quarter of 2014. Our time charter revenues were $38.6 million for the 2015 second quarter compared to $43.2 million a year-ago. The decrease over the year ago period was mainly due to the prevailing lower time charter rate partially offset by an increase in the size of the fleet. Diana Shipping continued to maintain fortress [ph] balance sheet, reflecting cash and equivalents of nearly $275 million. Long-term debt including the current portion was $613.5 million compared to stockholders equity of approximately $1.26 billion. During the past quarter we further enhanced our financial capacity by raising $63.25 million in a public offering of senior and secure notes due 2020. The net proceeds can be used for the acquisition of additional vessels as well as general corporate purpose and working capital. Reflecting our confidence in the company certain executive officers, myself included purchased $12.75 million aggregate principal amount of the notes in this offering. Also earlier this week, we announced the signing and drawdown of $165 million term loan facility with BNP Paribas secured by 18 vessels and the voluntarily prepayment of the balance of our revolving credit facility with Royal Bank of Scotland. And keeping with our established strategy, we have continued to expand our fleet. We took delivery in June 2015 of the model vessel Medusa, a 2010 built Kamsarmax dry bulk vessel. We also announced the purchase of a new-building Capesize dry bulk vessel to be named New Orleans with expected delivery in October 2015. Including these vessels, our fleet will consist of 42 dry bulk vessels. In addition, we have two new-building Newcastlemax dry bulk vessels and one new-building Kamsarmax dry bulk vessel expected to be delivered in 2016. We’ll continue to manage 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 88% for 2015. In summary, we will continue to take decisive actions to enhance shareholders value by maintaining strong financial resources, continue to invest in the growth of our fleet and managing the business in a prudent manner throughout a challenging dry bulk market cycle. With that I will now turn the call over to our President, Stacy 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 a very good morning to all. Bulk carrier industry has provided us with plenty [ph] as we talk about over the second quarter and more so during June and July this year. We will start as we usually do by looking at Baltic dry indices to put things in perspective. On April 1, 2015 the Baltic Dry Index was at 596 and closed yesterday at a much better level of 1,100. The Baltic Cape Index started the quarter at a miserable 463 and closed yesterday at 2,116, the Baltic Panamax Index was at 596 on April 1st and closed 1,044. The drop in dry bulk trade growth during the first five months of this year is largely due, according to Clarkson, to the climbing Chinese imports for all major commodities. Indeed things started happening on the upside in June and July. According to banchero costa, the Capesize market began to pick up in the past couple of months on the back of relatively strong demand and a significant pick up in demolition. However, we also point out the significant overcapacity remains which will eventually put pressure on rates. Limited contracting of new buildings and strong seaborne iron ore trades going forward could shed some light at the end of this long time. [Ph] Let’s turn to macroeconomic development. According to the OECD, global growth this year should reach 3.1% and growth could be as high as 3.8% in 2016. These figures are downward revisions through from 3.6% for this year and 3.9% for next. The Euro area is expected to grow by 0.7% this year and by 2.1% in 2016. In Europe, in May, a BMI data outlined according to Maersk Broker, the Euro area recovery that is experiencing some weakness. It felt to 53.6 in May from 53.9 in April, driven by decline in the service sector. In June however index moved back up to 54.1 from 53.6. This was the highest level in 49 months. Also the manufacturing sector seems to be expanding slightly as it grew from 52 in April to 52.3 in May. In China, according to Maersk Broker, the economy grew at the annual rate of 7% in the second quarter. The OECD growth forecast for this year is 6.8% and from next year is 6.7%. Both these figures are downward revisions from 7.1% and 6.9% respectively. According to Braemar ACM, activity in China’s factory sector expanded gradually in June while growth in the services sector fed up. [Ph] Maybe then the world’s second largest economy is slowly starting to level out after a wrap of support measures. [Ph] The OECD prediction for growth in India is a very respectable 7.3% this year and 7.4% in 2016. And in the U.S. the growth forecast according to IMS is for 2.5% growth this year and 3% next. Let’s turn to demand. According to Clarkson, the global dry bulk seaborne trade is currently projected to increase 1.2% year-on-year in full year 2015 which is a lowest growth rate since 2009. This compares with an estimated growth forecast of 3.7% year-on-year set at the beginning of the year. This highlights a downturn in the market over the first half of the year. Later on in this short presentation, we’ll look at breakdown of demand by major commodities. As for steel, according to Commodore Research, the last four months have seen Chinese crude steel production increase year-on-year by total of approximately 1.79 million tons. In comparison global crude steel production outside China during the last four months has declined year-on-year by total of approximately 5.5 million tons. World crude steel production according to Howe Robinson for the 65 countries reporting to the World Steel Association was 135.59 million tons in June 2015, this was down 3% from May production and 1% less than during the same period in 2014. For the month of May, China’s and Japan steel output were both down year-on-year by 1.7% and 7% respectively. International steel prices according to Gibson Shipping Energy have been falling relentlessly across all categories. According Commodore Research, steel prices in China have been dropping steadily over the past 10 straight weeks which is troubling prospect for coal and iron ore demand going forward. It was only last week that this trend was broken and prices finally increased by 1%. Turning to iron ore, According to Clarkson, total seaborne iron ore trade is expected to grow 3% in 2015 that’s slower than growth in 2014 as the pace of Australian production expansion is expected to ease. Growth should be supported by further displacement of domestic Chinese iron ore despite the likelihood of significantly slower expansion in Chinese steel production this year. According to Gibson Shipping Energy, during June there had been an upturn in Chinese demand for imported iron ore driven by restocking and this has assisted the marketing efforts of miners minors displaced from cargos. At the same time, exporters are preparing to significantly raise production during the second half of the year. This will no doubt place even more pressure on iron ore prices which are hovering around a very low $45 per ton FOB. Chinese authorities recently announced the decision to allow Valemax to dock at certain Chinese ports. This according to Clarkson’s will further support Brazil’s competitiveness in the Chinese market by reducing unit cost in shipment of this commodity. According to Commodore Research, approximately 80.2 million tons of iron ore was stockpiled at Chinese ports in mid-July which was slightly up compared to the previous week. While iron ore stockpiles have continued to increase, they are still down year-on-year by 22.2 million tons or 22%. Low stockpiles remained positive for Chinese iron ore import process. As for coal, according Clarkson’s, total exports of coking coal this year will drop by 2% to 257 million tons. And increase in Indian coking coal imports will not be sufficient to compensate for the drop anticipated this year for imports by China. The import drops are estimated to drop by 2% to 934 million tons this year. According to Braemar ACM, in China new rules were introduced last September and came into effect on January 1st this year. Under the new regulation, the Chinese government set different levels of requirements on coal grades for local sales and imports for different parts of the country. Report suggests that import from Australia has been disadvantaged due to the misuse of these tests and thereby supporting the domestic Chinese coal industry, which is suffering more than most from collapse in this commodity price. None this is a good news or the offering -- is good news for Panamax vessels which has benefited from growth in the Australia to China thermal coal trades in recent years. According to Howe Robinson, Chinese thermal coal imports continue to fall, down to 51 million tons or 43% year-on-year for the first five months of this year. These are the lowest reported import figures since 2009 when China first became a net importer of coal. As regards of filing of this commodity, stocks of coal at the end of June this year were sufficient to run all the coal-fired plants in China for 20 days. At the same time last year, stockpile was down only eight days operation. According to Commodore Research, peak hydropower production season is now well underway in China and prospect for coal imports will soon again become much less promising, this is no doubt, having effect on Panamax trading prospects for the second half of this year. They also point out that as also mentioned also by Howe Robinson, Chinese coal imports will decrease this year by total of between 80 million and 100 million tons. This will continue to have a devastating effect on the dry bulk market. While Indian coal imports could reach 25 million to 35 million tons this year, the shortfall in demand created by the Chinese drop in imports cannot be compensated. [ph] Moreover according to Clarkson, the trend in the coal trade is reflecting an emerging scene in bulk carrier sector where a dropping Chinese import demand with exemplifying oversupply in already imbalanced condition. While all this is happening, the market will continue to see a very large tower [ph] of new-building in deliveries for at least the next 15 months as simply too many vessels were ordered back in 2013 and early 2014 at the time when seaborne cargo volume and growth prospects were much more promising. As for grain, Clarkson’s report that their estimate of total import of all grain products for the coming 2015 to 2016 grain season will be approximately 310 million tons. If it materializes, it will present a 2% drop compared to last year’s volume. According to Commodore Research who are slightly more pessimistic than Clarkson, compared to the 2014-2015 estimate, 2015 to 2016 grain trade is expected to decrease by 12.9 million tons which is down about 3% compared to the previous season. New-building contracting now. According to Clarkson’s, new building contracting came to 113.3 million deadweight tons in 2014, and as we will see below, it will significantly further reduce this year. According to banchero costa, only 31 Panamax and Post-Panamax units were ordered in the first five months of this year which compared to 83 for the same period last year. As for capsize units, a near 14 ships for a total 2.9 million deadweight tons were ordered during the first six months of this year, this compared with as many as 85 orders for a total of 17.2 million tons deadweight ordered during the same period in 2014. As for Scrapping, according to Howe Robinson, at the half year point, dry bulk scraping reached 20.5 million tons consisting of 284 vessels. This figure is already 4 million tons more than the total amount scraped in 2014, but more significantly, the average age of which tonnage is being sold for scrap has fallen shortly that is only 35% of the fleets scrapped in 2014 was less than 25 years old, this compares with 2015 where as much as 65% was less than 25 years. According to Clarkson’s, it is the first time on record that the average age of bulkers sent for demolition has been below 25 years. Looking at the age profile of the large bulk carrier fleet, according to banchero costa, about 9% of capsize fleet is 20 years or older, about 7% of the Panamax and post-Panamax fleet is 20 years or older. Turing to supply, according to Clarkson’s the bulk carrier fleet is expected to expand by 2.3% year-on-year in 2015. This will be the slowest fleet growth rate since 2001. This is largely due to an exceptional surge in bulker demolition in the first half of the year which if continued will reach 33 million deadweight tons in the full year 2015. Fleet growth in the Panamax fleet is estimated at 5% this year, 5% in 2016 and only 1% in 2017, assuming a 15% slippage, banchero costa estimates that the net increase in the Capesize fleet this year will be just 1%, rising to maybe 5% next year and dropping to less than 1% in 2017. New-building deliveries now. According to banchero costa in the first six months of this year, 44 capesize units join the grade increase [ph] for a total of 8.9 million ton deadweight, this was down 8.4% compared to the same period last year. Total deliveries of cape this year estimated to reach 23.2 million deadweight tons. This forecast is based on the assumption of 15% slip. In the first five months of this year 63 Panamax and post-Panamax units were delivered totaling 5.2 million deadweight tons. This was down 32% in comparison to the same period in 2014. Total deliveries of such units during 2015 as per the most updated and revised order book are expected to reach approximately 188 units for a total 15.3 million deadweight tons. Turning to the outlook now for our trade, according to Maersk Broker, during the next few months capesize rates are expected to remain volatile. The inventory build-up is expected to continue but shipments can be unstable depending on the movements in the price of iron ore. The Atlantic Panamax rates should stay stronger throughout July but could fall back in August due to the lower grain activity. On a more optimistic note, according to the Shanghai International Shipping Institute, international dry bulk shipping market is expected to pick up in the second half of 2015. However, they also do not expect this recovery to reach to the average level seen in recent years, as they claim it’s still rather far away. Commodore Research remained quite bearish for the Panamax market for the second half of the year and continued to point to peak South American grain export season as having been largely responsible for holding Panamax rates at their present level. China’s hydropower production will also be very robust by late July, August this year and Panamax new-building deliveries will continue to come at a fast and rather furious pace. Various opinions regarding future growth prospects for India continue to make their way to the market, but the tough reality for the dry bulk industry according to the Commodore Research is that as mentioned earlier, India will never come even close to propelling iron ore consumption in the manner that China did. As we have mentioned in past conference calls, we at Dianna Shipping will continue to seek investment opportunities in a world of lower and lower asset value. And last, it seems that the seeds have been sown for potential balance between supply and demand leading to a lasting increase vessels earnings. The facts indicate that the new-building orders are going down; scrapping has gone up, especially the beginning of the year and ship financing is getting more and more scarce. This may lead someone to believe that we’re heading towards substantial market improvement. However, this depends on whether there will be higher demand to support this positive trend. All this has happened, could we see a strong turnaround in the fortunes of dry bulk ship, not much different from what we’re witnessing today in the tender industry. On this note, I would like to pass the call to our CFO Andreas Michalopoulos who will provide you through second quarter and first half of this year financial highlights.

Thank you Stacy and good morning. I’m pleased to be discussing today with you Diana’s operational results for the second quarter and six months ended June 30, 2015. For the second quarter of 2015, our net loss amounted to $14.1 million, net loss attributed to common stockholders amounted to $15.5 million and loss per common share of $0.19 . Time charter revenue decreased to $38.6 million compared to $43.2 million in the second quarter of 2014. The decrease was due to the decreased average time charter rate that we achieved for our vessels during the quarter and increase of higher days compared to the same quarter of 2014 and was partially offset by revenues derived from the addition to our fleet of the vessels Atalandi delivered in May 2014, G. P. Zafirakis delivered in August 2014, Santa Barbara delivered in January 2015, and Medusa delivered in June 2015. Ownership days with 3,670 for the second 2015 compared to 3,417 in the same quarter of 2014. Fleet utilization was 98.2% compared to 99.8% in the same quarter of 2014. And the daily time charter equivalent rate was $9,613 compared to $12,107 in the same quarter of 2014. Voyage expenses were $4.1 million for the quarter compared to $2.2 million in the same quarter of 2014. The increase in voyage expenses was due to a $2.2 million loss from bunkers resulting from the redelivery of vessels in the quarter. Vessel operating expenses amounted to $21.2 million compared to $21.9 million in the second quarter of 2014 and decreased by 3%. The decrease was due to decreased crude costs, insurances, stores, sales and taxes. This decrease was partially offset by a 7% increase in ownership days resulting from the enlargement of the fleet and also increased repairs and maintenance costs and environmental plan expenses. Daily operating expenses were $5,813 for the second quarter of 2015 compared to $6,419 in the same quarter of 2014, representing a decrease of 9%. Depreciation and amortization of deferred charges amounted to $18.8 million. General and administrative expenses decreased $6.2 million compared to $6.3 million for the second quarter of 2014. The decrease was mainly attributable to the change in the exchange rate of U.S. dollar and was partly offset by increase related to stock cost, legal fees and board of director fees. Interest and finance costs were $3.4 million for the quarter compared to $2.1 million for the same quarter 2014. This increase was mainly attributable to the increase that is we expect on average interest rate in the second quarter of 2015 compared to the same quarter of 2014. Interest and other income amounted $0.9 million and was the same as in the second quarter of 2014. Gains from investments in Diana Containerships, Inc. amounted $0.3 million compared to a loss $0.1 million for the same quarter of 2014. For the six months ended June 30, 2015 now. Net loss amounted to $24.8 million and net loss attributable to common stockholders amounted to $27.7 million and loss per share was $0.35. Time charter revenue decreased to $80.6 million $84.3 million for 2014. The decrease was attributable to decreased average time charter rates and increased uptime [ph] days, and was partly offset by increased revenues due to the enlargement of the fleet. Ownership days were for the first half of 2015, 7,258 compared to 6,697 for the same period of 2014. Fleet utilization was 98.6% compared to 99.3% for 2014 and the daily time charter equivalent rate was $10,069 compared to $11,966 for the six months ended June 30, 2014. Voyage expenses were $9.1 million for 2015 and include $5 million loss from bunkers resulting from the redelivery of our vessels during the period. Vessel operating expenses amounted to $43.1 million, compared to $42.6 million for 2014, and increased by 1%. The increase was attributable to the 8% increase in ownership days, resulting from the enlargement of the fleet. Despite the increase in total operating expenses, daily operating expenses decreased due to decreased average crew costs, insurances, stores, spares and taxes. This decrease was partly offset by increased repairs and maintenance and environmental costs. Daily operating expenses were $5,941 for 2015, compared to $6,360 for 2014, representing a 7% decrease. Depreciation and amortization of deferred charges amounted to $37.3 million for 2015. General and administrative expenses amounted to $11.9 million compared to $12.5 million in 2014. The decrease was mainly attributable to the change in exchange rates of euro to U.S. dollar and was partly effect by increased restricted stock cost, legal fees and board of director fees. Interest and finance cost amounted to $5.1 million to $5.9 million compared to $4.1 million in 2014. This increase was attributable to increased average debt and average interest rates during the first half of 2015 compared to the same period in 2014. Interest and other income amounted to $1.8 million and was the same as in the third half of 2014. Loss from investment in Diana Containerships, Inc. amounted to $0.4 million compared to a loss of $0.1 million in the same period of 2014. Thank you for your attention. We would be pleased to respond to your questions now. And I will turn the call to the operator who will instruct you as to the procedure for asking questions. Thank you.

[Operator Instructions] Thank you. Our first question comes from the line of Michael Webber with Wells Fargo. Please proceed with your questions.

Good morning, guys. This is Donald McLee on for Michael. So, during the quarter you announced the charter extension on one of your post-Panamax vessels for I think is up to 25 months which is somewhat outside the range of your historically short-term chartering approach. Is that indicative of gradual improving outlook for the dry bulk market or how should we interpret that charter?

No, we don’t have a short-term approach. What we do is as we have always explained, try to position our vessels to open at different times in the cycle. We found that charter and it was well positioned for the vessel to open after 24 months at a point where we don’t have a lot of vessels opening, as simple as that. We don’t take a position as regards to where market we think is going to go in our chartering strategy. If you start taking positions on chartering as well that the market is going be pick up or say lower or become lower or stay where it is, then you are adding to your risk, involve and you’re already taking a risk by having pressured vessels at the low vessel cycle. We don’t need to do that.

That makes sense. And I guess in regard to purchases, given your solid cash position, does fleet growth remain a priority or could we see may be share buybacks or some other capital alternatives?

It is not on our immediate plans to do something like this. We stick to the vessel practices and we’re constantly looking to invest on another $20 million to $15 million soon by buying one or two vessels.

And within that purchasing strategy, do you have a preference for second hand or new-build tonnage?

We think that the market today is that the resale are an attraction to us.

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

My first question is with respect to the re-chartering activities that have been done so far. It looks like you re-chartered about half of the fleets year-to-date. And by our calculations, it looks like I guess in terms of the new rates that those are being booked at -- it will result in about $20 million say cash flow headwind on an annualized basis. So my first question is, is that in the ballpark of accuracy? Number one. And then second, Ioannis, you’ve talked in the past about stress testing the company and the stress test that companies have done, has done and how even under the most conservative rate assumptions will allow the company to continue in investing. So, can you just give us a little bit more color on that stress test and what that stress tests have told about the headwinds that company may have to endure in the current downturn? Thank you.

We have been very conservative with our model and we are well aware of how money we can burn even in really bad situation. At the same time we know very well with the cash position that we have we can afford to invest for another year and a half around $20 million every two months or so. And therefore we strongly feel that we’re in a very good position. Don’t forget also that the market is going to have some up and down where we’ll have the benefit of taking some charters there. You see we have always a vessel opening. And if the market improves a bit, we’ll take the advantage. But nevertheless, as we said earlier, we don’t want to take any kinds of position with our chartering strategy. We have ensured the survival of the company even in a prolonged downside with our balance sheet.

Right. But can you just offer a little bit more detail though in terms of charterings that you’ve done year-to-date, and what has been the weakest market, what you think the prospective cash burn associated with those re-charterings would be relative to where you had them contracted before?

You see the model of our is it works both ways. When you have a hedging strategy, when the market is picking up, it looks like you are losing money and when the market is going down, it looks like you are making money. We strongly think that we’re in a position to burn around $40 million per year, if necessary.

Can I ask just one more, maybe two more questions? The first one is a quick one. Andreas, last quarter you said that the company has the capacity to deploy $300 million in new purchases and that’s obviously the equity as well as the debt component of the financing. I just wanted to confirm that that’s still the number and you guys confirmed earlier that I guess it’s still $15 million to $20 million of equity every two months, and I guess that still stands?

Yes, that still stands, that stands even more, now that we have extended basically the loan that we had with obviously changing to BNP Paribas for five years. So yes, those numbers are still valid.

Last one for me, just quick question on what you’ve seen in the purchase and sale market, because you guys are obviously now little more active in it. I’ve heard that owners have basically in some cases taken their vessels to market in response to the improved rates over the last couple of months. So, can you just sort of confirm or maybe deny that or offer some color in terms of what you are seeing in terms of changes in the purchasing opportunities that you are seeing out there?

As regards to whether there are potential sellers in the market, I can tell you that they are. And especially the ones which we are particularly interested which are the resale. So there are ships around, even today.

Our next question comes from the line of Gregory Lewis with Credit Suisse. Please proceed with your question.

I know it’s been challenging market on the ship finance side, but it looks like and I know this has been out there for a while that RBS is looking to sell its shipping portfolio. I guess two thoughts around that, one is, does that provide any opportunity for ship owners to potentially get involved in that process? And then secondly given the fact that RBS is pretty -- has been historically pretty big in ship finance, is it possible that these sales create further downward pressure on asset prices?

I think RBS is very old established bank that know shipping very well. And I don’t think that whatever they do, they will do it in a disorder manner. I think anything they’ll do is going to be orderly and very professionally. Don’t forget that they have been perhaps one of the two banks, only two banks which have been the oldest established banks, going back to Williams Deacon’s, Williams Inc. [Ph] and now Royal Bank of Scotland. So whatever they are going to do, it’s going to be order and professional.

And Greg, they are talking about their selling their portfolio, not rest.

I understand that. And then just one other for me. It seems like over the last couple of years people were thinking that there was the depth of the Valemax to 400,000 deadweight ton vessels now China has started to take the vessels; they’re potentially going to go out and build more of these vessels for their capital fleet if we want to think that that the larger Chinese shipping companies are national. And then as we think about that where does Diana sort of view that market and is that something where we could see Diana Shipping getting involved in that vessel size or is that something at this point that really the average ship owner just has no interest in?

As regards to Diana, I think we’re a little bit skeptical regarding the 400,000 ton deadweight ships. And I would like to see the first vessel passing has sales for year special survey to see the way they be getting. Quite honestly I think that the Newcastlemax is a good animal to have as opposed to the poor carrier. It’s not a bulk carrier, it’s more [ph] carrier. So the 400,000 vessel is at the mercy of iron ore, it doesn’t have the flexibility of being able to load coal for example because of the cubic capacity. So, we do prefer Newcastlemax is on the 400,000 iron ore carrier.

Greg, also don’t forget that these very big vessels, they demand long-term contract which they become banking with some shipping deals. So we want to be a in position to take advantage of the market picking up and not having locked that is for long period with long time charters.

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

I would like to ask about how do you view the current uptick in the charter rates and whether this is just part of the volatility as we mentioned, is it part of restocking or is it part of gradual recovery of dry bulk market? And also, if you can comment on the vessel supply, I heard the number of 5% fleet growth in one of the projections of one of the brokers. I see that the fleet growth is much less so far part, is there a front [ph] order book that can keep the order book much lower than what it looks like?

I mean for Fotis, what we’re seeing here in way of supply of ship is the uncertainty of some ships not being delivered or not being delivered, that who they’re going to be delivered to. So we don’t see a huge slippage in excess of 15%, maximum 20%. So it is fairly safe to use the new-building statistics that we have now and apply to see the 20% slippage and derive from there with some reasonable assumptions on scraping, which we have to trim now in view of the strength of the market to see where the tonnage is going to be at the end of this year and next. It’s still that is encouraging that we’re going to have fewer gates [ph] have been delivered possibly this year but there more coming next year unfortunately and then again the numbers drop. On Panamax, we have a steady flow of ships coming in. So, how can we interpret the strength in the market that we’re seeing now? That we will answer after the event as usual. But for now, we can only speculate and say that this to restocking iron ore mainly by China, they’re taking advantage of the low price by other possibly clients of the mining companies. And at the end of the day we’re going to sit back in October or November and reflect as to what has been happening. And we’re just little bit skeptical as to whether this is an orderly increase in the market because it has been very orderly to begin with, it’s been jumping, and on some days up to 10% a day. So there is nothing orderly about that. There is obviously an acute shortage in some sense or panic in some quarters. And we have to wait and see how this thing is going to develop once the first cargo which were picked in July and July have been delivered and the ship comes open for their next employment and their loading board.

One last question, if you can comment about Noble Energy and how much it can impact the market if there is downgrade or a default, is this a big news for the dry bulk market. I know that they’re chartering quite a few dry bulk vessels, that’s I am asking?

The market you know very well is very fragmented. However the psychology is very important and if the psychology goes to the pessimistic side of the story, may lead to various events that they lead the rates to go further down. We are not in a position to really comment on what the effects are going to be if something happens.

Let me add quickly. If all these catalysts at the end implied in environment of optimism, the effects are going to be minimum; if the catalysts in environment of pessimism, they’re going to be more pronounced.

Do you have an idea of how many vessels they might have chartered or how many ship on they might be affected or it’s going to be more the repel effect that you might have in mind?

We are not in a position to respond to that question. We don’t know.

Okay. Thank you gentlemen. And hopefully next quarter we will have a positive signal about the turning of the market. Thanks again.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Excuse me, operator, I think there is another question.

We did get another question from Amit Mehrotra with Deutsche Bank. Please proceed with your question.

Hey, thank you for adding me in at the last minute. One follow-up on just on the question on the age of fleet. Stacy spoke about this in his prepared remarks but I’m wondering Stacy if you looked at those vessels which are not exactly 20 years old but maybe 18 to 19 years old. And based on our numbers, it looks like maybe about 5% of the Capesize fleet can be reaching that 20-year milestone over the next 12 to 18 months. So, wondering if you’ve looked at that and what that impacts your on prospective supply or potential scrappage?

The answer is we have not analyzed that particular sector because it all depends on the condition of the ship. So each ship will effectively put its destiny depending on its condition whether it’s going to go to the scrap yard or it’s going to continue trading. The fact remains that the age of the ships, they were built at specifications which are not necessarily against the longevity of the particular vessel, provided they were maintained properly as opposed to some ships that are being built recently which have a life which is more or less predetermined and will not go beyond the 20 years. I’m talking about the Capes now. So we haven’t unfortunately analyzed on a ship by ship basis; it’s 5% factor of the Capesize fleet and we can’t answer to your question.

And then we’ve seen a couple of companies now do advanced dry dockings ahead of potential regulatory requirements next year. Do you guys have any plans on sort of doing such things in order to differ may be additional CapEx next year that May sort of result in some increased maintenance CapEx this year?

Yes. We are considering doing something similar.

Okay. Any idea in terms of how much that may cost in the back of the year?

Well, for the third quarter we have one, two, three, four, five vessels that are approaching to go on the dry dock. I can name them for you, ALCMENE, ALCYON, DANAE, DIONE, NIREFS and the cost of those is on average $600,000 for each. And on the fourth quarter, we have the plan to proceed with NAIAS, OCEANIS, SIDERIS GS and TRITON and again, the average cost is the same per vessel $600,000 [ph] more or less.

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

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