Diana Shipping 3Q15 Earnings Call Notes

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Continue to expand the fleet

“In keeping with our sound strategy we have continue to expand our fleet. Today we announced that on November 10th, we took delivery of a newly built 180,960 deadweight capacity drybulk vessel renew or lease”

Industry ordered too many handymaxes. Panamax Deliveries lower from 2017 onward

“The problem in the dry bulk order book lies with the Handymaxes where a massive 38.6 million deadweight tons are on order equivalent to 22% of the existing fleet. Most of the ships like the Panamaxes are scheduled for delivery in 2016, from 2017 onwards deliveries are significantly lower across the board. ”

Scrapping prices are $285 per light ton displacement

“Scrapping prices have come down and vary depending on the type of ship. For bulk carriers they now stand around $285 per light ton displacement. For container vessels scrappers are usually willing to pay about 20% more per light deadweight count.”

Regrettably demand growth has not continued at the same pace as the last few years

Regrettably as explained earlier on demand growth did not stay at the level seen during the last few years. Therefore it did not come to any of us as a surprise that trades have more or less collapsed over the last few months together with the rate of demand growth.”

We see the light at the end of an unfortunately long tunnel

“Now that at long last new-building ordering has subsided and scrapping [indiscernible] we see the light at the end of an unfortunately rather long tunnel. There is reason for hope in the long run provide that nothing happens in the interim to disrupt the beneficial effect we posted now at work to make the dry bulk shipping markets a profitable industry in which to invest.”

Psychology continues to deteriorate, which means that it is moving in the right direction

“I think that we are in the right direction and things are moving forward the way we have described it should go. The sentiment is going further and further down and moves like the one you’ve described prove that point. What we keep saying is that people should realize that it has to take some time where you have people not believing that there is an end lies at the end of the tunnel. What we know based on past history and based on the cyclicality of our industry is there is a light at the end of the tunnel, but we cannot see. The people that will keep walking in that tunnel and they will be still alive they will reach that point.”

There are lots of distressed vessels coming to market

“Yes indeed, there are a number of vessels that are potential candidates both on the Panamaxes and on the capes and on the Kamsarmaxes. And as we are going along more candidates are coming into the markets. The potential buyers are very few and of course as we are going along that process will accelerate.

Rest assured that the light at the end of the tunnel will come

“you have to bear in mind that we are in an industry where supply and demand plays a huge part. And the dry cargo industry in contrast with the container industry a mature industry so we have been watching the numbers very carefully since 1947. And the cyclicality is always there and whenever the market is down we are trying to find new words to describe the market. This time is different from the previous, but I can ensure you is not, is exactly the same the supply and demand. And it will never change. There is a light at the end of the tunnel the problem is as we said all along we don’t know when we will reach this light at the end of the tunnel, but rest assure that one day we will see the light at the end of the tunnel.”

The fact that you are asking about structural changes shows how close we are to the bottom

“Fotis, sorry to interrupt the fact that people start talking like you about structural changes and things are different et cetera is a good starting point for the right forces to take effect and the market to turn. It goes with the psychology that we were saying earlier.”

If demand growth is slower than the market will come into balance with supply response

“If demand grows at a faster rate than we are seeing now and which Clarkson are predicting then the recovery will come sooner. If it remains as it is now, scrapping will be higher, new building ordering will be at the minimum if not disappear completely. And it will take that little bit longer because we will need longer to absorb for the market to absorb rather the tonnage, which is surplus tonnage today.”

The thing to worry about is the imbalance of supply and demand

“people keep forgetting and we keep saying that what you should worry and what we should worry about is the imbalance between supply and demand. And many scenarios now they can decrease this imbalance that we have today and many scenarios that can keep the imbalance the same and many scenarios that can increase this imbalance, either at lower levels or at higher levels. You should not expect that to give you [indiscernible]. But I predict this time, but we can explain we can even explain a situation where is there is a big drop in the demand and a further drop bigger drop of the supply where it’s going to create an imbalance at lower level, but higher charter rates.”

Low interest rates are helping to stretch out this cycle

“the first response that you’re going to get to that question it has to do with the interest rate for example how expensive is the financing cost and at the moment everyone is telling you of course that the financing cost is very low, the interest rates are very low and the banks are nursing various problems that exist and therefore there is a bigger endurance of an uneconomical market as you described this. And certainly higher interest rate environment will move things faster”

People have to believe that recovery is not imminent to get scrapping

” at the same time what is very important together with various macro factors that exist around this period, it has to do with the psychology as well if people are still prepared to burn more and more money thinking that the recovery is eminent. From the moment they will see that the recovery is not eminent then you will have laid up vessel, you will have scrapping and you will have certainly no new building orders.’

We have seen bad markets for many years in the past

“in the past we have seen periods of a bad market of seven years, we have seen two years, we have seen 10 years, but the question is together with the macro-environment you have to put there the anticipation and the psychology as regard to when they think the market is going to turn.’

Debt LTV levels have increased as asset prices have fallen, but we feel comfortable (would generally agree with 50% LTV assumption)

“The numbers are more or less correct what I can say only is that indeed the market values have dropped significantly. The only comment that we can make though is that we have absolutely no issue with our covenants, with our bank covenants so although your numbers are pretty correct and we feel comfortable with those. I don’t think we need to comment further.”