Diana Shipping 4Q12 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.”  These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.  The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call.  Other posts in this series can be found by clicking here.  Full transcripts can be found at Seeking Alpha.

“with ship building deliveries, gradually reducing in number, 2014 should see bulk carrier earnings improve. The problem with the sector, however, is that even though a decent level of demolition is expected this year, after 2013, there just aren’t enough vessels over 20 years old left to make serious inroads at least into the Capsize fleet.

Furthermore, things look worst for Panamaxes. The amount of new capacity coming on this year is difficult to see how demand for these ships and scrapping and to absorb the extra capacity. Based on statistics, Panamaxes will suffer from overcapacity for a while longer.

However, on a more positive note, MAR-ECO Shipping Research predicts that in the course of 2013 the stimulus-driven Chinese demand reported above would exceed supply growth of vessels. This may the market balance and offer confidence to both the market and the investor base especially during the second half of the year. Yet again, the risk from such a development if it comes to pass is that new building contracting could once again take off and push back any recovery in earnings and the asset values.

According to Howe Robinson, shipyards are hungry for work and are offering ships at the lowest price for a decade. There is no realistic prospect to derive in demand outpacing shipyard capacity for a long time, according to Howe Robinson. They predict that this fact alone will bring through a protracted return to the rate levels cycle. Instead, Clarksons anticipates after we will – something like a return to the long-term levels of earnings.

Approximately two years ago, we have unfortunately foreseen and publicly expressed the negative development we have been witnessing for the last 18 months or so. Admittedly, we were a bit early in our business. However, we have always mentioned in our call and presentation that it is impossible to predict the exact timing of the freight market downturn or, for that matter, upturn. And exactly for this reason – can support a steady schedule of activation through the down cycle at progressively more competitive prices. We continue to believe that the strategy of financing new acquisitions with cash and conservative borrowing will ensure the steady growth of our bulk carrier fleet without jeopardizing the financial strength and integrity of our balance sheet.

Sooner or later, the recession in shipping will end. That moment, we’ll find Diana Shipping with a modern, high-quality bulk carrier fleet, excellent prospects to generate cash and support the dividend for our shareholders, payments of which were interrupted years ago to beef up our balance sheet. This shows the support the acquisition strategy referred to above. Asset values will eventually also increase and we will ensure that we’ll take advantage of this through selective sales of assets.”

“So, the only real question that we have in our minds…is why not invest in small Handysize – between 20,000 and 30,000 tons. But that’s a different market … So, that sector is being underbuilt. There is no doubt about it. And we’d rather leave that sector to people who are more geared up in trading ships in that small-size range than we are. Our operation is set in a way that we are best in operating larger-bulk carriers.”

“I think that you have to understand that when the market is good, every ship is a good one, and when the market is bad, every ship is a bad one”

“we have discussed in the past that we strongly believe that market prevails and there is a reason why the newbuilding cost so much and the secondhand don’t cost so much, and everything is incorporated in the price”