Nov 19, 2013
Executives
Edward Nebb – Investor Relations Simeon Palios – Chairman and Chief Executive Officer Anastasios Margaronis – President Andreas Michalopoulos – Chief Financial Officer Ioannis Zafirakis – Executive Vice President and Secretary Maria Dede – Chief Accounting Officer
Analysts
Michael Webber – Wells Fargo Securities, LLC Fotis Giannakoulis – Morgan Stanley Nish Mani – JPMorgan Securities LLC Gregory R. Lewis – Credit Suisse Securities (USA) LLC
Operator
Greetings and welcome to the Diana Shipping Third Quarter 2013 Conference Call and Webcast. 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 Mr.
Ed Nebb, IR Advisor for Diana Shipping. Thank you Mr.
Nebb, you may now begin.
Edward Nebb
Thank you, Jessie and thanks to all of you for joining us today for the Diana Shipping Inc. third quarter 2013 conference call.
The members of the company’s management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr.
Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr.
Ioannis Zafirakis, Executive Vice President 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 pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act.
The forward-looking statements are based on assumptions, expectations, projections, 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 the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission.
And now with that, let me turn the call over to Mr. Simeon Palios, Chairman and CEO.
Simeon P. Palios
Thank you, Ed. Good morning and thank you for joining us on our 2013 third quarter conference call.
During the recent quarter Diana Shipping, Inc. continued to pursue the strategic expansion and diversification of our fleet and maintain a formidable balance sheet to support our growth.
Among the recent highlights of our fleet expansion efforts. In order, in October we took delivery of the motor vessel Myrsini at 2010 built Kamsarmax dry bulk vessel of 82,117 deadweight.
Myrsini is then charted to Clearlake Shipping of Singapore at a gross charter rate of US$15,500 per day. During the third quarter, we also took delivery of Artemis a 2006 built Panamax dry bulk carrier of 76,942 tonnes deadweight.
The vessel is then chartered to Rio Tinto Shipping of Australia at a gross charter rate of US$9,375 daily. Last month we agreed to purchase from an affiliated third-party the motor vessel JK Pioneer in 2013 built Capesize dry bulk vessel of 179,134 tonnes deadweight for the price of US$52 million.
The vessel will be renamed P. S.
Palios is expected to be delivered by the end of this month and is chartered to RWE at a gross charter rate of US$18,250 daily. Including the vessel currently expected for delivery or on order Diana Shipping fleet would consist of 40 dry bulk carriers.
It is an increasingly diverse fleet including Newcastlemax, Capesize, Post-Panamax, Kamsarmax, ice-class Panamax and Panamax vessels. We continue to manage our fleet in a responsible manner doing business with the world’s most respected charterers, such as Cargill, Rio Tinto [indiscernible] and others.
We have structured the fleet to provide a balance of Time Charter maturities and deliver a predictable revenue stream. Currently, our fixed revenue days are 99% for 2013.
The majority of our vessels – charter for periods rising from 2014 through 2015 and beyond. Diana Shipping continues to maintain one of the strongest balance sheets in our industry.
Our cash position at September 30, 2013 was nearly US$316 million. We continue to operate with a very manageable degree of leverage.
Long-term debt including current portion was US$450.3 million, compared to stockholders’ equity of nearly US$1.3 billion. Turning now to a summary of the financial results of Diana Shipping for the third quarter of 2013, time charter revenues for the recent quarter totaled US$41.9 million.
The Company reported a net loss for the 2013 third quarter of US$103.2 million. In summary, Diana Shipping has continued a few strategies that enhance the company’s financial flexibility in a volatile industry environment, while investing in the assets that will generate long-term growth.
We will continue our program of selectively and gradually adding to our fleet as market conditions permit as to acquire vessels at attractive prices. We will operate our fleet according to balance and prudent chartering policies and promote a predictable revenue stream.
And we will continue to manage our balance sheet to provide financial flexibility, supply the capacity to support growth and maintain an accepted degree of leverage. With that, I will now turn the call over to our President Stacey Margaronis for a perspective on the industry conditions.
He will then be followed by our Chief Financial Officer, Andreas Michalopoulos who will provide a financial overview. Thank you.
Anastasios C. Margaronis
Thank you, Simeon and greetings to all. The last quarter has been one of the most exciting quarters for dry bulk shipping since 2009 collapse of the freight market.
The Baltic dry Index started the quarter at 1,179, reached 2,146 in October 8 and yesterday, stood at 1,500. The Baltic Cape Index has started at 2,176, only to explode over a short period to 4,329 at September 25 and yesterday, closed at 2,366.
The Baltic Panamax Index started the quarter at 1,745, peaked at 2,060 on October 18 and closed yesterday at 1,382. According to RS Platou, so far this year, Capesize daily earnings have averaged US$14,400 per day, while Panamax bulk rates have averaged to US$8,900 per day.
It is not a typical bulk rate market volatility pattern and certainly proof of the fall exerted by Chinese traders of iron ore over the entire the bulk carrier market. This is indeed a relatively new phenomenon with everyone involved in dry bulk shipping should start to accept as an inevitable development of the continued growth of China and its effect on freight rates going forward.
Looking at the macroeconomic developments now, according to the IMF, the global GDP growth rates were fast to reach 2.9% this year and 3.6% in 2014. Emerging markets suffered the greatest hit to expectations, which is of obvious important shipping with growth market is down according to RS Platou by almost 0.5% on average.
Turning to GDP, it increased to 7.8% during the third quarter of 2013, up from 7.7% in the second quarter. This was primarily created by targeted infrastructure spending and the promotion of economic reform according to Clarkson.
According to Commodore Research, it is encouraging to note that Chinese electricity production, lending and consumer spending have all remained robust and continued to show a moderate pace of growth and IMF predicts growth of 7.3% in China for 2014. As for the United States, the IMF is predicting 1.6% this growth this year and 2.6% in 2014.
For the Eurozone, the prediction is an anemic 1% growth in 2014. According to Commodore Research, production in India and demand commodities, particularly iron ore and coal, will continue to grow going forward however; one should not look to India to quickly become the next China.
Commodore also predicts that growth in India is likely to remain at only moderate level, due to the restricted nature of India’s democratic and bureaucratic government. Let’s look at private equity investment now.
According to the Korean Shipping Messenger, private equity invested in shipping year-to-date has exceeded US$2.7 billion. Furthermore as reported by the Financial Times on October 27, private equity led the shipping investments has amounted to 11.2 billion since the global financial crisis.
As we guaranteed, the private equity industry having invested $3.4 billion in shipping in 2011 is expected to put the largest amount of financing ever seen before in the sector in 2013. Under this evolving scenario several well known global private equity funds have aggressively entered the markets on the term conditions that both new-building prices and second-hand vessel prices have already hit bottom.
In the length of the scene if this will prove to be the case and how patience these players will be in waiting for the realization of double-digit return that they expect to see from their investments in shipping. Turning to demands now, according to Clarkson for an overall basis the dry bulk seaborne trade will increase to just under 4.5 billion metric tons in 2014, representing an increase of 5% compared to the estimate for this year during which trade is again predicted to increase by 5%.
Talking with steel prices now, these have been [indiscernible] over the past few months. According to Commodore Research, it is encouraging to note that they appear to be stabilizing at about $600 per ton.
Steel stockpiles have also continued their downward trends which is encouraging if it continues. Stockpiles of steel products in China had approximately 14 million tons.
These have been the second weekly decline according to Commodore Research since over a month ago during which they had been increasing steadily. World steel production according to the World Steel Association is 1.186 billion tons, an increase so far this year of 2.7% compared to the same period in 2012.
Total Chinese steel production is projected by the China Iron & Steel Association to increase by 9% this year, compared to 2012 and reached 781 million metric tons. We project these have led Commodore Research to the conclusion that steel output in China still exceeds demand.
Talking about demand, let’s look at iron ore now. Clarkson predicts that for the whole of 2013 seaborne iron ore trade will increase by 7% compared to 2012, while in 2014, a further 7% increase is being predicted.
This if realized will bring the total volume of world imports to 1.274 billion metric tons. Chinese iron ore imports are predicted according to Clarkson to reach 510.2 million metric tons this year, an increase of 9% compared to 2012.
Australian exports are predicted to increase by 11% in 2014 year-on-year while Brazilian exports by 4%. This is not particularly good news for ton-mile demand growth.
RS Platou has developed an interesting formula converting GDP growth in China under certain assumptions to an increase in the demand for Capesize bulk carriers. More specifically they estimate that with a 7% GDP growth in China demand for an additional 50 Capes would be created to carry iron ore.
The assumption made that over 50 of new iron ore demand would come from Australia, 20% from Brazil, and 20% from other producers. And other assumption is that domestically produced iron ore would be around 20 million metric tons per annum.
Let’s turn to the iron ore for stockpiles now. According to Commodore Research, iron ore stockpiles have been rising.
Approximately 82.2 million tons of iron ore are now stockpiles of Chinese Ports which is the most since November 2012. Iron ore’s stockpiles have poised to continue to rise due to the very large amount of iron ore pictures that have come to the market from July to September of this year.
As for coking coal, Clarkson’s estimate that even through and during 2013, the volume shipped increased by as much as 11.9% to 253 million metric tons. During 2014, they should reach 275 million metric tons, which is an increase of 5%.
During 2013, disruptions to Mongolia’s land-borne exports to China have contributed to firm growth in seaborne imports. However, we plan to expand Mongolian production further over the next few years, and as land-borne imports may also increase.
As for thermal coal, the prediction for thermal coal seaborne trade is at 34% for this year and next, reaching a total of 897 million metric tons by the end of 2014. Low international thermal coal prices have contributed to a 7% increase in Chinese imports so far this year.
Together, with coal restocking by power plants for the coming winter season. At this trend, China is expected by Clarkson’s to increase its imports by 9% year-on-year in 2013.
Grain shipments now, Clarkson’s predicts that crops are dropping nearby 3% to 261 million metric tons during the 2012, 2013 seaborne, grain imports should increase by 4% to 271 million metric tons in the 2013, 2014 season. The grain imports to Asia projected to rise 8% in the 2013, 2014 grain season and reached 85.9 million metric tons.
According to Commodore Research, a particularly large increase in global wheat exports is anticipated for this coming grain season, mainly due to the anticipated increase of exports of wheat from the Former Soviet Union. Thermal coal stockpiles now kept at major power plants have increased to approximately 81 million tons.
Even though, which is up to 11% since the beginning of October, power plant stockpiles are still 14% lower than they were during the same period of last year. As regard to electricity production in China, the September figure of 431 billion kilowatt hours was 10% more, than was in September 2010.
Turning to supply and looking at the order book, Clarkson’s predicts new building order book numbers 285 vessels with the combined cargo-carrying capacity of 54 [indiscernible] deadweight tons representing 18.7% of the existing fleet. their delivery schedule is spread out as follows, 7.2 million for the rest of this year, 21 million in 2014 and 26.5 million in 2015 and beyond.
The corresponding figures of Panamax’s are 436 vessels of 35 million deadweight tons on order, which represents 19.1% of the existing fleet. From the Panamax’s order book a total of 19.8 million deadweight tons are scheduled for delivery in 2014 and only 7.7 million deadweight tons, are on order so far for delivery in 2015, since they are even were though in the Handymax sector were 574 vessels iron ore representing 21.3% of the existing fleet.
In the Panamax sector, according to Clarkson’s, the fleet is projected to grow by 9% this year and by 8% in 2014. Demand is not expected to increase by more than 6% in 2014.
So with demand growth projected to be lower than fleet growth over the next 18 months or so, Clarkson predicts the supply side factors will continue to affect the Panamax market. Scrapping, according to figures provided by Banterra Corp that during the first eight months of 2013 about 255 vessels are scrapped for a total of 16.3 million deadweight tons.
It should not be forgotten though that’s only 6% of the Capesize fleet is over 21 years old and 10% for Panamaxes and Kamsarmax fall the same age scrap. As for congestion according to Commodore Research during the week starting November 4, approximately 160 vessels are anchored outside major Australian coal and iron ore port, approximately 30 vessels are anchored outside major Brazilian iron ore ports.
Of the 190 vessels congested at Major Australian and Brazilian coal and iron ore port about 120 of them are Capesize vessels. Even when we look at congestion numbers from earlier this year, congestion appears to be reasonably steady for the time being.
On the outlook side as regards to the likely future trend of Capesize vessel earnings, we agree with a view by Gibson, which is latest monthly report, Gibson says that even though Time Charter rates are between $6,000 and $10,000 per day are probably behind, it is by now uncertain that the supplier [indiscernible] is evening out, the reason here is as follows. Firstly, while the number of new delivers is indeed dwindling, the supplier demolition candidate is also shrinking nearly as far, due to the age profile of these vessels, which we referred to above.
Secondly, there is a heavy expansion of the 2000 deadweight class fee. And four carrier conversions are still trading from Brazil to China up to close to 25 years, now most of these trading under contracts of appraisement, they are not facing open market trend.
Thirdly, the low new building prices and the recent market trend have encouraged another state of new building ordering which will mean more deliveries again from 2015 onwards. Just as a reminder during the first eight months of this year about 99 capes and VLOCs have been ordered plus 54 Panamaxes and no less than 166 Handymaxes.
[indiscernible] scenario according to Gibson’s research is that the new building delivery season during 2014 and demolition rates remains firm, rates will improve as an example in hand besides the outlook of R.S Plateu according to whom with Capesize fleet growth estimated at around 4% and assume demand growth of around 6.5% per annum. Freight markets and earning fundamentals are expected to improve over the next 12 to 18 months.
This trend could have a positive impact, claim or earnings across the size ranges compared to earnings in 2013. However, the growth in the 200,000 plus fleet continues and the valid 400,000 deadweight vessels have their capacity.
There are also some doubts as to whether new building and demolition will be balanced in the future. According to Gibson, there are only 87 bulk carriers or oil carriers that are 21 years old.
If 20% of these are engaged in permanent storage or costal training, a list of demolition candidate will shrink [ph] especially when the average age for demolition in this sector is over 22 years. So as mentioned in our previous quarterly conference call, the environment in which we Diana Shipping Inc to execute the company’s investment strategy, remains volatile and full of surprise.
We must find it profiting as it confirms and reinforces our investment thesis, which is at the exact modernization of the Diana fleet should be implemented without any specific criteria in mind as to the precise timing of the Class 4 fleet [ph] of the dry bulk cycle. All-in-all is that we are now moving to the lower parts of the cycle and it is for this reason that total positions are financed by cash and conservative debt, bilateral funding from one of the several banks still willing to selectively advanced loans to the shipping industry.
We remain as confident as ever that the company’s conservative balance sheet and investment strategy would creat and even stronger corporate entity when dry bulk shipping moves to the upper part of the shipping cycle, which will [indiscernible] us with the role of reinstating dividend payment that to our shareholders and speeding up the fleet renewal program through the disposal of the older units in the fleet. I will now pass the call to our CFO Andreas Michalopoulos, who will provide us with the financial highlights of the third quarter ended first nine months of this year.
Thanks you.
Andreas Michalopoulos
Thank you, Stacey and good morning. I’m pleased to be discussing today with you Diana's operational results for the third quarter and nine months ended September 30, 2013.
For the third quarter 2013 net loss amounted to $3.2 million and the loss per share [indiscernible]. Time charter revenues decreased to $41.9 million, compared to $56.2 million in 2012.
The decrease was attributable to decreased average Time Charter rate that we achieved through our vessels during the quarter, compared with the same quarter of 2012. This decrease was partly offset by revenues derived from the vessels Amphitrite delivered in August 2012, Polymnia, delivered in November 2012; Myrto, delivered in January 2013; and Maia, delivered in February 2013, Baltimore delivered in June 2013, and Artemis delivered in August 2013.
Ownership days were 3,072 for the third quarter 2013 compared to 2,624 in the same period of 2012. Fleet utilization was 99.7% compared with 99.3% in the same quarter of 2012 and the daily Time Charter equivalent rate was $12,990 compared to $21,355 in the same quarter of 2012.
Mortgage expenses were $2 million for the quarter. Vessel operating expenses amounted to $19.7 million compared to $17 million in 2012 an increase by 16%.
The increase was attributable to the 17% increase in ownership days resulting from enlargement of the fleet. The increase was also due to increased taxes and other operating expenses and was partly offset by decreased instruments, stores and spares and repairs and maintenance cost.
Daily operating expenses were $6,424 for the quarter of 2013, in the third quarter compared to $6,460 in 2012, representing an decrease of 1%. Depreciation and amortization of deferred charges amounted to $16.4 million.
General and administrative expenses decreased to $5.4 million, compared to $6.2 million for the same quarter of 2012. The decrease was mainly attributable to decreased expenses for bonuses compensation cost on restricted stock awards, legal fees and annual interest expenses.
Interest and finance costs were $2.1 million for the quarter compared to $2.2 million in 2012. This decrease was attributable to decreased average debt in the third quarter of 2013 compared to the same quarter of last year offset by increased average interest rate from 1.71% during the last year’s quarter to 1.80% in this year’s quarter.
Loss from the investment in Diana Containerships Inc. amounted to $0.1 million compared to a loss of $2.5 million in the same quarter of 2012.
moving to the nine months ended September 30, 2013 now, net loss for Diana Shipping Inc. amounted to $11.6 million and the loss per share was $0.14.
This includes a $4 million loss or $0.05 loss per share from Diana Containerships. Time charter revenues in 2013 decreased to $124.5 million compared to $171.4 million for the same period of 2012.
The decrease was attributable to decreased average hire rates during 2013 compared to 2012, was partly offset by revenues derived from the enlargement of the fleet in 2012 and beyond. Ownership days were 8,808 compared to 7,409 for the nine months ended September 30, 2012.
Fleet utilization was 99.2%, compared to 99.5% for the same period of 2012 and the daily Time Charter equivalent rate was $15,422 compared to $22,561 in 2012. Other revenues amounted to $2.4 million and derived from the management agreements through Diana Containerships Inc.
terminated on March 1, 2013. Voyage expenses were $6.3 million in 2013.
Vessel operating expenses amounted to $57.3 million, compared to $47 million for the same period in 2012, an increase by 22%. The increase was attributable to 19% increase in ownership days resulting from enlargement of the fleet.
The increase was also in view to increase through costs and insurance risk factors and other operating expenses, and was partly affected by decreased, stores and spares and repair and maintenance costs. Daily operating expenses were $6,501 for the nine months ended September 30, 2013, compared to $6,341 for the same period of 2012, representing a 3% increase.
Depreciation and amortization of deferred charges amounted to $47.9 million in 2013. General and administrative expenses amounted to $16.3 million, compared to $18.9 million in 2012.
The decrease was mainly attributable to the decrease expenses for bonuses, compensation cost and restricted stock awards, legal fees and company promotion. Interest and finance costs increased to $6.1 million compared to $5.6 million in 2012.
This increase was mainly attributable to increased average interest rate and increased average debt during the nine months ended September 30, 2013, compared to the same period of 2012. Loss from the investment in Diana Containerships Inc.
amounted to $4 million, this compared to a loss of $1.8 million for the same quarter of 2012. Thank you for your attention.
We would now please to respond to your questions and I would turn the call to the operator who will instruct you as to the procedure for asking questions.
Operator
Thank you. Ladies and gentlemen we will now be conducting our question-and-answer session.
(Operator Instructions). Thank you.
The first question is coming from the line of Michael Webber with Wells Fargo. Please proceed with your question.
Michael Webber – Wells Fargo Securities, LLC
Hey, good morning, guys, how are you?
Simeon P. Palios
Good morning, Mike.
Unidentified Company Representative
Good morning.
Unidentified Company Representative
How are you Mike?
Michael Webber – Wells Fargo Securities, LLC
Good. Just a question on chartering and a couple around the market, the Kamsarmax chartered four to six months, it’s a bit shorter than you all usually go, is that by design or can you maybe talk about the conditions in the market hat led you to find something a bit shorter and a bit higher dollar certainly not necessarily negative at all, just curious as to what led you to that sorter term?
Unidentified Company Representative
The governing cost for [indiscernible] we are chartering the ships is simply when we have evaluated slope for an open and is not a matter of how the market we believe is going to yes. We have to have an opening and that opening we are filling up, so we are hedging on the charter side too.
Ioannis Zafirakis
Mike, if you look at the – this is Ioannis Zafirakis.
Michael Webber – Wells Fargo Securities, LLC
Hi.
Ioannis Zafirakis
If you look at our table that we have on our website, the table – the graph that – the bar chart that we have, it is clearly the same bar chart that we’re looking at two years ago, three years ago, we have always averted to fix, in that case, we have said that many times.
Michael Webber – Wells Fargo Securities, LLC
Okay, that’s fair, Stacey. You mentioned in your prepared remarks maybe you quoted some nominal amount of private equity investment in the space and we’ve certainly seen a ramp of new build orders that’s for second hand value, the new build values higher, I’m just curious you mentioned that we’re kind of still in the middle of the trough, do you think that new round of investments has pushed out as sustainable recovery and how do you view that new investment in the space in terms of its timeframe for the way you guys are planning cycle?
Anastasios C. Margaronis
Yes, I mean, that’s totally going to be a question answered with hand size [ph] more accurately now.
Michael Webber – Wells Fargo Securities, LLC
Sure.
Anastasios C. Margaronis
But we have to take – have an opinion, and our opinion which is not necessarily the correct one is that yes, this new phenomenon here is going to attract new building orders, because acquiring second hand comments is either difficult or not as attractive for these private equity funds as ordering new buildings. And lot of the ships that we sold during the first nine months came from that stable, in other words the money that was put in the industry by private equity funds.
And we will have to keep in mind of course, that this money is going to be leveraged to increase return on equity by how much, it depends on the investment criteria or which private equity fund. So in short, we believe that it’s not a good development as drive the recovery of the market.
The recovery when it comes, its going to be later and weaker than it could otherwise be without this infusion of capital. It’s not particularly smart observation to make, because anybody can see this.
But what is pity that we would not have seen this kind of money coming from anywhere else, had it not been the private equity funds that we’re injecting the money, but there is always someone putting money in the industry as you know, it used to be in the 80’s the nationalized fleet in the containership trade in the 90s we saw the tax schemes from Germany, in the form of the KG structures. Now we’re seeing private equity funds.
So it’s unfortunately a sign of the industry that every cycle, you get somebody investing capital and usually delaying a recovery for bringing forward the weakening of the market, if the investment happens towards the peak, either case this happens near of the trough of the market. so the chances of these investments being profitable are far higher than other that are made during especially in the Containership industry at the peak of the market and we saw what happened there.
Michael Webber – Wells Fargo Securities, LLC
Sure. I guess within the context and with the asset values, I don’t know if there are efficiently push driver, there’s a certainly a degree of speculation made into this asset values now.
how does that impact your purchasing patterns, you guys used all your purchases, the way for asset values is that kind of come back to a more normalized levels. How does that impact the way you spend money?
Andreas Michalopoulos
We will keep on buying at constant time, because that’s our policy, in respect whether the prices are high or low, the prices indeed are higher today that’s what where they were about four months ago and unless the appetite of these private investors and private funds is fulfilled, we are not going to see the recovery, its going to take much longer as Stacey. So we have to see that first and then we will expect the recovery to come.
Michael Webber – Wells Fargo Securities, LLC
Okay, that’s helpful. just one more from me, and I’ll turn it over.
Your loan to DCIX is I believe it’s totally wrong now, 50 million, you’re setting a lot of significant amount of cash in your balance sheet, a very [indiscernible] potentially extending more capital that the DCIX to source additional Containership growth or is that going to be [indiscernible].
Andreas Michalopoulos
No, no. we think that that’s the level that is good for the company.
So for the moment, there’s no such thoughts of extending further cash.
Michael Webber – Wells Fargo Securities, LLC
Great, that’s helpful. Thank you, Andreas.
That’s all I have got guys. Thank your for the time.
Andreas Michalopoulos
Thanks.
Operator
Thank you. The next question is coming from the line of Justin Yagerman with Deutsche Bank.
Please proceed with your question.
Unidentified Analyst
Hi, everyone this is [indiscernible] for Justin. How are you?
Andreas Michalopoulos
Very, well. Thank you.
Unidentified Analyst
So I wanted to ask about, you mentioned, you have a goal of reinstatement of dividend at some point and I just wanted to get some more thoughts about any timing that you’re considering around that goal or you know any benchmark that you need to reach to get there?
Andreas Michalopoulos
Our strategy states the following that from the moment, we are at the lower part of the cycle, we continue the growth phase of the company. And when we will – at the moment, we will reach the upper part of the cycle where we think that the growth of the company should decrease, that’s the point where our dividend is going to be reinstated.
In other words we still feel that we have better use of the money ourselves by buying vessels, the way we do. And we’re going to create a greater and very nice volume for our shareholders with the appreciation that we’re going to see in vessel values, when we will reach the upper part.
At that time, dividend is going to be reinstated.
Unidentified Analyst
Got it. And so we’ve talked a lot this morning about the longer-term view of the market and where we think things are headed there, I was curious to get your insight into where you think, that the market just the dry bulk market in general is headed in the next let’s say three to six months, what factors do you see that could leverage in that shorter time period?
Unidentified Company Representative
We – first our President, Mr. Margaronis said unfortunately the recent optimism in the market created a further problem which is going to prolong the agony and the problem of the market not picking up.
So we are of the opinion that the market is not going to show any signs of recovery for the next three to six months and maybe we will see market deteriorating further, unfortunately for another time, we were correct, well will try to explain shareholders and everyone that the recent upside that we show it was a seasonal issue that has nothing to do with the fundamental. Unfortunately the optimism as I said earlier that it was created, made people order more vessels and not – they didn’t scrap any vessels and therefore we are afraid that this is going to create a problem in the short-term to medium for our market.
Unidentified Analyst
Okay. and then one more just before I turn it over, I know is the G&A expense much as this quarter but is then turning more on a year-over-year basis and you guys gave a reasoning for that, but I was curious looking ahead is 2013 sort of the new run rate that we should use for 2014 and beyond or is there something going on this year that you don’t expect to continue into the future?
Unidentified Company Representative
No, we feel the run rate for G&A should be used for 2014, the 2013 one, you must note that we had said from the beginning that as we grow that the G&A’s are going to have some possibility to economies of scale and this is what we’re seeing that now, so we feel that more or less where it stands today will remain for 2014.
Unidentified Analyst
Thank you, appreciate the time.
Unidentified Company Representative
Welcome.
Unidentified Company Representative
Thanks.
Operator
Thank you, the next question comes from the line of Fotis Giannakoulis with Morgan Stanley. Please proceed with your question.
Fotis Giannakoulis – Morgan Stanley
Yes. Good morning.
Stacey you gave us a very detailed analysis of the market. I would like to ask if you can please clarify, what is your view about both asset values and rate recovery, I understand that you sound a little bit cautious on the recovery given the number of private equities, and a number of new buildings.
Do you think that there is a risk for 2016 of a new downturn when this new building deliveries arrive and also what is the reason that you are buying assets right now, do you think that asset prices they still have room to grow?
Anastasios C. Margaronis
Fotis lets start with the first set of questions, you know really well by now that we avoid making predictions the short, medium or long-term about asset prices and earnings. Because if we were contains with our predications are clear and certain to comp [ph] to tax, then we would be in another business probably or not in business at all, because of the portion we would cut a math.
But in mostly there is now the number of years equals themselves and we try to present these numbers to allow our listeners to draw their own conclusion and we also present plenty of analyst predications. So in simple form and I know that you can handle much more complicated statistics than me.
The portion of the Panamax ship in 2014, looks more promising than that of a bigger part in the Capesize vessel during 2013, it looks more promising than that of the Panamax or the Handymax for that matters. And there the numbers are quite clean, we have very strong fleet growth and given the growth in demand, which is very likely to come as forecast by several analyst and the IMF.
The Panamaxs are going to be under pressure during the entire year and the Capes will be under less pressure. The problem with the Capes as we said the age profile of the fleet.
And the fact that we cannot hope that for every new building there is going to be whatever second new building for that matter that has ship going for scrap, because we don’t have so many scrap candidate. So all-in-all, we could very easily see a rather a neutral situation for Capes and pressure on the Panamax.
Now for 2015, I think its very complex and we cannot really make any predications there due to this recent stake of new building orders. During 2015, we have a sharp slow down of Panamax delivery.
So in theory other things being equal, the earnings of these ship should be underpinned by this slow down in the increasing supply. On the Capesize, again we have the trend of 2014 continuing.
The problem is that by the end of the year we are going to start having the deliveries of the ships that were ordered at the beginning of this year or some of them at least if not most. So, they will start coming in and nobody knows exactly what the effect would be, because we can predict accurately what the rate of increasing demand is going to be.
So for – with the risk in this scenario, in environment to make a predication on asset values is really impossible. Because we saw an increase in asset values as Mr.
Palios mentioned earlier, which we have not predicated. It might be short lived, it might not, but when we were buying ships, we were not buying them on the basis that their prices were going to go up.
And therefore as we are going to capitalize on it. Firstly, we are in the market to sell these units and more importantly we are building up a fleet and the only intention as we go [indiscernible] are going to be to sell ships that the peak of the market, which are beginning to look rather old for the age profile of the Diana Shipping fleet.
So practice as you see are becoming secondary in the investment decision process here, and we have mentioned this again and again. We don’t know where asset where values are going to go they might go up, they might go down depending on the supply demand balance, but we have to keep buying ships, renewing the fleet and chattering them the way we have explained in this [indiscernible] charter portfolio, where we have ships coming up for renewal to take advantage of the short and medium term trend of the fleet market.
We’re not authorized as we have said in the past to buy today a vessel, 20% more on the next one, which is going to be after a month from today. We’re not authorized to do that from the moment we are convinced as we are at the lower part of the market we averaged down and that’s it.
Fotis Giannakoulis – Morgan Stanley
No, thank you for this detailed answer. But I understand it’s clear that you’re buying the ship to trade them rather than to sell them.
I just want to ask given your forecast and your return expectations. What is the return that you’re expecting that you will be making on your investments in shipping?
There is clearly some beginning of acquisitions during the last 12 months that was not there before? Do you see that this benchmark, this return can we met over the – given the rate expectations over the next couple of years?
Unidentified Company Representative
The returns are going to be made for our shareholders with the increased value of our shares based on the performance of the stock, together with the increased values of the vessel that we have in our fleet. Unfortunately we are not in a position to tell you how much a shareholder can make by buying shares today and selling them when the market is going to peak up, but we strongly feel that the way our company is structured and the vessels that we have in our fleet, value is going to be created from the revenue capacity from the increased volumes of the vessels and the ability of the company to take advantage of the market mobbing upwards.
We have discussed many time that returns in shipping can be [indiscernible] if you buy at the right time and you sell at the right time as well or if you keep your investment throughout tight, you are going to make something lie 8% to 9%. This is our position and having to run a company for the longest term, we are going to realize the returns of expressed I said [indiscernible] but several of this can make much, much more money than this.
When we are buying a vessel we can make any assumptions that we feel logical at that time, but this becomes irrelevant from the moment you are not going to be there too much to get [indiscernible] on the return by selling your shares or the vessel at that time..
Fotis Giannakoulis – Morgan Stanley
Thank you, Ioannis. That was very clear.
Thank you. One last question, I just want to follow-up on previous question about your dividend.
In the past before 2008 financial crises you had this full payout strategy, but at the same time you had zero leverage or zero debt, if the market goes to a level that you consider that its time to reinstate a dividend. How would you calculate this dividend, what would be the policy, given the fact that [indiscernible] in your balance sheet right now?
Unidentified Company Representative
The only thing, we can tell you at the moment is that the strategy states that debt level is going to be decreasing when we are at the upper part of the cycle and dividend is going to be increasing on a share basis. That’s it.
Fotis Giannakoulis – Morgan Stanley
Okay, thank you.
Unidentified Company Representative
Welcome Fotis.
Operator
Thank you. Our next question is coming from the line of Chris Combe with JPMorgan.
Please proceed with your question.
Nish Mani – JPMorgan Securities LLC
Hey, good morning, guys. This is actually Nish Mani on for Chris.
Thanks so much for the color. I just wanted to ask few follow-up questions, particularly on the debt, the follow-up on Fotis’ point.
But I don’t think we’ve seen the announcement for debt – incremental debt increments for the latest two acquisitions, and I just kind of wanted to get a sense of, if you guys were in the market thinking debt finance on those two vessels?
Unidentified Company Representative
We will get that financed or renew our position of about 50% of the debt. We try to group a bit the acquisitions not to have one loan for every vessel that’s saved a bit of legal fee et cetera, and we are going to announce soon some new deals on that yet.
Nish Mani – JPMorgan Securities LLC
Okay, great, that’s very helpful. And just wanted to turn to your ice-class vessels and I know that is less kind of transparency in the serving market, ice-class vessels.
And I wanted to get a sense of what kind of premium or rate upside you can expect for an ice-class vessel relative to its standard counterpart or eco counterpart?
Unidentified Company Representative
Well, I think that it depends when you are chartering the ice-class vessel. Now if you are chartering vessel in the beginning of the year that the ice-class situation is there, and you can get a better price.
You can -- later on, it’s the same or even a little bit worse, because you are dealing with heavier vessel and in fact, a bit more consumption. But overall, I will say with the rule of thumb, nothing else that it will be about 10% to 15% more than the usual vessel to usual Panamax.
Nish Mani – JPMorgan Securities LLC
Got it. And I mean obviously we’re having vessels come online later this quarter and early next year, so you expect to get some upside in the winter time right?
Unidentified Company Representative
Yes.
Nish Mani – JPMorgan Securities LLC
Okay, great. That’s actually it from me.
Thank you so much. I’ll turn it over.
Unidentified Company Representative
Thank you.
Operator
Thank you. (Operator Instructions).
Our next question is coming from the line of Greg Lewis with Credit Suisse. Please proceed with your question.
Gregory R. Lewis – Credit Suisse Securities (USA) LLC
Yes, thank you and good afternoon.
Unidentified Company Representative
Good afternoon.
Unidentified Company Representative
Hi, Greg.
Gregory R. Lewis – Credit Suisse Securities (USA) LLC
Stacey you talked about the recent two-month round in dry bulk and you contributed partially, it sounds like mainly seasonality. I guess I would ask if it’s seasonal, that means it’s going to be year-over-year.
And when we think about that the fact that was in such a volatile move up in rates. is it possible that the market is tighter than you maybe thinking it is?
Anastasios C. Margaronis
Yes. Well, there’s always a possibility of us making mistakes in our sort of conclusions by watching events.
The thing is that seasonality here was responsible, I would suspect for a small part of what we saw in rates, because we have to remember that the fixtures of iron ore that the Chinese were making on a weekly basis, in the later part of July through to September were unprecedented. They were taking advantage of the low price of iron ore or relatively low price of iron ore.
What they think was or what they thought was a very good price for the commodity to build up their stocks, which have dropped to around 70 million tons and now, they are in excess of 82 million and increasing, we foresee these going up to nearly 90 million, until by the time the iron ore that had been bought during the last three or 2.5 months arrived in their short. So what we have here is a speculative purchase we feel of the commodity by people who can afford to speculate on commodity trading and it was both in quantities that affected the market and would have affected any markets whether its the case of the Panamax or the Handymax market because of the ferocity with which its appeared, because very few people or groups of traders in the history of shipping ever had the financial muscles to execute the purchases that the Chinese did during the period that I mentioned earlier, end of July through end of September.
And because they still have the financial masking they might do it again. It doesn’t mean that the market – the bulk carrier market is more balanced or less balanced than it was in this past.
Simeon P. Palios
Because I mentioned the word seasonality, it was more rather than – I was trying to say that it was something like that happens because of synchronized events that they happen at a particular season or period and nothing to do with fundamentals as regards to demand and supply. It was rather a synchronization of certain event that happened during short period that created this.
This is what I meant by saying a seasonal issue.
Gregory R. Lewis – Credit Suisse Securities (USA) LLC
Okay great. And then just one follow…
Simeon P. Palios
Excuse me, I think the right word is not synchronize, its resonate.
Gregory R. Lewis – Credit Suisse Securities (USA) LLC
Okay.
Simeon P. Palios
So if you of course which were giving the result came in line and they grew substantially.
Gregory R. Lewis – Credit Suisse Securities (USA) LLC
Okay, perfect thank you Mr. Palios.
And then just real one quick one for me, in the period that can pick around, if we think about the last shipping peak cycle when we go back to 2007, 2008, it seemed like a lot of Chinese ship owners were buying vessels for their domestic cabitage [ph] trade and my understanding is that a lot of those vessels now are very old at this point. Is it possible over the next couple of years a release valve for the overall drive off fleet is sort of a renewal of the Chinese cabitage trade?
I mean is that something that you’re thinking about, is that something that that you – is there any antidotal evidence you are hearing on that or is that probably just some hope by other ship owners?
Unidentified Company Representative
Great, first of all the type of the vessels that you have mentioned they are included in the total number of existing vessels, first one. Secondly, this is what we are trying to explain to people is the fact that from the moment there is certain optimism what you are suggesting is going to happen or may happen is not going to happen if people believe that they’re going to be earning money soon, this renewal of the fleet will never happen or it will happen with a delay if there is an optimism in the market.
And this is what we are afraid is happening at the moment, certainly we have a specific age profile in the fleet including the Chinese vessels that you mentioned, Stacey said earlier that this number has decreased, the average number – the average age of the existing fleet and this is on the determent of the market recovering soon. It’s kind of a circular assumption for someone to make, the scraping of Chinese vessel is going to create a better market.
Unidentified Company Representative
And we also have to keep in mind that the vast majority of these ship are smaller than Panamax, so we are really talking now about Handymax, Handysize and smaller with a certain percentage of course in Panamax ship sizes and slightly smaller also percentage in Cape, so the brunt of the effect of this phenomenon if it happens as described is going to be felt in the smaller category of ships.
Gregory R. Lewis – Credit Suisse Securities (USA) LLC
Okay perfect guys, thank you very much for the time.
Unidentified Company Representative
Thank you very much.
Operator
Thank you. We have reached the end of our question-and-answer session; I will now turn the floor back to management for any concluding comments.
Edward Nebb
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.
Operator
Thank you, ladies and gentlemen. This does conclude today’s teleconference; you may disconnect your lines at this time and thank you for your participation.