Tankers Threat Level Now 'Red,' Key Names Downgraded At This Research Firm

Deutsche Bank's Amit Mehrotra downgraded the ratings for

and

from Buy to Hold. The analyst reduced the price targets for Euronav from $18 to $8.50 and for Teekay Tankers from $8 to $5. Analyst Amit Mehrotra expressed concern regarding the continued increase in order book for tankers and raised consequent threat level from the earlier "flashing yellow light" to "red," after analyzing the past ordering cycles. Monthly crude tanker new building orders are running at 17 vessels on a 12 month rolling average basis and this is in-line with the peak of the last four ordering cycles of the past 20 years. Mehrotra added that all of these have been directly preceded sharp and sustained decline in rates. Expressing skepticism regarding the likelihood of sustainability of the current demand trends, the analyst said, "Against such a backdrop we cannot recommend crude tanker equities any longer." Dry bulk capacity is expected to increase 0.8 percent by 2016 and decline 0.1 percent in 2017, representing the slowest pace of growth in the last 20 years. "The forecasts reflect the still-large order book (which is heavily skewed to '16 deliveries), offset by historic levels of scrapping, little new ordering, and typical non deliveries of the order book," the Deutsche Bank report mentioned. Mehrotra believes that these figures will not drive a material improvement in rates in the near term. He commented, "We do, however, believe recent levels of scrapping – if sustained – should be enough to drive a more rational market in 2017, with rates at or slightly above opex levels. The implications are negative for dry bulk companies, in our view, who by and large do not enough liquidity under such a "recovery" scenario."