Scorpio Tankers Likely To Benefit From Move To Low-Sulfur Fuel, JPMorgan Says In Upgrade

The International Maritime Organization will enact a new regulation Jan 1, 2020, with the intention of reducing the global sulfur cap for marine fuels.

Scorpio Tankers Inc. STNG is likely to benefit, according to JPMorgan.

The Analyst

Analyst Noah Parquette upgraded Scorpio Tankers from Neutral to Overweight and increased the price target from $29 to $34.

The Thesis

There has been a considerable increase in interest from investors in the IMO 2020 product tanker story in recent weeks, Parquette said in the Thursday upgrade note.

Scorpio, being the largest owner of product tankers in the world — with the largest market cap and trading volume — should benefit from the momentum, the analyst said. 

Low-sulfur fuel is a distillate product and is amenable for transportation by product tankers rather than crude oil tankers.

The actual strength in product tanker rates could be seen in the third or fourth quarters, as refineries exit maintenance periods and most shipowners begin filling their ships with low-sulfur fuel before the actual switch date, Parquette said. 

Although Scorpio's corporate governance and related party structure, including the overhang from the SALT position, continue to be concerns, Scorpio is likely to be a natural attraction for investors looking at the IMO 2020 theme, according to JPMorgan. 

The Price Action

Scorpio Tankers shares were rallying by 0.67 percent to $27.08 at the time of publication Thursday. 

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