Scorpio Tankers Rated Buy as Pareto Securities Starts Coverage

March 12 (Bloomberg) -- Scorpio Tankers Inc. has been given a buy rating from Pareto Securities AS, which is initiating coverage of the company and sees it profiting from rising rates for ships hauling refined fuels.

The Monaco-based company owns 13 vessels, charters 20 and is building 28 more, the Oslo-based investment bank said in an e-mailed report today. Demand for the modern, fuel-efficient tankers will rise as refineries built closer to Middle East oil producers lengthen trading distances for finished fuels such as gasoline, analysts Jonas Kraft and Eirik Haavaldsen said in the report.

Pareto gave Scorpio Tankers a target price of $10 a share. It traded at $8.41 a share on the New York Stock Exchange by 11:16 a.m.

Demand for product tankers will increase 4.6 percent this year and 6.2 percent in 2014 while the fleet grows 3.2 percent and 2.9 percent, respectively, Pareto estimates. Global refineries are adding 7 million barrels a day of capacity to reach 100.5 million barrels a day in 2017, according to the report.

“The product tanker market is showing signs of improvement, with MR rates in the Atlantic region being at levels we have not seen for several years” in the first quarter, Kraft and Haavaldsen said.

Daily earnings for so-called Medium-Range tankers on their busiest trade route to the U.S. from Europe averaged $17,782 so far this year, the highest for any quarter since the end of 2008, according to the Baltic Exchange, the London-based publisher of shipping costs.

To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net