Short sellers target lithium companies as battery metal prices decline
In the early days of this year, short sellers have turned their attention towards lithium companies, making them some of the most heavily bet-against stocks in the sharemarket. This shift comes as prices for the crucial battery metal experience a decline, raising concerns about the sustainability and capitalization of some companies in the industry.
According to data recently published by the corporate regulator, half of the market's top 10 short positions are held by lithium-focused explorers or producers. In addition to these lithium companies, the list also includes uranium developer Deep Yellow, with an $800 million market capitalization, which has not yet raised capital despite the commodity's recent surge, as well as the $4.3 billion travel group, Flight Centre.
One prominent player in the lithium sector, Pilbara Minerals, which operates the largest hard rock lithium mine in the country, has seen short-selling levels soar to as high as 20.75 percent. This move is widely perceived as a reflection of the broader sentiment regarding the falling lithium prices. Syrah Resources and Core Lithium, both sitting at above 13 percent in short interest, have also garnered attention. Core Lithium, in particular, made headlines when it announced the shelving of its mine project last Friday.
Despite the increased short interest in these companies, investors who manage long-short portfolios are warning that this year may pose challenges for those betting on share price declines.
"It's not easy right now for anyone trying to short sell as the market is macro-driven, and we are in the early stages of a bull market. It feels like 2009 and 2010 when so many people were positioned for a correction which never came," says Doug Tynan, Chief Investment Officer at GCQ Funds Management, which delivered net returns of 52.5 percent last year. The fund has the capacity to short up to 10 percent of its portfolio but currently only holds about 2 to 3 percent in short positions.
As lithium companies face increased scrutiny from short sellers amidst falling battery metal prices, the market remains volatile, leaving investors and analysts closely watching for any potential shifts in the industry's fortunes in the coming months.
Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.