MELBOURNE (Reuters) – Short selling of shares in lithium miners SQM, Albemarle, Galaxy and Orocobre has ballooned this year, reflecting what fund managers say is a sign of growing scepticism of an imminent battery boom.
The heavy shorting of the stocks puts investors at risk of a short squeeze if project timelines meet or beat expectations, or if near-term oversupply of battery chemicals proves to be more seasonal than structural, fund managers and analysts said.
Short selling entails a bearish investor selling shares he or she does not own in the hope of profitably buying them back at a lower price in the future. If the shares rose instead, an investor would need to close, or “cover”, their position by buying back the shares for a loss.
“There’s a raft of reasons why people will short a name, but I’d say today it would be a perception that in the short term there’s a bit of oversupply, the price of lithium could fall,” said Darko Kuzmanovic, portfolio manager at Janus Henderson Investors in Sydney.
“People might say, ‘If I’m a shorter, maybe there’s a risk that it takes longer, it costs more, they don’t achieve the criteria that they say they will,’ so maybe the stock won’t perform as well.”