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• Did you guess correctly? Paladin Energy is now the ASX’s most shorted stock, while other uranium holdings Boss Energy and Deep Yellow are also targeted
• Katana Asset Management says short sellers have dropped their bearish bets on lithium prices
• Mineral Resources fifth most shorted stock in “year from hell”

Before we dive into the ASX’s most shorted shares, a quick reminder about what short selling actually is.

Short sellers essentially borrow a stock from a broker and stake (sell) it on the open market. The plan is to buy back the same stock later after it has suffered a significant price drop. Once that’s done, the short seller buys it back at the lower price and returns it to the lender.

The difference between the selling price and the buying price is the short seller’s profit. Investors are essentially betting that the prices of a security will fall.

Because short selling is restricted under Australian law (and because it’s an all-or-nothing blood sport), it’s worth being aware of any substantial short position in shares, even if you’re just trading long.

And perhaps there is method in the madness.

Stockhead has used the number of short positions as a percentage (5% or more) of the total number of shares issued ASIC’s short position report.

With commodity shares currently dominating the most ASX shorted shares, Stockhead spoke to Katana Asset Management portfolio manager Romano Sala Tenna for his view on what’s driving short sellers into the sector.

The most shorted shares on the ASX

Swipe or scroll to view the full table. Click on headings to sort:

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Uranium game Paladin Energy (ASX:PDN) has become the most shorted share on the ASX, with a 15% short position. Other uranium stocks are also being targeted by short sellers Boss Energy (ASX:BOE) the second most shorted stock with a short position of 14% and Deep Yellow (ASX:DYL) also on the list of most shorted ASX shares, with a short position of 11%.

It ends months for flagship ASX lithium producer Pilbara Minerals (ASX:PLS) tops the list, with a short period of equity spending above 20%.

Sala Tenna believes the uranium theme remains strong despite falling from highs earlier this year.

Some recent catalysts for a more positive price outlook include the re-election of Donald Trump as US president and Russia’s ban on enriched uranium exports to the US in November.

“Depending on how things play out in January and what happens in Russia, the uranium theme could become even stronger, so it may seem strange that stocks like Paladin and Boss are the two most shorted ASX shares,” said Sala Tenna. .

He believes the reason why Paladin and Boss are severely lacking has to do with operational issues, lack of project execution and high valuations.

“Both companies at different stages have really disappointed the market in terms of the speed at which they are setting up new projects and also the current valuations that you have to pay for those companies,” he said.

“Most people believe that uranium prices have reached a level and that the outlook is more positive than negative, but bottom-up they think these companies are not meeting the valuation.

“We still have Boss Energy in the portfolio at the moment and we think it is probably the best of the Aussie listed uranium plays, but it is a tough field as there are not many high quality uranium plays and investors really need to go off-shore for the better names.”

Pilbara Minerals is no longer the most shorted stock in the ASX

It’s a seasonal greeting for lithium producer Pilbara, which has seen its short position fall to 12%.

In our last Short & Caught column in November Pilbara was the most shorted stock on the ASX, with 17% shorted, down slightly from 20% in September and 19% in October.

“We have spoken to many institutional colleagues over the years and it appears that because we do not have a dedicated lithium futures market, the way equity managers played on the lithium price was through the Pilbara shares as the largest dedicated lithium player on the ASX,” said Sala Tenna.

“If you are lithium negative, you would sell short the Pilbara and vice versa.

“I think a lot of investors are starting to say that the lithium price is as bad as it can get, so it may not recover anytime soon, but it’s not going to get much worse from here.”

Investors are starting to doubt the prospect that PLS’s price could fall further by a maximum of $7 billion after a 43% YTD decline.

“It’s probably where things are going to sit in terms of the lithium price, so they’ve covered some of these short positions,” Sala Tenna said.

Another lithium stock worth mentioning is Liontown Resources (ASX:LTR)which has a 10% short position.

“For Liontown it is a top-down view of the lithium price and in some respects the company is in a very difficult position as it has completed a major new project at a time when lithium prices have fallen,” he said.

“So it has all the teething problems that come with a new project and at the same time they have no surplus to solve it with breathing space.”

Syrah ‘constantly short-circuited’

Graphite company Syrah Resources (ASX:SYR) is currently ranked as the third most shorted ASX share, with a short position of 13%.

“Syrah has always been a short-sold stock,” said Sala Tenna.

“Graphite was a market darling seven or eight years ago when the EV and electrification theme was taking off,” said Sala Tenna.

“The first commodity that started moving was cobalt and the second was graphite, but then people started to understand that there was no shortage of graphite worldwide.”

Sala Tenna said Syrah has long been operating below capacity and at a loss, making his short position a bottom-up look at the company.

“The view is that the prospects for that particular stock are not good, even more so than the prospects for graphite,” he said.

‘A year from hell’ for mineral resources

Mineral Resources (ASX:MIN) is the fifth most shorted stock, with a short position of 12%.

“2024 has literally been the year from hell for mineral resources,” said Sala Tenna.

He said the company faced the convergence of corporate-government issues, a weakening in commodity prices – especially lithium and iron ore – and record debt levels as it built its largest project in history, the Onslow Iron Ore project in Western Australia.

“Iron ore is stronger right now, but lithium is creeping along the bottom,” he said.

“The market has become nervous as these three things come together to create a really negative outlook.”

Difficult market for raw materials in 2024

Sala Tenna said the market was in two halves this year, with banks and financial institutions recovering strongly and commodities selling off by default.

“Between banks and commodities you make up about 65% of the index, so you have to be underweight one or the other. Investors are more concerned about the problems in China and therefore wanted to be underweight on materials and overweight on banks,” he said.

“In the new year, we expect a rotation out of the financial sector and a recovery in the commodities sector as China’s stimulus measures unfold and India continues to move forward.”

The views, information or opinions expressed in the interview contained in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise taken responsibility for any financial product advice contained in this article.

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