Why is short interest in Core Lithium shares growing?

Core Lithium shares started the week as the fifth most shorted on the ASX.

Bernd Struben

Author bio Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets. Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel. Areas of expertise Australian and global share markets Macroeconomic and geopolitical trends Real estate Education Economics, University of Michigan Favorite investment quote "The four most dangerous words in investing are: 'This time it's different." — Sir John Templeton

Published February 14, 2023 3:02 pm AEDT

Core Lithium Ltd (ASX: CXO) shares have the unsolicited honour of counting amongst the top shorted shares on the ASX.

And short interest in the S&P/ASX 200 Index (ASX: XJO) lithium stock has been growing.

Last Monday, 6 February, short interest in the company stood at 9%.

Yesterday, 13 February, short interest in Core Lithium shares had increased to 9.6%. That makes it the fifth most shorted stock on the ASX at the start of the week.

So, why are ASX investors betting the share price will come down?

A little boy measures himself against a ruler and comes up short. — Image source: Getty Images

Why is short interest growing?

Core Lithium shares look to be attracting short interest for a number of reasons.

First, investors appear to be concerned about the medium-term outlook for lithium prices. Following some big share price gains, that's seen a number of other ASX lithium stocks make the top-10 most shorted list in recent weeks.

Indeed, with supply forecasts up and demand forecasts down for 2023, the price of the battery critical metal has fallen more than 20% since hitting all-time highs on 14 November.

Lithium carbonate prices in China (courtesy of Trading Economics) reached AU$126,000 per tonne in mid-November. Prices currently stand at AU$99,225 per tonne.

Valuation concerns are another reason Core Lithium shares are finding themselves in the crosshairs of short sellers.

On 30 January, Goldman Sachs reiterated its sell rating on Core Lithium, with a 95-cent share price target. That's roughly 6% below the current share price of $1.01.

"CXO continues to look expensive relative to peers trading at 1.5x NAV (peer average ~1.2x NAV)," the broker stated.

Goldman also cited production risks at the miner's Finniss project, located in the Northern Territory, where the first spodumene concentrate production is expected during the first half of this year.

According to Goldman Sachs:

We see production risk as the Finniss project moves through ramp up on project complexity (moving between different open pits and underground configurations), and the required exploration/resource upside to support capacity expansion/life extension currently priced into the stock looks significant.

How have Core Lithium shares been tracking?

Core Lithium shares are trading right about where they kicked off 2023.

As you can see in the chart below, the ASX lithium stock remains up 28% over the past 12 months, defying short sellers. At least for now.

Go back a bit further, and you'll find shares are up 310% over two years.

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