Are short sellers of Pilbara Minerals stock about to get stung?

Is the tide turning for lithium prices?

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Pilbara Minerals Ltd (ASX: PLS) stock closed Thursday at $4.17 apiece, down 0.24%.

The ASX 200 lithium share has fallen 7.13% over the past six months and is up 13.3% over the past 12 months.

Pilbara Minerals is currently the most shorted equity on the S&P/ASX 200 Index (ASX: XJO) today.

A significant 21.3% of the stock is currently short-sold.

That means a fair few people in the professional trader community think Pilbara Minerals shares will fall.

But are they about to get stung?

What's changing for Pilbara Minerals stock?

As reported in the Australian Financial Review (AFR), billions of dollars in shorts on various lithium shares may be in jeopardy as the global supply glut of lithium shows signs of easing.

The oversupply coupled with lower demand for electric vehicles in today's challenging economy has led to lithium commodity prices crashing.

In 2023, the lithium carbonate price fell by more than 80%.

This year, there's been a 15% rebound, and top brokers UBS and Goldman Sachs have just reduced their supply estimates for this year by 33% and 26%, respectively.

In addition, Morgan Stanley has noted lower inventories in China. 

S&P Global data shows short selling on Pilbara Minerals stock is around record levels, and equivalent to about $US1.8 billion.

As my colleague James notes: "Short sellers have been closing positions in the lithium industry but are not letting up on [Pilbara Minerals]."

Tribeca Investment Partners hedge fund manager Jun Bei Liu is long on Pilbara Minerals stock.

She said:

Double-digit capacity has already been taken out of the lithium market and that usually is a sign that the commodity price is bottoming.

Another broker, Morgans, currently has an add rating on Pilbara Minerals stock. It has placed a 12-month share price target of $4.50 on the lithium share.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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