Short selling: The most shorted and targeting stocks on the ASX - Week 42

Welcome back to the Short Seller Series, where we delve into the most heavily shorted stocks on the ASX and highlight those with significant changes over the past week.

Short selling data is four days behind today's date because reporting is not mandatory until three business days after the trade. The tables below compares short interest changes between 4 and 11 October.

Most shorted stocks

Lithium: Will the bears win or get squeezed?

• Lithium shorts showing no signs of reprieve: The lithium sector continues to experience a broad-based rise in short interest, with shorters targeting everything from the bellwether Pilbara Minerals all the way to struggling Core Lithium.

• Lithium prices bounce from oversold levels: Last week, lithium carbonate futures on the Guangzhou Futures Exchange marked its first gain since late August as Chinese buyers returned form the Golden Week holiday. But the commentary from Chinese lithium traders offers little reprieve for a sustained rally.

• Restocking expected: "“Lithium carbonate sellers are not willing to further lower prices because they expect that there could be a round of restocking in the fourth quarter, which typically has the strongest demand of the year,” a Chinese lithium producer source told Fastmarkets.

• Fundamentals remain weak: "However, spot market fundamentals remained weak, with consumers continuing to purchase only on a hand-to-mouth basis," the report said.

Where are shorters covering?

Recent catalysts and headlines:

• The Star completed a $565 million placement at 60 cents per share (17.4% discount to previous close) on 27 September with proceeds going towards refinancing and further capital structure initiatives. The stock has been trading around the 60 cent level for the past two weeks.

• Perenti experienced an almost 20% selloff between 22-23 August after its FY24 revenue and earnings guidance missed analyst expectations. Recent headlines and announcements have been relatively upbeat, including:

  • Contract award (7 Sep): Secured open pit mining services contract from Sandfire Resources valued at $360 million over a term of 73 months

  • Buyback (9 Oct): Launches on-market share buyback program to purchase up to 60 million shares between 9 October 2023 and 30 August 2024

  • Outlook at AGM (13 Oct): CEO Mark Norwell said FY24 has started well, and with the combination of DDH1, set for another record year across all financial metrics, assuming improving operating conditions continue

Where are shorters going?

Key takeaways:

• Short interest in Pilbara Minerals has more than doubled since July and up tenfold compared to a year ago. Will shorters get burned (if lithium markets can stage a meaningful turnaround)? Or is lithium join the ranks of underperforming battery metals like nickel, cobalt and rare earths?

• Investors are increasingly pessimistic about Bank of Queensland, and this sentiment was further reinforced by the regional bank's disappointing FY23 results last week. The results fell short of already low expectations, with cash net profit declining by 8% due to elevated operating expenses and loan impairments. Additionally, net interest margins contracted by 2 basis points to 1.69%, reflecting intense competition and rising funding costs. Despite the 7.4% sell-off last week, short sellers remain undeterred