February 22, 2016 / 2:22 PM / 3 years ago

'Short interest' in Rio and Antofagasta hit multi-year highs

LONDON, Feb 22 (Reuters) - “Short interest” in miners Rio Tinto and Antofagasta have surged to multi-year highs, suggesting that some investors are not convinced about the sustainability of their recent share price rally, analysts said.

According to Markit data, short interest - which measures the number of shares lent to speculators betting on a fall in the stock - in Rio Tinto has climbed to 1.6 percent of the shares out on loan, the highest since June 2009 and up from 0.8 percent on Jan. 20, when its shares slumped to a seven-year low.

Short interest in Antofagasta has also surged to 6.8 percent from 4.8 percent during the same period, during which the shares of Rio and Antofagasta rose more than 20 percent and 40 percent respectively.

Short interest in miners Anglo American and Glencore has also gone up this year, although their shares have spiked by around 100 percent and nearly 70 percent respectively during the period, Thomson Reuters data showed.

“There is a lot of short selling going on as credit spreads on the metals and mining companies have blown out so much recently,” said Lex Van Dam, hedge fund manager at Hampstead Capital.

“The whole sector has got some support from some stability in mining prices, but the share price rally doesn’t look sustainable unless we see major cuts on the supply side.”

In order to profit from a stock falling, short sellers borrow the stock and sell it, expecting it to drop in value so they can buy it back at a lower price and pocket the difference.

Analysts and fund managers said that the sector’s outlook still remained bearish as concerns about the pace of global economic growth, especially in top consumer China, could continue to put pressure on prices of industrial metals.

“The global macro picture hasn’t changed and we are still seeing a supply glut and a weak demand environment,” said Lorne Baring, managing director of B Capital Wealth Management.

“I believe the recent spike in share prices is a short-term phenomenon. Do not chase commodities-related companies.” (Reporting by Atul Prakash; Editing by Sudip Kar-Gupta)

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