Before we analyze where copper bears are putting their money, we’ll discuss a few key terms. Short interest tells us the number of shares that have been sold short. Exchanges release the short interest every two weeks.
From the short interest, we can derive the short interest ratio. It’s the short interest divided by the average daily traded volume. Short interest and short interest-to-market capitalization basically standardize short interest. We should note that short interest expresses the general mood of the market with respect to a particular security. However, a high short interest ratio can also trigger a short squeeze if positive news hits the markets.
Short interest rises
The above graph shows different mining companies’ short interest ratio. Freeport-McMoRan’s (FCX) short interest ratio rose to 3.83 on August 15. The ratio was 2.89 on July 29. This is Freeport’s highest short interest ratio in more than five years.
Teck Resources’ (TCK) short interest ratio also rose from 7.72 to 11.65 between July 29 and August 15. BHP Billiton (BHP) also saw its short interest ratio rise during this period—as you can see in the above graph. However, Southern Copper (SCCO) bucked the trend. Its short interest ratio fell from 9.84 to 7.30 between July 29 and August 15.
Bears (SPXS) seem to sense opportunity in mining companies as commodity prices retreat due to demand-supply concerns. We should note that commodity producers are like a leveraged play on the underlying commodities.
In this series, we’ll see how’re sell-side analysts rate different copper miners amid lower commodity prices.