The Zhitong Finance App learned that as signs of lithium oversupply weaken, short bets worth billions of dollars against the world's largest lithium producers are under threat.

Last year, lithium prices plummeted due to oversupply, and some producers also cut production one after another. Currently, UBS and Goldman Sachs have lowered their 2024 lithium supply expectations by 33% and 26% respectively, while Morgan Stanley warned that the risk of falling inventories in China is increasing.

After lithium prices were hit hard and attracted many shorters, this key material that powers electric vehicles is now showing signs of price recovery. Last year, according to data compiled by Bloomberg, short bets on top producer America's Yabo (ALB.US) and Australian mineral company Pilbara Minerals (PILBF.US) accounted for more than one-fifth of their tradable shares, equivalent to about $5 billion.

Investors' short bets on Pilbara Minerals hovered at record levels, accounting for about 22% of free circulation, equivalent to $1.8 billion, making it the most shorted stock in Australia's benchmark stock index, according to S&P global data. The shorting ratio of America's Yabo, which has a market capitalization of 3.2 billion US dollars, is similar.

Notably, the stock prices of the two top producers climbed about 20% in February. The Solactive Global Lithium Index, which tracks the performance of the 40 largest and most liquid lithium-related companies, rose 10% over the same period, recovering from a decline of nearly 20% in January.

Jun Bei Liu, hedge fund manager at Tribeca Investment Partners in Sydney, holds a long position in Pilbara Minerals. “Double-digit production capacity has withdrawn from the lithium market, which is usually a sign that commodity prices have bottomed out.” Given that non-ferrous metal prices have shown signs of support, shorting the company would be “very dangerous.”

Ron Mitchell (Ron Mitchell), managing director of Australian miner Global Lithium Resources Ltd. (Global Lithium Resources Ltd.), also said: “We are seeing an improvement in market sentiment, so many bears need to make up.”

Some analysts expect prices to stabilize after China's lithium carbonate price falls by more than 80% from its 2022 all-time high. Financial institution Canaccord Genuity Group said in a report earlier this month that “sustainable” price levels will soon return.

The agency also said that the market is rebalancing after some miners cut production. Core Lithium Ltd. ceased operations at its flagship lithium mine in January and switched to uranium after a sharp rise in nuclear fuel prices. Meanwhile, Arcadium Lithium Plc said it will reduce the production of lithium extraction mineral spodumene.

Not everyone believes in a rebound, however. Goldman Sachs said in a report that the surge in lithium contracts “should not be interpreted as the end of a bear market,” and warned that there is still a large surplus of lithium. UBS also doubts that the price will drop further.

Matt Griffin (Matt Griffin), fund manager at Maple-Brown Abbott Ltd., based in Sydney, said: “I doubt we are at or near the bottom of lithium prices. Our bullish signal in this area is mainly an increase in demand, perhaps an unexpected rise in demand for electric vehicles, or a replenishment cycle in the battery supply chain.”