A report on the front page of the Financial Times this morning says that Chinese steelmakers have agreed to pay Anglo-Australian miner Rio Tinto (RTP) up to 96.5% more for their ore supplies this year, the largest ever annual increase and well above the 9.5% increase last year. This is a move likely to boost the cost of cars, machinery and other products, says the paper.
This rise suggests that demand for commodities from emerging economies remains strong in spite of the US slowdown. Our Best-Timed Shorts document for the first half of this year has something to say about this sector, among others. Please email me at jessica.johnson@dataexplorers.com to find out more and receive your copy.
In the meantime, let's look at the short position in RIO's ASX listing. Since July 2006 RIO has been a target for short investors. At that time, the percentage of its Market Cap on Loan ebbed between 7% and 9%, and since then it has increased steadily but surely to 14% at its peak in February this year. However, RIO did not make the cut for our best-timed shorts document because as short positions in the mining company continued to rise, so did the price - from 75AUD in July 2006 to 155AUD at the end of May (please see the top graph graph for Rio Ltd ASX listing). Since May, the price has dropped from 155AUD to 138AUD today, rebounding from 130AUD on June 12th. Short sellers have now closed out their positions on RIO, perhaps because of today's story, and the %MCOL has decreased from 12% in January to 9.4% today.
In RIO's FTSE 100 listing, the short interest is significantly lower, with 1.7% MCOL today. You will see from this graph of RIO's London stock that the change in the borrow has been fairly low, ebbing around the 1% to 4% mark in the last two years. Experts say one reason for this could be because investors are long London and short Australia in anticipation of the July 4th 2008 antitrust deadline for the BHP Billiton bid for RIO. The European Commission said on Friday it would either rule on the mining giant's hostile takeover of its rival by this date or open an in depth antitrust probe into the deal. Short interest may have ebbed off in the Sydney listing as investors leave the trade ahead of the announcement.
There are resemblances in both BHP's Australian and London listings to RIO's equivalent. As you will see from this graph of BHP's ASX listing, investors have also increased their positions in the bidder and then closed out positions in the last three to four months, juxtaposed with a rise in price.
Like Rio, BHP's London listing is barely shorted at all, ebbing from 0% to 2.3% in the last two years, aside the spikes in the %MCOL for dividend yield enhancement, which is not genuine short interest. Please see the chart below for BHP's London listing.
More by Jessica Johnson