Volatility in the nickel market has become more common in recent months with reduced liquidity ever since the short squeeze seen back in March, when fears of sanctions on Norilsk Nickel coincided with a huge short bet by the world’s largest stainless steel producer, Tsingshan. This caused prices to more than double in a matter of days. The LME was forced to suspend trading for a week and cancel billions of dollars’ worth of nickel trades.

Traders believe the futures price is out of line. Its average has been roughly $15,000 a ton in the years before the nickel crisis. Analysts are divided into two approximately equal camps – those who think that nickel is overvalued and, correspondingly, vice versa. But both camps agree that, no matter what, market prices of nickel most definitely do not reflect real supply and demand equilibrium.

Nickel is an extremely important metal in modern reality, because it is irreplaceable in usage in several heavy and military equipment applications, including its usage for armor plating. Other alloys of nickel are used in boat propeller shafts and turbine blades. Nickel is also profoundly used in batteries, including rechargeable nickel-cadmium batteries and nickel-metal hydride batteries used in hybrid vehicles. Nickel has a long history of being used in coins.

Back in May, the LME subsequently imposed price limits for the first time and introduced requirements for disclosure of business done over the counter via derivatives to the exchange.

According to FT, for the LME the nickel market has become a considerable issue since war escalated in Eastern Europe, because Russia is one of the main global sources of the metal for its contract. There is now a growing disconnect between LME nickel, SHFE nickel and the nickel pig iron price.

The legendary metal exchange tackles to rebuild its reputation with users after being forced to cancel a day of trades in March when a short squeeze more than tripled nickel prices in a day, to more than $100,000 a tonne. One of its biggest users, Tsingshan, the world’s largest stainless steel manufacturer, was caught out when geopolitical escalation in Eastern Europe raised fears over supply disruptions.

Some indignant traders have scaled back the volume of trading in anticipation of some comfortable resolution while the growing OTC market is exacerbating price moves. The LME contract represents high purity nickel, but other lower grade nickel products highlight the contract’s disconnect from other markets.

the dislocation is creating a problem for producers, traders and consumers, who rely on the LME’s price as the world benchmark for their own deals and as a price guide for lower quality versions of the metal. Nickel is a key ingredient in steelmaking and electric car batteries.

Traders are warning that thin volumes and erratic trading have disconnected the price of nickel on the London Metal Exchange from the rest of the global market.

The metal fell 3.8 per cent on Tuesday to $28,250 after rising as high as $33,575 a tonne last week, with the spike underscoring the severity of traders’ nine-month retreat from the LME.

Nickel for delivery in three months was $293 more expensive on the LME than the spot price at Monday’s close, marking the biggest contango — where the futures price is higher than the spot price — for the metal in at least a decade, according to Bloomberg data.