• The LME said in a statement that it had been monitoring the evolving situation in Russia and Ukraine and it was evident this had affected the nickel market.
• Three-month nickel on the London Metal Exchange briefly jumped to a record high above $100,000 a metric ton, before paring gains.
• "It is a very dangerous market right now because this is a market that is not driven by supply and demand, it is driven by fear," Saxo Bank's Ole Hansen said Tuesday.

The London Metal Exchange on Tuesday suspended the trading of nickel after prices more than doubled to surpass $100,000 per metric ton.

The LME said in a statement that trading will be suspended for at least the remainder of the day.

"The LME will actively plan for the reopening of the nickel market, and will announce the mechanics of this to the market as soon as possible" it added.

The exchange said it had been monitoring the evolving situation in Russia and Ukraine and it was evident that this had affected the nickel market, citing extreme price moves in Asian trading hours.

Commodity prices have been spiraling upward on supply fears related to Russia's onslaught of Ukraine, with the ongoing war and an array of Western sanctions raising disruption fears.

Three-month nickel on the London Metal Exchange briefly jumped to a record high above $100,000 per metric ton on Tuesday, before paring some gains.

Alongside energy, Russia is a key producer and exporter of metals and grains. Indeed, Russia is the world's third-largest producer of nickel — a key ingredient in stainless steel and a major component in lithium-ion batteries.

'A very dangerous market'

Metal prices have soared as banks have cut their exposure to Russian commodities and as shipping giants avoid the country's key ports.

Markets were already tight ahead of Moscow's invasion of Ukraine, meaning there's little ability to absorb any output cuts.

Ole Hansen, head of commodity strategy at Saxo Bank, described the surge in nickel prices as "absolutely crazy."

"It is a very dangerous market right now because this is a market that is not driven by supply and demand, it is driven by fear," Hansen told CNBC'S "Squawk Box Europe" on Tuesday.

Hansen said market participants had been seeking to take advantage of rallying commodity prices on the assumption that Russian supplies would not be disrupted.

"Now, suddenly a major funnel of supply from Russia has been cut off, especially in the metals space. And that basically leaves these participants holding a naked short which they simply need to get out of," he added.

Short selling is a bearish investing practice in which an investor bets the price of an asset will fall. A short squeeze occurs when a large number of investors are shorting an asset, the price rises sharply and the investors exit their positions at the same time, losing money. Because exiting a short position involves buy orders, the short squeeze pushes prices even higher.

Hansen said he expected the unwinding of global trade to lead to some major losses in these markets.

— CNBC's Pippa Stevens contributed to this report.