Fee cuts are expected to be a subject of hot debate during LME Week, an annual gathering of the metal industry in London next week.

The 140-year old exchange has struggled to reverse declining volumes, partly triggered by a steep 31 percent average fee hike at the start of 2015, which persuaded many customers to switch to the over-the-counter (OTC) market.

Volumes on the exchange fell 7.7 percent last year to 156 million lots compared with 2015. The drop was also due to an economic slowdown in China, the world's largest consumer of industrial metals, and subdued activity in the metals sector.

The fee cuts are initially for a period of 12 months.

"We think the cost to the exchange will be in the region of $25 million(£19.1 million) to $30 million," a metal broker said, adding that it was a calculation based on LME volumes.

"Once people have found a different, possibly cheaper way of doing something, it's difficult to change ... It will also take time, so 12 months is a good call."

Other brokers suggested similar cost estimates, ranging from $25 million to $30 million.

"Volumes will be up this year anyway because the fundamentals have been better, China demand was much stronger than people were expecting," a head of a commodity brokerage said, who put the cost at up to $25 million.

The LME's revenues last year totalled more than $200 million compared with nearly $225 million in 2015. That is roughly a 15 percent contribution to total revenues of parent Hong Kong Exchanges & Clearing, which paid $2.2 billion for the LME in 2012.

"We wouldn't be doing this if we didn't expect to win some volume back, we are doing this because our members believe this will stimulate the market," LME CEO Matt Chamberlain told the Reuters Commodities Summit said in October.

"We've never guided internally or externally that we're going to get all the revenue back. That would be an absolute best case scenario."

Sources said the success of the fee cuts would be judged on the basis of the cost being offset by rising volumes that yielded revenues of about $15 million.

The LME cut fees for short-dated trades, those between one and 15 days, from Oct. 1. It will reduce fees for medium-dated trades, where all legs fall within 35 days forward, from Nov. 1.

"This is a very welcome fee reduction for the clients of the exchange," said Simon van den Born, global head of metals at Marex Spectron. "The challenge will be to bring clients back, having forced so much change in the industry through the pricing policy, we hope there has not been too much structural change."

Structural change is a reference to volumes moving to the OTC market, which sources say could reverse when new European Union rules known as MiFID II become effective in January.

MiFID II is aimed at boosting transparency by encouraging OTC trade to move on-exchange, which will help boost volumes and revenues and offset losses from the fee cuts.

Chamberlain also said at the Reuters summit that a fee for referencing LME prices would help compensate for loss of revenues from the fee cuts.

"We're aiming to be back at our historical levels of revenues within two years, with the combination of volumes coming back, the OTC booking fee and new initiatives."

(Story refiles to fix spelling of LME CEO.)

(Reporting by Pratima Desai; Editing by Veronica Brown and Edmund Blair)

By Pratima Desai