A 31 percent average fee hike in January 2015 is cited by metal industry sources as a major reason behind tumbling LME volumes.

Three metal industry sources said cutting the fees would be the result of a discussion paper on market structure launched by the exchange in April. Responses are due by the end of June.

The LME said it would be inappropriate to second guess the outcomes of the discussion paper when asked about any move to cut fees, but said that it would take "the necessary steps to protect and grow the market".

Fee cuts will be targeted at carry trades -- buying and selling for random dates that don't match contract dates -- where volumes have been hit the worst.

"We've been told there's a 180-degree turn coming on carry fees. It's classic textbook, you have a new chief executive who kitchen sinks the numbers and blames his predecessor," a senior broking source told Reuters.

"They could do a complete U-turn, but it's unlikely. Flagging it as temporary would mean they don't need to do the 'revenue-neutral' thing," the source said.

Matt Chamberlain took over as CEO in April from Garry Jones who, sources say, raised fees at a time when economic slowdown in China, the world's largest consumer of industrial metals, was starting to hurt brokers' and the LME's volumes and revenues.

Chamberlain recently told Reuters any fee cuts could be "revenue-neutral" in that they could be offset by rises elsewhere so the LME's income remained intact.

"OTC is cheaper, I can't see that business going back, but (fee cuts) might stop more going off-exchange," one head of a metals brokerage said. "The board will need to ok it."

One source at a resources focused fund said Charles Li, chief executive of parent company Hong Kong Exchanges & Clearing, might resist any moves to lower fees as the LME makes a significant contribution to its revenues.

"Limiting it to three or six months might make it easier for Charles Li to accept," the fund source said.

Carry trades overall cost 90 U.S. cents per leg, per lot, per side. Within that category are short-dates -- deals between tomorrow and 15 days -- where fees were cut last year to 50 cents per leg, per lot, per side. But volumes are still sliding.

Overall volumes in the five months to the end of May fell more than 5 percent from the same period last year. The annual drop last year was 7.7 percent.

The damage to carry volumes can be seen in aluminium, where falling stocks due to reforms aimed at cutting queues to get metal out of LME approved warehouses exacerbated the problem.

Volumes for aluminium tom/next trades -- used to roll positions forward on a daily basis -- have crashed 40 percent since the final quarter of 2014 to just below 250,000 lots or 6.25 million tonnes in the first quarter of this year.

"They will cut fees for all carries. If volumes improve, they won't need to raise fees elsewhere because income will improve too," a source at a commodity trader said. "There's not much detail about the new exchange, but it could be a prod."

A new company, NFEx Markets, plans to launch a base metals trading platform in the first quarter of next year. Its contracts will mimic LME contracts.

(Additional reporting by Peter Hobson; Editing by Veronica Brown and Edmund Blair)

By Pratima Desai