President Nicolas Maduro said the system would boost revenue for metals including iron, steel and aluminum, while reducing costly commissions paid to intermediaries and traders.

The "sovereign marketing" plan was rolled out in conjunction with promises by Maduro of a broad campaign to crack down on corruption after the arrest of several officials over alleged kickbacks at a state-run company.

"It is the state that sets the price of these products that will be sold, it's not some mafia ... no individual is going to come here and tell us the value of a product that belongs to all Venezuelans," Industry Minister Ricardo Menendez said last week during the launch of the new system.

Better known as a major oil producer, Venezuela also exports metals including long and flat steel products, iron ore, and primary aluminum that are produced by state-run firms.

Though it traditionally sold those metals using the benchmark prices of the London Metals Exchange (LME) - the world's top market for non-ferrous metals options and contracts - it also offered discounts off the reference prices.

With the new mechanism, Venezuelan is now selling its metals well above the international price, according to mining industry workers, though it is not immediately evident how the companies are establishing prices.

The industry ministry did not respond to requests for clarification.

Menendez pointed to a recent shipment of hot-briquetted iron (HBI) that sold for $310.00 per tonne, compared with a previous shipment that sold for $268.50 per tonne, noting that this would save the country $1.26 million.

'NO IDEA WHAT IT'S DOING'

Metals traders have decried the effort as another obstacle to doing business in the country, where commodities transactions are already made complicated by strict currency controls and overstretched port infrastructure.

"The government has no idea what it's doing ... They put up so many obstacles that clients are losing faith in Venezuela," said one ferrous metals trader who works in Venezuela.

"This is crazy, it's never going to work," said a metals merchant based in the United States. "People are leaving Venezuelan minerals in the ports."

Venezuela's metals industry output has slumped due to lack of investment, swollen payrolls and outdated technology. The contribution of mining to Venezuela's economic growth has fallen by 25 percent over the last decade, official figures say.

Metals output never recovered from a slump during an electricity crisis in 2010. At the same time, production costs have soared to the point they usually exceed the price fetched on the export markets.

Sidor, the largest steelmaker in the Andes region, was nationalized by the late socialist leader Hugo Chavez in 2008. According to official figures, it spends $700 to produce a tonne of steel billet that sells for $150 on the LME.

Venezuela largely stopped exporting steel because of demand from the local construction sector, driven by a massive housing program created by Chavez.

At Venalum, which has Latin America's largest aluminum plant, producing a tonne of aluminum costs $3,215, according to official figures, even though the LME lists its price at around $1,850.

Production at Venalum has fallen to levels similar to those of 20 years ago, and it is currently using only 35 percent of its installed capacity. It is exporting only about a third of its output, or some 44,640 tonnes.

This is considerably less than its supply commitments of 60,000 tonnes per year to commodities giant Glencore and 18,000 tonnes per year to Hong Kong-based Noble Resources, part of Noble Group.

The price disparities are partly the result of Venezuela's exchange control system, which fix the bolivar currency at a rate of 6.3 per dollar, even as greenbacks fetch more than five times that on an illegal black market. (Writing by Brian Ellsworth; Editing by Daniel Wallis and David Gregorio)