Italian gold jewellery output may fall again this year as metal price volatility continues and competition from lower cost rivals grows, an industry expert said on Tuesday, scrapping previous forecasts of a 2007 recovery.
Italy, which has recently been overtaken by India as the world's leading gold jewellery producer, is struggling to stay ahead of Turkey and China where labour is cheaper and quality is rapidly improving.
Italian jewellers at an international gold fair in Vicenza in January were optimistic about this year, expecting a recovery after years of structural crisis as manufacturers were reorganising business and demand seemed to be picking up.
"The fair went very well. But now we get signals from many companies that orders made during the fair have not been confirmed, good promises made at the fair have not been kept," said the director of Italy's goldsmiths' body Federorafi, Stefano de Pascale.
"Unfortunately, the feeling that we get now is of a return to negative normality. That's our judgement based on the first two months of this year," de Pascale told Reuters in the telephone interview.
Continuous gold price volatility - previously expected to calm down in the first quarter of this year - has been putting off both jewellers' clients and suppliers of precious metals who expect prices to stabilise before making orders, he said.
Gold prices rallied some 14 percent since the start of this year and analysts said they could hit $700 an ounce - a level unseen since last May when the prices soared to a 26-year peak of $730.
The Italian jewellery sector was also suffering from high import duties for European jewellery and the strong euro against the dollar which discouraged buyers from the United States, Italy's main export market, de Pascale said.
Precious metals consultancy GFMS said in January it estimated that Italian jewellery output fell nearly 70 tonnes to just over 200 tonnes in 2006, a 60 percent fall from the 1998 peak of 535 tonnes.
Italian jewellers at Vicenza fair said the declining output volumes have been compensated by increased value of jewellery as the sector has been switching to making high added-value, exclusive items instead of manufacturing mass-market jewellery. "But it cannot fully explain the 60 percent fall in production volumes over past years," de Pascale said.
"It is due to the fall of demand (for Italian jewellery) on Italian and international markets and to growing demand for jewellery from India, China and Turkey, who are extremely competitive in the low and middle segments of the market." De Pascale said it was too early to give output and export forecasts for 2007: "We hope that this year we can at least stop haemorrhaging. We hoped for a slight recovery, but now everything has stalled."