* Signs of recovery seen in the US, Middle East, South East Asia
* Italy jewellers see mixed demand in emerging markets
* Domestic market still weak, recovery expected in 2014
By Agnieszka Flak
VICENZA, Italy, Sept 9 Export-focused Italian jewellers are seeing sporadic signs of recovery in key foreign sales, offsetting deep-rooted weak demand at home, industry officials at a major trade fair said.
The euro zone's third largest economy is battling with its longest postwar recession, which has put some small and family-run jewellers out of business.
But with 70 percent of the jewellery produced in Italy destined for export, manufacturers see some reprieve.
"The Italian market is still weak, while exports, in particular to the Far East, Middle East and the United States are picking up," said Massimo Carraro, chief executive of jeweller and watch maker Morellato Group.
Exports from Italy, Europe's top jewellery manufacturer and exporter, rose 2.6 percent to 1,951 tonnes during the first five months of this year, a report released at the VicenzaORO trade fair showed. In value, they increased 6 percent.
Italian goldsmiths' federation Federorafi said exports of gold-based jewellery may still fall by a single-digit this year, but start recovering from next year.
High-end jeweller Roberto Coin expects sales to grow at a double-digit figure this year, while Picchiotti, known for its pieces with diamonds and other gemstones, sees growth in its markets in South East Asia and flat sales in the United States.
"What we see more is a trend of people wanting to buy unique pieces with high-value gemstones," said Umberto Picchiotti, the group's president.
Mid-sized firms said they were optimistic for the Christmas season, when they often make a huge chunk of their sales.
Italian jewellery's share of export markets has shrunk in the past decade as lower cost producers China, India and Turkey have benefited from improving design skills and new technology.
The United States is the primary market for most Italian jewellers and is likely to stay so for the medium term. Sales performance in emerging markets has been mixed, jewellers said.
WEAK HOME MARKET
A recovery in the home market will largely depend on Italy leaving its economic woes and political uncertainty behind.
"The interest in high-end jewellery has not disappeared, but affordability is still an issue," said Stefano de Pascale, Federorafi's director. "Should the recession end next year, we expect demand to return and there could be a reverse in trends."
Italy's jewellery sector has been plagued by structural challenges, including a fragmented market made up of 9,000 small and mostly family-owned firms, fake copies and imitations of Italian designs abroad and unfavourable export regimes.
De Pascale said Italian products were taxed abroad at rates of up to 25 percent, while foreign jewellers importing into Europe pay minimal duties and often none at all.
"If the trade barriers were removed, our exports would immediately jump 20 percent," he said. He hopes a bilateral deal with the United States could be struck by the end of next year.
Jewellers like Carraro and Coin are pinning their future on a boutique business model to market the "Made in Italy" brand, focusing on high-end design, innovation and craftsmanship.
Both insist their companies are not for sale, although various small and big players have become the target of buyers, mainly from abroad, looking for long-term high-value brands.
Carraro and Coin said, however, they would be open to buying other companies with high-value brands instead.
To manage gold price volatility and reduce their exposure to prices, which hit a record around $1,900 an ounce in 2011, but now trades around $1,380, many small and mid-sized producers have turned to other materials in their designs, including leather, textiles, wood and ceramics. (Reporting by Agnieszka Flak; editing by David Evans)