[Kuruharan]

Just working from memory here, I recall that the morquendi knew zilch about metal. They had bows, and maybe spears- not swords, armor, and axes.
-the phantom

So even the Petty-Dwarves were more technically advanced than the Elves!

Learn something new everyday.

So I don't really think the metal weapons of the dwarves would in any way cause the Elves to see a similarity between themselves and the Petty Dwarves.
-the phantom

If they had stopped to ponder for a moment, they would have had a thought process similar to..."Hey, this here seems to be a tool of some kind and it appears to be made of something we don't have a whole lot of experience with. Animals don't build tools (notice I said "build" and not "use" to prevent somebody tossing the chimpanzees at me). We probably have something completely different on our hands! P.S. These funny creatures seem to be wearing things."

Also, the Elves did not class the Petty-Dwarves as "Naugrim" even after discovering the relationship, so the quote you mentioned sorta doesn't cover them in the whole skilled-in-the-metallurgical-arts thing.
- Mister Underhill

I'm afraid that I don't agree on this point. What the Elves thought of the matter (even after discovering what the Petty-Dwarves were) I believe is irrelevant to the Petty-Dwarves skill in metallurgy. I'm perfectly willing to concede that the Petty-Dwarves were probably not as skilled as regular Dwarves (in fact, it almost necessarily follows) but that does not imply they were unskilled. I also don't think that the Elves would have been in a position to form an accurate assessment on that matter. I think that the Elves not referring to them as "Naugrim" is probably due to the influence of the Dwarves themselves who likely would not have taken kindly to it.