Iron ore has sun kto the lowest level since 2009 as supply exceeds demand and China, the biggest user, contends with its weakest expansion in almost a quarter century.

Ore with 62 per cent content delivered to Qingdao, China, retreated 1.8 per cent to $US67.90 ($83.33) a dry metric tonne, data compiled by Metal Bulletin showed. That's the lowest since June 3, 2009, and extends this year's slump to 50 per cent.

The steel-making raw material is headed for the biggest annual loss in at least five years as BHP Billiton, Rio Tinto Group and Vale expanded output, betting increased production would boost revenue and force less competitive mines worldwide to close. Gripped by a property downturn and excess capacity, China is set to grow 7.4 per cent this year, the slowest full-year expansion since 1990. Australia cut its price estimate for next year by 33 per cent as a surplus builds.

"The falling price this year has been far deeper than anyone anticipated," Andrew Hodge, an analyst at Wood Mackenzie in Sydney, said before today's prices were released. "China has had weaker than expected demand from its own residential property sector. For the big three, they have the lowest cost operations so there's no reason to stop producing," he said, referring to BHP, Rio and Vale.

Prices set to remain weak

The market needs to absorb a surplus of about 110 million tonnes next year, almost double the 60 million tonnes in 2014, Goldman Sachs Group estimated in October. The bank forecasts a price of $US80 next year.

Australia sees the commodity averaging $US63 a tonne next year compared with a $US94 forecast in September, as surging output in the world's top exporter outpaces Chinese demand growth, the Department of Industry said today. Projections refer to spot ore with 62 per cent content free-on-board Australia. China's total imports will rise to 973 million tonnes next year from 938 million tonnes this year, it said.

Although prices are set to remain weak in 2015, they appear "oversold" and there's potential for a relief rally in the second half of next year, Australia & New Zealand Banking Group Ltd. said in a report. Any recovery would be driven by supply cuts, including at high-cost mines in China, where almost the entire industry is loss-making at prices now, ANZ said.

New-home prices fell in fewer Chinese cities last month after the government eased property curbs and cut interest rates for the first time since 2012, boosting demand. Prices dropped in 67 of the 70 cities tracked by the government from 69 in October, the National Bureau of Statistics said last week.

Iron ore will average $US67 a tonne next year, 24 per cent less than previously forecast, JPMorgan Chase & Co. said in an e-mailed report early this month. An additional 341 million tonnes of capacity will be added over the next five years by Rio, Vale, BHP, Fortescue Metals Group and Hancock Prospecting Pty's Roy Hill Holdings, according to JPMorgan.

BHP, the world's biggest mining company, has signalled that there won't be a slowdown in the drive by producers to boost output. If the higher "volume doesn't come from our business, it's going to come from other businesses," Jimmy Wilson, BHP's president of iron ore, said in an interview broadcast by Australia's Nine Network November 30 on the Financial Review Sunday show.�