IRON ore is set to end the year down almost 50 per cent, making it potentially the worst-performing major commodity of 2014.

Driving the decline has been surging output from iron ore mines in Australia and elsewhere that has flooded the global market with supply even as China, the world’s biggest buyer of the resource, is slowing down.

A slight uptick in iron ore prices this week has been overshadowed by its dramatic year-long slide, which could outpace even the fall in oil. Some analysts believe the steelmaking ingredient will continue falling in the new year.

Last week, iron ore prices dropped to a fresh five-and-a-half-year low amid an uncertain outlook for demand. Rising supply in particular from Australia, which accounts for around half of all the iron ore traded by sea, has underpinned the market’s slump.

“A lot of people were calling for a rebound heading into the back part of this year, but that hasn’t really materialised,” said Stan Shamu, a Melbourne-based strategist at brokerage IG. Other analysts note iron ore prices often do rise in the last months of the year as steelmakers buy before the northern-hemisphere winter, but restocking this year has been muted.

To be sure, stockpiles of raw material at China’s ports have recently declined, indicating that there is still some demand for ore, and industry analysts say appetite may yet recover heading toward the Lunar New Year holidays — before which Chinese steelmakers also typically top up inventories.

The price of iron ore has bounced from last week’s low of $US65.60 a tonne and overnight rose 3.6 per cent to trade at $US71.15 a tonne, according to The Metal Bulletin. Iron ore started the year above $US134 a tonne.

The fall this year is by far its sharpest annual decline since The Steel Index began publishing a spot price for the commodity in late 2008, at a time when appetite for the bulk commodity was intensifying due to Chinese demand. The derivatives market for iron ore is still maturing, with prices historically negotiated annually between miners and steelmakers.

While iron ore is the world’s most-traded commodity after oil, it isn’t included in major commodity gauges like the Bloomberg Commodity Index, which tracks 22 markets including oil, copper and coffee. Among those selected commodities, energy contracts have been some of the worst performers so far this year, as crude oil prices fall to five-year lows on oversupply worries. As of Tuesday, Brent oil futures are down about 47 per cent this year.

For iron ore, a global glut has also been the main concern. Barclays analysts say there are few reasons to be bullish over the next year or two as even more supply enters the market from new and recently expanded mines. Still, they say the downturn should slow as prices fall near or below the cost of production for some producers, adding that they are unlikely to fall sustainably below $US65 a tonne.

Others are less optimistic. Citi analysts last month slashed their price forecast for 2015 by nearly a fifth to $US65 a tonne, and said prices may dip into the $US50-to-$US60 range next year as more iron ore is dug up.

The wildcard for the commodity’s outlook in 2015, said IG’s Mr. Shamu, will be the way Beijing handles slowing growth — with any stimulus or support for the country’s weak property market critical for a recovery in iron-ore prices. “For now, China has a lot of supply and a lot of choice as to where they buy from and what quality they buy,” he said. “I think it’ll be a while yet before we see any real game changer for iron ore.”