Australia, the world’s biggest iron ore exporter, lowered its outlook for prices this year as rising shipments expand a global glut.

Rates will average $60 a metric ton this year, the Department of Industry and Science said in a report. That compares with $63 forecast in December and $88 in 2014, it said.

Iron ore sank 47 percent in 2014 and extended losses this year as surging low-cost supply from Australia and Brazil spurred a surplus just as demand growth slowed in China. Citigroup Inc. raised the prospect of sub-$60 iron ore in 2015 in November and said this week that iron ore is among the commodities hardest hit by China’s slowdown. The world’s second-biggest economy grew at the weakest pace since 1990 last year and is set to slow further in 2015.

“China’s steel consumption growth is forecast to remain lackluster through 2015, dampening consumption growth for iron ore, while an additional 111 million tons of production is forecast to enter the seaborne market,” the report said. “Some high cost suppliers are expected to exit, but the market is likely to remain oversupplied in the short-term.”

Global seaborne supply is projected to increase 4.6 percent in 2015, topping the 3 percent growth in demand, Morgan Stanley predicts. Iron ore exports from Australia will reach 792 million tons this year, up from 766 million tons forecast in December, according to the Australian forecaster. Shipments will increase to 851 million tons in 2016, it said.

Loss-Making Mines

While Australia is boosting supply, the viability of China’s iron ore industry will be a key testing ground for the government’s commitment to implement market-based reforms and reduce support for inefficient miners, the department said. About 22 percent of China’s producers are loss-making and at risk of closing without the continued support of either the provincial or national government, it said.

Ore with 62 percent content at Qingdao fell 2.6 percent to $55.48 a ton on Wednesday, according to Metal Bulletin Ltd. That’s the lowest since at least May 2008, when Metal Bulletin started compiling weekly prices. Prices dropped 22 percent this year. The department’s price projections refer to spot iron ore with 62 percent content free-on-board Australia.

Costlier ore mined locally may boost mills’ demand for imports, according to the department, which estimates that China’s overseas purchases will rise from 935 million tons this year to 1.15 billion by 2020. The country imported a record 933 million tons last year, customs data show.

China Slowdown

China accounts for more than two-thirds of global iron ore imports and produces as much steel as the rest of the world combined. The government set a 2015 economic expansion goal of about 7 percent, the lowest in more than 15 years, as leaders tackle industrial overcapacity and a property slump.

Steel output in China will shrink this year as demand has peaked, China & Iron Steel Association Deputy Secretary-General Li Xinchuang told a conference in Perth, Australia, last week, predicting a decline to 814 million tons from 823 million tons last year. Production will probably drop this year for the first time since the early 1980s, UBS Group AG said on March 10.

The outlook from Li and UBS contrasts with forecasts from Australia. China’s steel output will continue to rise to 895 million tons through 2020 from 831 million tons this year as policy moves to boost residential construction and urbanization support a housing rebound, the department report’s said.

New-home prices in China fell in more cities last month, the National Bureau of Statistics said on Wednesday, as an economic slowdown weighed on demand even after the government removed property curbs and reduced borrowing costs.

“Even if China’s steel industry somehow magically returns to life now, inspired either by the need to make money, or via government support, it probably won’t make much difference to the struggling iron ore trade,” Tom Price, a Morgan Stanley analyst in London said by e-mail on Tuesday. More supply from the major producers may cause prices to slump further, he said.