Wales had to score an avalanche of points against Portugal to ensure a quarter-final berth but Gareth Williams' side could only score five tries against the whipping boys of the group to win 29-7, with Sam Cross leading the way with a brace.
With Canada pushing New Zealand all the way in the final game of the day, their superior points difference saw them go through to the Cup knockout stages as the second placed team behind the Kiwis with Wales finishing third to drop down to the Bowl quarter-finals where they will face Spain.
Wales will be without key playmaker Rhys Jones tomorrow after he suffered ligament damage while Sam Cross will carry the scars of battle into day two after suffering a nasty gash under his eye.
Wales will rue some basic mistakes from day one which ruled them out of the Cup quarter-finals. With the ball in hand Wales posed a threat but defensive lapses cost them dearly against New Zealand and Canada.
"It's been a tough day," said Wales head coach Gareth Williams. "Things could have been so different. Our halfback curse has struck again with Rhys getting injured. Our defence let us down a couple of times which was disappointing - if we'd been tighter in defence we could so easily have been in the Cup quarter-finals so that is bitterly disappointing.
"The boys will have to bounce back tomorrow but I know there is enough quality in the group to ensure we right a few wrongs from today," he added.