Sept. 4 (Bloomberg) -- Goldman Sachs Group Inc. downgraded U.S. steel stocks and reduced its price forecast for the metal in the next 16 months because of slowing economic growth in China and a strengthening U.S. dollar.

The steel industry was downgraded to ``neutral'' from ``attractive,'' Goldman analysts led by Sal Tharani in New York said today in a note to investors. Steel prices likely will average $923 a ton this year and $951 next year, Goldman said, 3.2 percent and 6.1 percent less than it previously forecast.

ArcelorMittal, the world's largest steelmaker, fell the most in two months in New York on Sept. 2 after saying it will cut prices in South Africa by an average 5.6 percent. China also may export more of the metal as domestic demand slows, depressing prices overseas, Goldman said.

``A rising U.S. dollar, `China fear' and sharply falling scrap prices have shaken investor confidence in the sustainability of the steel cycle,'' Tharani said in the note. ``Near-term hiccups may continue to weigh on investor sentiments, which could keep multiples in the sector low.''

Hot-rolled steel sheet in the U.S., the benchmark product used in cars and appliances, fell to an average $1,047 a ton in August, from $1,068 in July, Purchasing magazine said in an Aug. 29 report. Most steel mills had expected prices of $1,080 for the month, Purchasing said. While prices have gained 80 percent this year, last month's declines were the first in a year.

U.S. Imports

The U.S. relies on imported steel for about 25 percent of its needs, and relatively lower prices in North America have made the U.S. a less attractive destination for the imports it requires. That has allowed domestic producers to boost prices despite lower demand. A strengthening dollar may attract more imports and reduce export opportunities, Goldman said.

Slowing North American demand for automobiles, appliances and construction materials is starting to weigh on pricing, even as inventories remain balanced, Ternium SA said Aug. 6. The company is Latin America's second-largest steelmaker.

U.S. Steel Corp., the second-largest producer by market value, was removed from Goldman's Conviction Buy List, while Steel Dynamics Inc. was raised to ``buy.''

To contact the reporter on this story: Dale Crofts in Chicago at dcrofts@bloomberg.net. Allen Wan in New York at awan3@bloomberg.net.