Ahead of the Bell: Goldman Sachs downgrades steel

Risks including a strengthening dollar and fears of easing demand from China have re-emerged in the U.S. steel industry, Goldman Sachs Global Investment Research said Thursday, downgrading its rating of the sector.

The risks, both real and perceived, include weak economic data out of developed and emerging markets, the rising value of the dollar and softness in steel and scrap metal prices, according to Goldman Sachs, which lowered the sector's rating to "Neutral" from "Attractive."

Goldman Sachs said Nucor Corp. and United States Steel Corp. would remain "Buy"-rated stocks, but that it is removing U.S. Steel from its "Conviction Buy" list.

U.S. Steel dropped 75 cents to $118 in premarket trading. Nucor slipped 34 cents to $48.50.

The firm upgraded Steel Dynamics Inc. to "Buy" from "Neutral," replacing Commercial Metals Co., which is now rated "Neutral."

Steel Dynamics gained 65 cents, or nearly 3 percent, to $22.52 in premarket activity. Commercial Metals slipped 43 cents to $23.20 in premarket trading.

A sharp correction in steel equities, primarily driven by macro-economic concerns and a decline in oil prices, has created selective investment opportunities, Goldman Sachs wrote in a research note.

"Valuations of some of these stocks reflect a doomsday scenario, which we believe is not what longer-term fundamentals suggest," the firm said.