<PAGE>1
                                  FORM 10-Q

                        SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(Mark One)

      [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended        September 30, 1996
                               --------------------------------------
                                           OR

      [  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                   
                              -----------------    ------------------
Commission File No. 1-873-2
                   --------------------------------------------------
                                 ARMCO INC.
                                 ----------
          (Exact name of registrant as specified in its charter)

                 Ohio                                31-0200500
------------------------------------   ------------------------------------
(State or other jurisdiction of        (I.R.S. Employer Identification No.)
   incorporation or organization)

         One Oxford Centre, 301 Grant St., Pittsburgh, PA 15219-1415
         -----------------------------------------------------------
             (Address of principal executive offices, Zip Code)

                                (412) 255-9800
                ----------------------------------------------------
                (Registrant's telephone number, including area code)

                ----------------------------------------------------
                (Former name, former address and former fiscal year, 
                 if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
filing requirements for the past 90 days.
                           Yes    X    No
                               -------    ------
             APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                 PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and 
reports required to be filed by Sections 12, 13 or 15(d) of the Securities 
Exchange Act of 1934 subsequent to the distribution of securities under a plan 
confirmed by a court.
                           Yes    X    No
                               -------    ------
                   APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date.

Shares of common stock outstanding at September 30, 1996:  106,616,146
<PAGE>2

                              ARMCO INC.

                                INDEX

                                                               Page
                                                               ----

Part I.   Financial Information

     Condensed Statement of Consolidated Financial Position -
          September 30, 1996 and December 31, 1995                2

     Condensed Statement of Consolidated Operations and 
          Retained Deficit - Three and Nine Months Ended 
          September 30, 1996 and 1995                             3

     Condensed Statement of Consolidated Cash Flows - 
          Nine Months Ended September 30, 1996 and 1995           4

     Notes to Condensed Consolidated Financial Statements       5-7

     Management's Discussion and Analysis of the Condensed
          Consolidated Financial Statements                    7-11

     Segment Report                                              12


Part II.  Other Information

     Item 1.     Legal Proceedings                               13

     Item 6.     Exhibits and Reports on Form 8-K                13

     Signatures                                                  14

     Exhibit 11  Computation of  Income (Loss) Per Common Share
                                    -1-
<PAGE>3
<TABLE>
                                  ARMCO INC.
            CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
                                 (Unaudited)
<CAPTION>
(Dollars in millions)                           September 30,     December 31,
                                                    1996              1995
                                                ------------      ------------
ASSETS
<S>                                               <C>               <C>
Current assets
   Cash and cash equivalents                      $  140.9          $  136.8 
   Receivables, less allowance for doubtful 
      accounts                                       201.8             169.4 
   Inventories (Note 2)                              246.8             216.2 
   Net assets held for sale (Note 5)                   -                85.5 
   Other                                               8.0               5.9 
------------------------------------------------------------------------------
      Total current assets                           597.5             613.8 
 
Investments 
   Investment in AFSG                                 85.6              85.6 
   Other, less allowance for impairment               54.6              37.2 

Property, plant and equipment                      1,251.9           1,208.3 
Accumulated depreciation                            (584.0)           (539.8)
------------------------------------------------------------------------------
Property, plant and equipment - net                  667.9             668.5 

Deferred tax asset                                   325.8             326.1 
Goodwill and other intangible assets                 142.3             145.9 
Other assets                                          21.6              19.5 
------------------------------------------------------------------------------
       Total assets                               $1,895.3          $1,896.6 
------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' DEFICIT 
Current liabilities 
   Trade accounts and notes payable               $  152.5          $  148.2 
   Employee-related obligations                      118.9             172.4 
   Other liabilities                                  79.5              72.6 
   Current portion of long-term debt                  33.4              25.8 
------------------------------------------------------------------------------
      Total current liabilities                      384.3             419.0 

Long-term debt, less current portion                 344.4             361.6 
Long-term employee benefit obligations, less 
   current portion                                 1,198.7           1,165.9 
Other liabilities                                    188.1             180.5 
Commitments and contingencies (Note 7) 
Shareholders' deficit (Note 8) 
   Preferred stock - Class A                         137.6             137.6 
   Preferred stock - Class B                          48.3              48.3 
   Common stock                                        1.1               1.1 
   Additional paid-in capital                        965.9             963.0 
   Retained deficit                               (1,372.6)         (1,378.5)
   Other                                              (0.5)             (1.9)
------------------------------------------------------------------------------
      Total shareholders' deficit                   (220.2)           (230.4)
------------------------------------------------------------------------------
      Total liabilities and shareholders' deficit $1,895.3          $1,896.6 
------------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements. 
</TABLE>
                                   -2-
<PAGE>4 
<TABLE>
                                   ARMCO INC. 
                  CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS 
                            AND RETAINED DEFICIT 
                                  (Unaudited)
(Dollars and shares in millions, 
   except per share amounts) 
<CAPTION>
                                    Three Months Ended     Nine Months Ended
                                       September 30,         September 30,
                                    -------------------   -------------------
                                      1996       1995       1996       1995
                                    --------   --------   --------   --------
<S>                                <C>        <C>        <C>        <C>
Net sales                          $   429.2  $   404.1  $ 1,310.4  $ 1,163.1 

Cost of products sold (Note 3)        (381.2)    (364.1)  (1,189.7)  (1,033.8)
Selling and administrative expenses    (23.8)     (23.2)     (69.2)     (70.2)
------------------------------------------------------------------------------
Operating profit                        24.2       16.8       51.5       59.1 

Interest income                          2.2        3.0        8.0        9.9 
Interest expense                        (9.0)      (8.7)     (27.5)     (24.7)
Gain on sale of investment in 
   AK Steel stock (Note 6)               -          -          -         27.2 
Sundry other - net (Note 4)             (7.2)     (12.3)     (18.3)     (37.9)
------------------------------------------------------------------------------
Income (loss) before income taxes       10.2       (1.2)      13.7       33.6 

Provision for income taxes              (0.3)      (0.9)      (0.9)      (1.7)
------------------------------------------------------------------------------
Income (loss) from continuing 
   operations                            9.9       (2.1)      12.8       31.9 

Discontinued operations (Note 5) 
   Gain on sale of Aerospace and 
      Strategic Materials                6.5        -          6.5        -    
   Equity in income of National-Oilwell  -          2.0        -          6.3 
------------------------------------------------------------------------------
Net income (loss)                       16.4       (0.1)      19.3       38.2 

Retained deficit, beginning 
   of period                        (1,384.5)  (1,361.0)  (1,378.5)  (1,390.4)
Preferred stock dividends               (4.5)      (4.5)     (13.4)     (13.4)
------------------------------------------------------------------------------
Retained deficit, end of period    $(1,372.6) $(1,365.6) $(1,372.6) $(1,365.6)
------------------------------------------------------------------------------

Weighted average number of common 
   and common equivalent shares 
   outstanding - primary               106.6      106.1      106.5      106.0 
Net income (loss) applicable to 
   common stock                    $    11.9  $    (4.6) $     5.9  $    24.8 

Earnings (loss) per common share
   - primary 
   Income (loss) from continuing 
      operations                   $    0.05  $   (0.06) $    0.00  $    0.17 
   Income from discontinued 
      operations                        0.06       0.02       0.06       0.06 
------------------------------------------------------------------------------
Net income (loss)                  $    0.11  $   (0.04) $    0.06  $    0.23 
Earnings per common share 
   - fully diluted                       *          *          *          *  

Cash dividends per share 
   $2.10 Class A                   $   0.525  $   0.525  $   1.575  $   1.575 
   $3.625 Class A                      0.906      0.906      2.719      2.719 
   $4.50 Class B                       1.125      1.125      3.375      3.375 
<FN>
*  Antidilutive or dilution less than 3% 
See Notes to Condensed Consolidated Financial Statements. 
</TABLE>
                                     -3-
<PAGE>5
<TABLE>
                                   ARMCO INC. 
                 CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS  
                                  (Unaudited) 
 
(Dollars in millions) 
<CAPTION>
                                                         Nine Months Ended
                                                           September 30,
                                                         -----------------
                                                          1996       1995
                                                         ------     ------
<S>                                                     <C>        <C>
Cash flows from operating activities: 
   Net income                                           $  19.3    $  38.2 
   Adjustments to reconcile net income to net cash 
      used in operating activities: 
      Depreciation and lease-right amortization            44.1       39.8 
      Undistributed earnings from discontinued operations   -         (6.4)
      Net gain on sales of investments and facilities      (1.4)     (28.4)
      Other                                                 2.0        8.8 
   Change in assets and liabilities: 
      Trade accounts and notes receivable                 (32.5)     (50.4)
      Inventory                                           (30.7)     (41.4)
      Payables and accrued operating expenses               2.4       35.3 
      Employee benefit obligations                         (9.3)     (25.7)
      Other assets and liabilities - net                    3.3        5.2 
---------------------------------------------------------------------------
   Net cash used in operating activities                   (2.8)     (25.0)
---------------------------------------------------------------------------
Cash flows from investing activities: 
   Net proceeds from the sale of businesses and assets      5.6       23.5 
   Proceeds from the sale and maturity of liquid
      investments                                           -         24.7 
   Proceeds from the sale of investments                   79.3       29.9 
   Purchase of liquid investments                          (0.3)      (5.0)
   Contributions to investees                              (3.6)       -
   Capital expenditures                                   (41.9)    (110.2)
   Other                                                   (2.2)      (1.4)
---------------------------------------------------------------------------
   Net cash provided by (used in) investing activities     36.9      (38.5)
---------------------------------------------------------------------------
Cash flows from financing activities: 
   Proceeds from drawdown of debt                           2.2        -
   Principal payments on debt                             (18.1)      (6.1)
   Dividends paid                                         (13.4)     (16.4)
   Other                                                   (0.7)       2.9 
---------------------------------------------------------------------------
   Net cash used in financing activities                  (30.0)     (19.6)
---------------------------------------------------------------------------
Net change in cash and cash equivalents                     4.1      (83.1)
Cash and cash equivalents:  
   Beginning of period                                    136.8      202.8 
---------------------------------------------------------------------------
   End of period                                        $ 140.9    $ 119.7 
---------------------------------------------------------------------------
Supplemental disclosures of cash flow information: 
   Cash paid during the period for:
      Interest (net of capitalized interest)            $  23.0    $  20.3 
      Income taxes                                          0.1        0.7 
Supplemental schedule of noncash investing and 
   financing activities:
   Issuance of restricted stock                             3.0        4.6 
   Debt incurred directly for property                      -         16.2 
   Note received in partial payment for asset sale         10.6        1.0 
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
                                  -4-
<PAGE>6
                                  ARMCO INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)
(Dollars in millions, 
except per share amounts)

1.  The condensed consolidated financial statements of Armco Inc. (Armco) 
should be read in conjunction with the financial statements in Armco's Annual 
Report to Shareholders for the year ended December 31, 1995.  In the opinion 
of Armco's management, the accompanying condensed consolidated financial 
statements contain all adjustments, which are of a normal recurring nature, 
necessary to present fairly, in all material respects, the financial position 
as of September 30, 1996, and the results of operations for the three and nine 
months ended September 30, 1996 and 1995 and cash flows for the nine months 
ended September 30, 1996 and 1995.  The results of operations for the nine 
months ended September 30, 1996 are not necessarily indicative of the results 
to be expected for the year 1996.

2.  Armco's inventories are valued at the lower of cost or market.  Most of 
Armco's domestic inventories are valued using the LIFO - Last In, First Out - 
method.  Other inventories are valued principally at average cost.
<TABLE>
<CAPTION>
                                              September 30,     December 31,
                                                  1996              1995
                                              ------------      ------------
   <S>                                          <C>               <C>
   Inventories on LIFO:
      Finished and semi-finished                $ 260.1           $ 226.8
      Raw materials and supplies                   23.8              24.8
      Adjustment to state inventories at 
        LIFO value                                (62.8)            (57.3)
                                                -------           -------
         Total                                    221.1             194.3
                                                -------           -------
   Inventories on average cost:
      Finished and semi-finished                   17.7              15.5
      Raw materials and supplies                    8.0               6.4
                                                -------           -------
         Total                                     25.7              21.9
                                                -------           -------
         Total inventories                      $ 246.8           $ 216.2
                                                =======           =======
</TABLE>
3.  Cost of products sold for the nine months ended September 30, 1996 
includes income of $4.2 related to the partial settlement of a business 
interruption insurance claim for a third quarter 1995 unplanned outage.  The 
outage resulted from the failure of a generator on one stand of the hot mill 
at the Butler Operations, which reduced efficiency during a six-week period, 
resulting in the use of alternative and more costly product routings and lost 
sales.

4.  Sundry other - net in Armco's Condensed Statement of Consolidated 
Operations and Retained Deficit includes expenses of $5.5 and $21.3 for the 
three and nine months ended September 30, 1996, and $9.4 and $29.0 for the 
three and nine months ended September 30, 1995, respectively, for interest on 
employee benefit obligations related to facilities that have been divested.  
The reduction in expense in 1996 is primarily due to lower interest rates and 
reductions in unfunded liabilities due to favorable returns on pension assets 
and Armco's recent contributions to the pension plans.

In the nine months ended September 30, 1996, Sundry other - net includes a 
gain of $6.3, which resulted from the recognition of gains previously deferred 
in connection with asset sales at a 500-acre industrial park owned by Armco.  
Armco had elected to defer gains resulting from individual asset sales at this 
site because of uncertainty concerning realization of the carrying value of 
the remaining property.  The gains were recognized following receipt, in March 
1996, of an independent appraiser's report indicating that the land, buildings 
and dock facilities in the park had a market value significantly in excess of 
Armco's historical cost carrying value.  Armco is currently discussing the 
sale of this property.

                                     -5-
<PAGE>7

5.  Oregon Metallurgical Corporation (OREMET), formerly 80% owned by Armco, 
was part of the Aerospace and Strategic Materials business segment that Armco 
sold in 1985.  Prior to the sale, Armco filed a suit on behalf of OREMET in 
the U.S. Claims Court, claiming refunds and interest on federal and state 
taxes.  Pursuant to the sales agreement, Armco retained the benefit of its 
share of any proceeds of this action, net of taxes imposed on OREMET and the 
buyer.  In 1988, as a result of a favorable settlement of this refund action 
with the Internal Revenue Service (IRS), Armco recorded a $15.2 net of tax 
adjustment to the gain on the sale of this business segment.  Armco and OREMET 
recently reached an agreement with the IRS that the 1988 refund of taxes and 
interest should not, itself, have been subject to tax, further increasing the 
cash proceeds to Armco.  In the third quarter of 1996, Armco recorded an 
additional $6.5 gain on the sale.

Included in Net assets held for sale as of December 31, 1995 was $85.5 
representing Armco's 50% ownership interest in National-Oilwell, an oil field 
equipment and supply joint venture.  The sale of National-Oilwell was 
completed on January 16, 1996, with Armco receiving $77.0 in cash and 
receivables with a face value of $13.0.  The receivables were recorded in 
other investments at a discounted value of $10.6.  After recording $2.1 for 
recognition of deferred foreign translation losses and miscellaneous expenses, 
no gain or loss was recorded on the sale.  The equity income of National-
Oilwell, recognized prior to the fourth quarter of 1995, is reported in 
Discontinued operations on the Condensed Statement of Consolidated Operations 
and Retained Deficit.

6.  During the nine months ended September 30, 1995, Armco sold all of the 
shares it had received in the initial public offering and recapitalization of 
AK Steel Holding Corporation, recognizing a gain of $27.2.

7.  There are various claims pending involving Armco and its subsidiaries 
regarding product liability, antitrust, patent, employee benefits, 
environmental, reinsurance and insurance arrangements, and other matters 
arising out of the conduct of Armco's business.  

Like other manufacturers, Armco is subject to various environmental laws.  
These laws necessitate expenditures to assure compliance at Armco's facilities 
and to remediate sites where contamination has occurred.  Compliance costs are 
either expensed as they are incurred or, when appropriate, are recorded as 
capital expenditures.  Armco has accrued its estimate of remediation costs for 
sites where it is probable that a liability has been incurred and the amount 
can be reasonably estimated.  The recorded amounts are currently believed by 
management to be sufficient.  However, such estimates could significantly 
change in future periods to reflect new laws or regulations, advances in 
technologies, additional sites requiring remediation, new remediation 
requirements at existing sites, and Armco's share of liability at multi-party 
sites.  

There are various pending matters relating to litigation, arbitration and 
regulatory affairs arising out of the operations of Armco's runoff insurance 
companies, including matters related to Northwestern National Insurance 
Company, a runoff company currently involved in, among other matters, 
litigation with respect to certain reinsurance programs.  At September 30, 
1996 and December 31, 1995, Armco had recorded an $85.6 investment in these 
companies.

Armco believes, based on current facts and circumstances, that its ultimate 
liability for pending claims, contingent liabilities, environmental matters 
and matters related to its runoff insurance companies identified to date will 
not materially affect its consolidated financial condition or liquidity.  
However, it is possible that due to fluctuations in Armco's results, future 
developments with respect to such pending claims, contingent liabilities and 
other matters could have a material effect on the results of its operations in 
future interim or annual periods.

At September 30, 1996, Armco had recorded in its Condensed Statement of 
Consolidated Financial Position, legal and environmental reserves of $85.5, of 
which $18.1 was classified as current.

                                     -6-
<PAGE>8

8.  Under the terms of one of Armco's revolving credit facilities, which 
expires on December 31, 1998, Armco is not permitted to pay cash dividends on 
its common stock.  The payment of dividends on preferred stock is prohibited 
if Armco is in default under the credit agreement.  

Under the terms of the indentures for Armco's 11.375% Senior Notes Due 1999 
and 9.375% Senior Notes Due 2000, Armco cannot pay a dividend on its common 
stock or repurchase its capital stock, unless it meets certain financial tests 
described in the indentures.  Armco does not expect to be able to meet all of 
these tests in the near term.

On February 23, 1996, the Board of Directors adopted a Stockholder Rights Plan 
and declared a dividend distribution of one preferred stock purchase right for 
each outstanding share of common stock of Armco to stockholders of record at 
the close of business on June 26, 1996.  The new rights replace similar rights 
initially distributed in 1986.  

At its October 25, 1996 meeting, the Board of Directors declared the regular 
quarterly dividends payable on Armco's $2.10 Cumulative Convertible Preferred 
Stock, Class A, $3.625 Cumulative Convertible Preferred Stock, Class A, and 
$4.50 Cumulative Convertible Preferred Stock, Class B.

9.  Information relating to Armco's industry segments can be found on page 12.


                                  ARMCO INC.
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   (Dollars in millions, except per share data)

GENERAL
-------
Armco's consolidated results for the three and nine months ended September 30, 
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
                                     Three Months Ended      Nine Months Ended
                                        September 30,          September 30,
                                     ------------------     ------------------
                                       1996      1995         1996      1995
                                     --------  --------     --------  --------
<S>                                  <C>       <C>          <C>       <C>
Net sales                            $  429.2  $  404.1     $1,310.4  $1,163.1
Operating profit                         24.2      16.8         51.5      59.1
Gain on the sale of AK Steel stock        --        --           --       27.2
Income (loss) from
     continuing operations                9.9      (2.1)        12.8      31.9
Discontinued operations 
   Gain on sale of Aerospace and
      Strategic Materials                 6.5       --           6.5       --
   Equity in income of National-Oilwell   --        2.0          --        6.3
Net income (loss)                        16.4      (0.1)        19.3      38.2
Net income (loss) per common share 
     - primary                           0.11     (0.04)        0.06      0.23
</TABLE>
Net sales in the three and nine months ended September 30, 1996 were 6% and 
13% higher, respectively, than in the same periods last year, primarily due to 
higher sales of automotive chrome, electrical and carbon steels in the 
Specialty Flat-Rolled Steels segment.

In the nine months ended September 30, 1996, operating profit included income 
of $4.2 related to the partial settlement of a business interruption insurance 
claim.  Excluding this credit, the decrease in operating profit from last year 
was primarily due to the effects of planned equipment outages and higher 
outside processing costs.

                                     -7-
<PAGE>9

Income from continuing operations for the nine months ended September 30, 1996 
and 1995 was $12.8 and $31.9, respectively.  Included in the 1996 amount was 
the above-mentioned insurance settlement and a $6.3 gain, which resulted from 
the recognition of gains previously deferred in connection with asset sales at 
a 500-acre industrial park owned by Armco.  Armco had elected to defer gains 
resulting from individual asset sales at this site because of the uncertainty 
concerning realization of the carrying value of the remaining property.  The 
gains were recognized following receipt, in March 1996, of an independent 
appraiser's report indicating that the land, buildings and dock facilities in 
the park had a market value significantly in excess of Armco's historical cost 
carrying value.  Armco is currently discussing the sale of this property.

During the first nine months of 1995, Armco sold all of the shares it had 
received in the initial public offering and recapitalization of AK Steel 
Holding Corporation, recognizing a gain of $27.2.

Oregon Metallurgical Corporation (OREMET), formerly 80% owned by Armco, was 
part of the Aerospace and Strategic Materials business segment that Armco sold 
in 1985.  Prior to the sale, Armco filed a suit on behalf of OREMET in the 
U.S. Claims Court, claiming refunds and interest on federal and state taxes.  
Pursuant to the sales agreement, Armco retained the benefit of its share of 
any proceeds of this action, net of taxes imposed on OREMET and the buyer.  In 
1988, as a result of a favorable settlement of this refund action with the 
Internal Revenue Service (IRS), Armco recorded a $15.2 net of tax adjustment 
to the gain on the sale of this business segment.  Armco and OREMET recently 
reached an agreement with the IRS that the 1988 refund of taxes and interest 
should not, itself, have been subject to tax, further increasing the cash 
proceeds to Armco.  In the third quarter of 1996, Armco recorded an additional 
$6.5 gain on the sale.

At December 31, 1995, Armco had recorded $85.5 in Net assets held for sale for 
its 50% ownership interest in National-Oilwell, an oil field equipment and 
supply joint venture.  The sale of National-Oilwell was completed on January 
16, 1996, with Armco receiving $77.0 in cash and receivables with a face value 
of $13.0.  The receivables were recorded at a discounted value of $10.6.  
After recording $2.1 for recognition of deferred foreign translation losses 
and miscellaneous expenses, no gain or loss was recorded on the sale.  The 
equity income of National-Oilwell, recognized prior to the fourth quarter of 
1995, is reported in Discontinued operations.

Net income (loss) per common share reflects a deduction of $4.5 for the third 
quarter and $13.4 for the first nine months of each year for preferred stock 
dividends declared.


BUSINESS SEGMENT RESULTS
------------------------
Specialty Flat-Rolled Steels
----------------------------       
<TABLE>
<CAPTION>
                                     Three Months Ended      Nine Months Ended
                                        September 30,          September 30,
                                     ------------------     ------------------
                                       1996      1995         1996      1995
                                     --------  --------     --------  --------
<S>                                  <C>       <C>          <C>       <C>
Customer sales                       $  350.5  $  326.1     $1,098.7  $  950.7
Operating profit                         19.3      13.3         51.5      63.9
</TABLE>
Customer sales for the segment were $24.4 and $148.0 higher in the third 
quarter and first nine months of 1996, respectively, than in the same periods 
of 1995, primarily as a result of higher sales of automotive chrome, 
electrical and carbon steels. Part of the increase was attributable to a third 
quarter 1995 equipment failure which resulted in lost sales last year.  The 
nine-month period increase also reflects the idling of the Mansfield 
Operations during the entire first quarter of 1995 pending completion of its 
new thin-slab caster.  The caster was completed, and the plant resumed 
operations, in April 1995.  

Year-to-date average sales per ton in 1996 was down from 1995 levels due to 
the elimination of raw material price surcharges on certain stainless steels; 
market softness, particularly for specialty strip and sheet and specialty 
semi-finished products, and increased sales of lower-priced carbon products.

                                     -8-
<PAGE>10

Customer sales and shipments by major product line and total raw steel 
production were as follows:
<TABLE>
<CAPTION>
                      Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
                      ---------------------------- ---------------------------
                           1996           1995           1996         1995
                       ------------   ------------   ------------  -----------
(tons in thousands)    Sales   Tons   Sales   Tons   Sales   Tons  Sales  Tons
                       ------  ----   ------  ----   ------  ----  -----  ----
<S>                    <C>      <C>   <C>      <C> <C>      <C>    <C>     <C>
Automotive chrome      $122.2    93   $101.9    73 $  390.5   293  $313.4  232
Electrical               91.9    67     80.0    58    275.2   203   251.4  182
Specialty strip 
   and sheet             59.3    23     68.4    24    191.9    73   207.1   77
Specialty semi-finished  38.4    27     42.9    24    109.3    77    93.7   58
Carbon                   30.0    58     23.3    60    105.6   233    53.8  120
Other                     8.7    --      9.6    --     26.2    --    31.3   --
                      -------  ----  -------  ----  -------  ----  ------ ----
     Total             $350.5   268   $326.1   239 $1,098.7   879  $950.7  669

Raw steel production           369            311           1,112          816
</TABLE>
Automotive chrome shipments were 27% higher in the third quarter of 1996 than 
in the same period in 1995, as the Mansfield Operations shipped significant 
quantities of this product line in the current year.  During the first nine 
months of 1995, Mansfield did not produce stainless steel products.  Strong 
production of North American light vehicles and increased use of stainless in 
exhaust systems stimulated current year demand.  

Shipments of electrical steel products increased 16% in the third quarter as a 
result of generally good market conditions and some easing of capacity 
constraints.  Driven by strong housing starts, demand remained strong for 
grain oriented electrical steel used in utility distribution transformers.  
However, shipments of non-oriented electrical steel used in motors and 
generators suffered under pressure from imports.

Specialty strip and sheet shipments declined slightly in the year-to-year 
comparisons due to softer market conditions and increased import penetration.  
Average sales realization per ton was 10% lower in the third quarter of 1996 
compared to 1995 as a result of the elimination of raw material surcharges and 
base price erosion.

Specialty semi-finished shipments increased slightly in the third quarter of 
1996, primarily due to export sales, which generated lower margins.  A 20% 
reduction in average sales realization per ton reflected worldwide market 
softness and the elimination of raw material surcharges.  Specialty semi-
finished products have also been adversely affected by import competition.

Carbon steel shipments in the third quarter of 1996 totaled 58,000 tons 
compared to 60,000 tons shipped in the same period of 1995.  In the first half 
of 1996, Armco began exiting the lower-priced hot band market, shifting the 
product mix to more galvanized steel and increasing average sales realization 
per ton by 33%.  All of Armco's carbon steel products are produced at the 
Mansfield and Dover Operations.

Specialty Flat-Rolled Steels' operating profit for the first nine months of 
1996 included income of $4.2 related to the partial settlement of a business 
interruption insurance claim for a third quarter 1995 unplanned outage.  The 
outage resulted from the failure of a generator on one stand of the hot mill 
at the Butler Operations, which reduced efficiency during a six-week period, 
resulting in the use of alternative and more costly product routings and lost 
sales.

Third quarter 1996 operating profit also included an $8.8 loss from the 
Mansfield and Dover Operations, compared to a loss of $32.7 in the same period 
last year while Mansfield was ramping up.  During the nine months ended 
September 30, 1996 and 1995, the combined Mansfield and Dover losses were 
$41.0 and $82.8, respectively.  Mansfield, in addition to producing carbon 
steels, shipped a significant percentage of Armco's automotive chrome 
stainless in 1996.  Mansfield continues to show improvement in operating cost, 
throughput and productivity.

                                     -9-
<PAGE>11

During the first nine months of 1996, operating profit for this segment was 
lower than last year due to several planned equipment outages, including 
outages necessary to upgrade Armco's finishing facilities as part of the 
strategic facilities plan.  The outages and the subsequent process of 
restarting and returning these facilities to full capability contributed to 
lower yields.  In order to meet demand during this time, Armco used outside 
processors to finish some of its stainless steels, resulting in increased 
costs.

Outlook:  With all of its equipment now fully operational, Armco expects 
increased production and continued reduction in losses at Mansfield in the 
fourth quarter of 1996.  The completion of the Specialty Flat-Rolled Steels 
finishing facilities upgrades earlier this year resulted in increased 
finishing capacity, further improvement in quality and lower costs, including 
a reduction in the use of high cost outside processors.  However, fourth 
quarter 1996 volume will be adversely affected by customer holiday shutdowns, 
while Armco's costs will be higher in the quarter due to its own annual 
maintenance outages.

Demand for Armco's automotive chrome stainless, electrical and carbon steel 
products remains relatively strong.  However, the market conditions for 
specialty strip and sheet and specialty semi-finished products have weakened 
and are having an adverse effect on both volume and pricing.  Weak market 
conditions, together with higher imports, are expected to continue to exert 
downward pressure on shipments and pricing of specialty strip and sheet and 
specialty semi-finished products.

In October 1996, the membership of the independent union representing 
approximately 1,900 employees at the Butler Operations ratified a new five-
year contract.  The new contract is expected to result in Armco maintaining 
its competitive position.


Fabricated Products
-------------------
<TABLE>
<CAPTION>
                                     Three Months Ended      Nine Months Ended
                                        September 30,          September 30,
                                     ------------------     ------------------
                                       1996      1995         1996      1995
                                     --------  --------     --------  --------
<S>                                   <C>       <C>          <C>       <C>
Customer sales                        $ 78.7    $ 78.0       $211.7    $212.4
Operating profit                        10.5      10.7         18.4      16.9
</TABLE>

Third quarter customer sales in this segment equaled last year's level, with 
higher sales at Douglas Dynamics, L.L.C., offset by a decrease in sales at 
Sawhill Tubular.  The higher customer sales at Douglas Dynamics were a result 
of price increases, which offset a slight decline in the number of snowplows 
shipped.  Although Sawhill's shipment volumes increased in the third quarter 
comparison, a decrease in customer sales resulted from lower prices caused by 
increased domestic competitive pressures and a high level of imports.

Douglas Dynamics' operating profit during the three- and nine-month periods 
ended September 30, 1996 were slightly higher than in the same periods last 
year.  Increased sales and cost reductions related to the elimination of 
production outsourcing were offset by higher fixed manufacturing, 
administrative and selling costs, primarily related to the introduction of new 
products.  

Sawhill Tubular recorded a slight decrease in profits in the third quarter 
comparison as a result of experiencing relatively higher costs for steel 
compared to product selling price.  Compared to the first nine months of 1995, 
Sawhill's operating profit was higher due to cost reductions and quality 
improvements.

Outlook:  Douglas Dynamics anticipates somewhat lower snowplow sales over the 
next twelve months compared to the last twelve months as a result of reduced 
shipments partially offset by price increases.  Operating results for the next 
twelve months are expected to decline somewhat from the previous twelve-month 
period.

                                     -10-
<PAGE>12


Sawhill Tubular's sales and profitability are expected to remain level for the 
next twelve months, although some of its markets remain soft.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 1996, Armco had $140.9 of cash and cash equivalents compared 
to $136.8 at December 31, 1995.  Cash and cash equivalents increased $4.1 
during the first nine months of 1996, primarily due to cash inflows of $77.0 
from the sale of Armco's investment in National-Oilwell and cash generated by 
operations; partially offset by capital expenditures of $41.9, pension 
contributions totaling $28.2, principal payments on debt of $18.1 and 
preferred stock dividends of $13.4.  

In addition to the cash on hand, Armco has a receivables credit facility, 
under which Armco Funding Corporation, a wholly owned subsidiary to which 
Armco sells substantially all of its receivables, may borrow up to $120.0 
secured by those receivables.  In addition, Armco can borrow up to $50.0 under 
a credit facility secured by certain of its inventories.  At September 30, 
1996, $77.3 of the receivables facility was used as support for letters of 
credit, while no borrowings were outstanding under either facility.

Armco anticipates that cash expenditures for capital projects during the 
remainder of the year will total approximately $22.0.  In addition, Armco has 
$6.2 of debt commitments maturing through December 1996 and expects to make 
discretionary pension payments of about $13.0 during the remainder of the 
year. During 1997, Armco expects to spend approximately $60.0 to $70.0 for 
capital expenditures, $27.2 in debt payments and $30.0 to $40.0 for pension 
funding. These expenditures will be paid out of existing cash balances and 
cash generated from operations and asset disposals.

On October 25, 1996, Armco's Board of Directors declared the regular quarterly 
dividends of $.525 per share on the $2.10 Cumulative Convertible Preferred 
Stock, Class A, and $.90625 per share on the $3.625 Cumulative Convertible 
Preferred Stock, Class A, each payable December 31, 1996 to shareholders of 
record on November 29, 1996.  The Board of Directors also declared the regular 
quarterly dividend of $1.125 per share on the $4.50 Cumulative Convertible 
Preferred Stock, Class B, payable January 2, 1997 to shareholders of record on 
November 29, 1996.  Payment of dividends on Armco's common stock is currently 
prohibited under the terms of certain of Armco's debt instruments and under 
the terms of its inventory credit facility.

                                     -11-
<PAGE>13
<TABLE>
                                  ARMCO INC. 
                                SEGMENT REPORT 
                                  (Unaudited) 

(Dollars in millions) 

<CAPTION>
                                       1996                   1995  
                             -------------------- --------------------------
                              3rd    2nd    1st    4th    3rd    2nd    1st
                              Qtr.   Qtr.   Qtr.   Qtr.   Qtr.   Qtr.   Qtr.
                             ------ ------ ------ ------ ------ ------ ------
<S>                         <C>    <C>    <C>    <C>    <C>    <C>    <C>
Specialty Flat-Rolled Steels:
   Customer sales           $350.5 $376.1 $372.1 $326.3 $326.1 $320.9 $303.7 
   Operating profit           19.3   12.2   20.0   12.1   13.3   27.4   23.2 

Fabricated Products: 
   Customer sales             78.7   74.7   58.3   70.5   78.0   69.7   64.7 
   Operating profit           10.5    6.4    1.5    5.1   10.7    5.4    0.8 

Corporate general             (5.6)  (6.4)  (6.4)  (7.3)  (7.2)  (7.0)  (7.5)
-----------------------------------------------------------------------------
Total operating profit        24.2   12.2   15.1    9.9   16.8   25.8   16.5 

Interest income                2.2    2.8    3.0    1.9    3.0    3.2    3.7 
Interest expense              (9.0)  (9.3)  (9.2)  (8.2)  (8.7)  (8.5)  (7.5)
Gain on sale of investment 
   in AK Steel stock           -      -      -      -      -     25.9    1.3 
Sundry other - net            (7.2)  (9.5)  (1.6) (11.7) (12.3) (12.7) (12.9)
Provision for income taxes    (0.3)  (0.2)  (0.4)  (0.3)  (0.9)  (0.6)  (0.2)
-----------------------------------------------------------------------------
Income (loss) from 
   continuing operations       9.9   (4.0)   6.9   (8.4)  (2.1)  33.1    0.9 

Discontinued operations 
   Gain on sale of Aerospace  
    and Strategic Materials    6.5    -      -      -      -      -      -  
   Equity in income of 
    National-Oilwell           -      -      -      -      2.0    2.8    1.5 
-----------------------------------------------------------------------------
Net income (loss)           $ 16.4 $ (4.0) $ 6.9 $ (8.4) $(0.1) $35.9 $  2.4 
=============================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
                                    -12-
<PAGE>14

Part II.     Other Information


Item 1.     Legal Proceedings
            ------------------

There are various claims pending against Armco and its subsidiaries involving 
product liability, antitrust, patent, insurance arrangements, environmental 
and hazardous waste matters, employee benefits and other matters arising out 
of the conduct of the business of Armco as previously described in Armco's 
Annual Report on Form 10-K for the year ended December 31, 1995 (the Form 10-
K) and Armco's Quarterly Reports on Form 10-Q for the quarters ended March 31, 
1996 and June 30, 1996 (Form 10-Qs).  The following summarizes significant 
developments in previously reported matters and any claims asserted since June 
30, 1996:

In the Larry B. Ricke, Trustee v. Armco action, on August 13, 1996, the U.S.
       --------------------------------
Court of Appeals affirmed the District Court's decision denying Armco's Motion 
for Summary Judgment.  On September 26, 1996, Armco filed a Petition for 
Rehearing which was denied on October 21, 1996.  The district court will 
schedule a status conference in the near future to establish procedures and 
discovery schedules for the case to progress to trial.

In the Pension Benefit Guaranty Corporation v. Armco and Eastern Stainless 
       -------------------------------------------------------------------
Corporation action, the court has reset the summary jury trial for February 3, 
-----------
1997, and trial on the merits for March 24, 1997.  Armco has renewed its 
motion to dismiss the derivative claims and has filed a motion for summary 
judgment with respect to the direct claims.  The court has set a hearing for 
these motions on December 5, 1996.

In the Granville Solvents matter, trial is expected in 1997.

In the matter involving the former E. G. Smith plant in Cambridge, Ohio, Armco 
paid a penalty of $100,000 and agreed to initiate a $200,000 study to reduce 
the environmental effects of nitric acid pickling.  If Armco does not 
implement the results of the study, an additional penalty up to $100,000 may 
be assessed.

The total liability on the foregoing claims and those other claims described 
under ITEM 3.  LEGAL PROCEEDINGS in the Form 10-K or under Item 1 in the Form 
10-Qs is not determinable; but in the opinion of management, the ultimate 
liability resulting will not materially affect the consolidated financial 
condition or liquidity of Armco and its subsidiaries; however, it is possible 
that due to fluctuations in Armco's results, future developments with respect 
to changes in the ultimate liability could have a material effect on future 
interim or annual results of operations.

Item 6.     Exhibits and Reports on Form 8-K
            --------------------------------

A.     The following is an index of the exhibits included in the Form 10-Q:

       Exhibit 11   Computation of Income (Loss) Per Common Share

B.     No report on Form 8-K was filed by Armco since June 30, 1996.

                                     -13-
<PAGE>15


                                  SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed on behalf of the registrant by the following duly 
authorized persons.




                                   Armco Inc.
                                   -----------------------------------
                                   (Registrant)




Date   November 4, 1996             /s/ David G. Harmer
     ---------------------         -----------------------------------
                                   David G. Harmer
                                   Vice President and Chief Financial Officer


Date   November 4, 1996             /s/ John N. Davis
     ---------------------         -----------------------------------
                                   John N. Davis
                                   Vice President and Controller

                                     -14-