=================================================================

                                      FORM 10-K
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

          Annual Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934
          For the fiscal year ended December 31, 1998
          Commission file number 1-3605

                        KAISER ALUMINUM & CHEMICAL CORPORATION
                (Exact name of registrant as specified in its charter)

                     DELAWARE                          94-0928288
             (State of Incorporation)               (I.R.S. Employer 
                                             Identification No.)

               6177 SUNOL BOULEVARD, PLEASANTON, CALIFORNIA 94566-7769
                (Address of principal executive offices)    (Zip Code)

             Registrant's telephone number, including area code:  (925) 
               462-1122

             Securities registered pursuant to Section 12(b) of the Act:


                Title of each class               Name of each exchange
              Cumulative Convertible               on which registered
          Preference Stock
               (par value $100)
               4 1/8% Series                              None
               4 3/4% (1957 Series)                       None
               4 3/4% (1959 Series)                       None
               4 3/4% (1966 Series)                       None

             Securities registered pursuant to Section 12(g) of the Act:


                                 Title of each class
                     Cumulative (1985 Series A) Preference Stock
                     Cumulative (1985 Series B) Preference Stock

          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,
          and (2) has been subject to such filing requirements for the past
          90 days.  Yes  X    No     
                        ---      ----

          Indicate by check mark if disclosure of delinquent filers
          pursuant to Item 405 of Regulation S-K is not contained herein,
          and will not be contained, to the best of registrant's knowledge,
          in definitive proxy or information statements incorporated by
          reference in Part III of this Form 10-K or any amendment to this
          Form 10-K.  ___

          As of March 23, 1999, there were 46,171,365 shares of the common
          stock of the registrant outstanding, all of which were owned by
          Kaiser Aluminum Corporation, the parent corporation of the
          registrant.  As of March 23, 1999, non-affiliates of the
          registrant held 353,724 shares of Cumulative (1985 Series A)
          Preference Stock and 42,156 shares of Cumulative (1985 Series B)
          Preference Stock of the registrant. The aggregate value of such
          Cumulative (1985 Series A) Preference Stock and Cumulative (1985
          Series B) Preference Stock, based upon the redemption price for
          such stock, is $19.8 million.

          Certain portions of the registrant's definitive proxy statement
          to be filed not later than 120 days after the close of the
          registrant's fiscal year are incorporated by reference into Part
          III of this Report on Form 10-K.


          =================================================================






                                         NOTE





          Kaiser Aluminum & Chemical Corporation's Report on Form 10-K
          filed with the Securities and Exchange Commission includes all
          exhibits required to be filed with the Report.  Copies of this
          Report on Form 10-K, including only Exhibit 21 of the exhibits
          listed on pages 57 - 62 of this Report, are available without
          charge upon written request.  The registrant will furnish copies
          of the other exhibits to this Report on Form 10-K upon payment of
          a fee of 25 cents per page.  Please contact the office set forth
          below to request copies of this Report on Form 10-K and for
          information as to the number of pages contained in each of the
          other exhibits and to request copies of such exhibits:



                                   Corporate Secretary
                                   Kaiser Aluminum & Chemical Corporation
                                   6177 Sunol Boulevard
                                   Pleasanton, California  94566-7769
                                   (925) 462-1122







                                         (i)




                                  TABLE OF CONTENTS
                                                                       Page
                                                                       ----

          PART I                                                          1

               ITEM 1.   BUSINESS                                         1

               ITEM 2.   PROPERTIES                                      13

               ITEM 3.   LEGAL PROCEEDINGS                               13

               ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                         HOLDERS                                         14

          PART II                                                        14

               ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND 
                           RELATED STOCKHOLDER MATTERS                   14

               ITEM 6.   SELECTED FINANCIAL DATA                         14

               ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
                           CONDITION AND RESULTS OF OPERATIONS           15

               ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                         MARKET RISK                                     23

               ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA     24

               ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 
                           ACCOUNTING AND FINANCIAL DISCLOSURE           55

          PART III                                                       55

               ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE
                         REGISTRANT                                      55

               ITEM 11.  EXECUTIVE COMPENSATION                          55

               ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                           AND MANAGEMENT                                55

               ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
                         TRANSACTIONS                                    55

          PART IV                                                        55
               
               ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
                           REPORTS ON FORM 8-K                           55

          SIGNATURES                                                     56

          INDEX OF EXHIBITS                                              57

          EXHIBIT 21     SUBSIDIARIES                                    63

                                         (ii)




          PART I

          ITEM 1.   BUSINESS

          This Annual Report on Form 10-K (the "Report") contains
          statements which constitute "forward-looking statements" within
          the meaning of the Private Securities Litigation Reform Act of
          1995.  These statements appear in a number of places in this
          Report (see, for example, Item 1.  "Business - Strategic
          Initiatives," " - Business Operations," " - Competition," " -
          Research and Development," " - Environmental Matters," and " -
          Factors Affecting Future Performance," Item 3. "Legal
          Proceedings," and Item 7. "Management's Discussion and Analysis
          of Financial Condition and Results of Operations").  Such
          statements can be identified by the use of forward-looking
          terminology such as "believes," "expects," "may," "estimates,"
          "will," "should," "plans" or "anticipates" or the negative
          thereof or other variations thereon or comparable terminology, or
          by discussions of strategy.  Readers are cautioned that any such
          forward-looking statements are not guarantees of future
          performance and involve significant risks and uncertainties, and
          that actual results may vary materially from those in the
          forward-looking statements as a result of various factors.  These
          factors include the effectiveness of management's strategies and
          decisions, general economic and business conditions, developments
          in technology, new or modified statutory or regulatory
          requirements, and changing prices and market conditions.  Other
          sections of this Report identify other factors that could cause
          such differences.  No assurance can be given that these are all
          of the factors that could cause actual results to vary materially
          from the forward-looking statements.

          General

          Kaiser Aluminum & Chemical Corporation (the "Company"), a
          Delaware corporation organized in 1940, is a direct subsidiary of
          Kaiser Aluminum Corporation ("Kaiser") and is an indirect
          subsidiary of MAXXAM Inc. ("MAXXAM").  Kaiser owns all of the
          Company's Common Stock; and MAXXAM and one of its wholly-owned
          subsidiaries together own approximately 63% of Kaiser's Common
          Stock, with the remaining approximately 37% publicly held.  The
          Company operates in all principal aspects of the aluminum
          industry - the mining of bauxite, the refining of bauxite into
          alumina, the production of primary aluminum from alumina, and the
          manufacture of fabricated (including semi-fabricated) aluminum
          products.  In addition to the production utilized by the Company
          in its operations, the Company sells significant amounts of
          alumina and primary aluminum in domestic and international
          markets.  In 1998, the Company produced approximately 2,964,000
          tons* of alumina, of which approximately 76% was sold to third
          parties, and produced approximately 387,000 tons of primary
          aluminum, of which approximately 68% was sold to third parties. 
          The Company is also a major domestic supplier of fabricated
          aluminum products.  In 1998, the Company shipped approximately
          405,000 tons of fabricated aluminum products to third parties,
          which accounted for approximately 5% of total United States
          domestic shipments.



          -----------
          *  All references to tons in this Report refer to metric tons of
          2,204.6 pounds.

          The Company's operations are conducted through its business
          units.  The following table sets forth total shipments and
          intersegment transfers of the Company's alumina, primary
          aluminum, and fabricated aluminum operations:

          <TABLE>
          <CAPTION>
                                                                      Year Ended December 31,
                                                          ----------------------------------------------
                                                                    1998            1997            1996
                                                          --------------  --------------  --------------
                                                                      (in thousands of tons)
          <S>                                             <C>             <C>             <C>
          ALUMINA:
               Shipments to Third Parties                        2,250.0         1,929.8         2,073.7
               Intersegment Transfers                              750.7           968.0           912.4
                                                          --------------  --------------  --------------
                                                                 3,000.7         2,897.8         2,986.1
                                                          --------------  --------------  --------------
          PRIMARY ALUMINUM:
               Shipments to Third Parties                          263.2           327.9           355.6
               Intersegment Transfers                              162.8           164.2           128.3
                                                          --------------  --------------  --------------
                                                                   426.0           492.1           483.9
                                                          --------------  --------------  --------------
          FLAT-ROLLED PRODUCTS:                                    235.6           247.9           204.8

          ENGINEERED PRODUCTS:                                     169.4           152.1           122.3


          </TABLE>

          ITEM 1.   BUSINESS (CONTINUED)

          Note 12 of Notes to Consolidated Financial Statements is
          incorporated herein by reference.

          Labor Matters

          Substantially all of the Company's hourly workforce at the
          Gramercy, Louisiana, alumina refinery, Mead and Tacoma,
          Washington, aluminum smelters, Trentwood, Washington, rolling
          mill, and Newark, Ohio, extrusion facility were covered by a
          master labor agreement with the United Steelworkers of America
          (the "USWA") which expired on September 30, 1998.  The parties
          did not reach an agreement prior to the expiration of the master
          agreement and the USWA chose to strike.  In January 1999 the
          Company declined an offer by the USWA to have the striking
          workers return to work at the five plants without a new
          agreement.  The Company imposed a lock-out to support its
          bargaining position and continues to operate the plants with
          salaried employees and other workers as it has since the strike
          began.  Based on operating results to date, the Company believes
          that a significant business interruption will not occur.

          As a result of the USWA strike, the Company temporarily curtailed
          three out of a total of eleven potlines at its Mead and Tacoma,
          Washington, aluminum smelters at September 30, 1998.  The
          curtailed potlines represent approximately 70,000 tons of annual
          production capacity out of a total combined production capacity
          of 273,000 tons per year at the facilities.  In February 1999,
          the Company began restarting the two curtailed potlines at its
          Mead smelter representing approximately 50,000 tons of the
          previously idle capacity.  The Company has also announced that it
          has completed preparations to restart 20,000 tons of idle
          capacity at its Tacoma smelter.  However, the timing for any
          restart of the Tacoma potline has yet to be determined and will
          depend upon market conditions and other factors.  Costs
          associated with the preparation and restart of the potlines at
          the Mead and Tacoma facilities are expected to adversely affect
          the Company's first quarter results.

          While the Company initially experienced an adverse strike-related
          impact on its profitability in the fourth quarter of 1998, the
          Company currently believes that its operations at the affected
          facilities have been substantially stabilized and will be able to
          run at, or near, full capacity, and that the incremental costs
          associated with operating the affected plants during the dispute
          were eliminated or substantially reduced as of January 1999
          (excluding the impacts of the restart costs discussed above and
          the effect of market factors such as the continued market-related
          curtailment at the Tacoma smelter).  However, no assurances can
          be given that the Company's efforts to run the plants on a
          sustained basis, without a significant business interruption or
          material adverse impact on the Company's operating results, will
          be successful.

          See Note 1 of Notes to Consolidated Financial Statements "- Labor
          Related Costs," and Note 10 of Notes to Consolidated Financial
          Statements "- Labor Matters."

          Strategic Initiatives

          The Company's strategic objectives include the improvement of the
          earnings from its existing businesses; the redeployment of its
          existing investment in assets that are not strategically
          essential to continued profit growth; the addition of assets to
          its growth businesses; and the improvement of its financial
          structure.

          In 1996, the Company set a goal of achieving $120.0 million of
          pre-tax cost reductions and other profit improvements,
          independent of metal price changes, with the full effect planned
          to be realized in 1998 and beyond, measured against 1996 results. 
          The Company believes that its operations had achieved the run
          rate necessary to meet this objective prior to the end of the
          third quarter of 1998, when the impact of such items as smelter
          operating levels, the USWA strike and foreign currency changes
          are excluded from the analysis.  Further, the Company believes
          that it has implemented the steps that will allow it to sustain
          the stated goal over the long term.  The Company remains
          committed to sustaining the full $120.0 million improvement and
          to generating additional profit improvements in future years;
          however, no assurances can be given that the Company will be
          successful in this regard.  See "Management's Discussion and
          Analysis of Financial Condition and Results of Operations - Labor
          Matters, - Strategic Initiatives, and - Valco Operating Level",
          and Note 1 of Notes to Consolidated Financial Statements "- Labor
          Related Costs."

          ITEM 1.   BUSINESS (CONTINUED)

          In addition to working to improve the performance of the
          Company's existing assets, the Company has devoted significant
          efforts analyzing its existing asset portfolio with the intent of
          focusing its efforts and capital in sectors of the industry that
          are considered most attractive, and in which the Company believes
          it is well positioned to capture value.  The initial steps of
          this process resulted in the June 1997 acquisition of the
          Bellwood extrusion facility, the May 1997 formation of AKW L.P.
          ("AKW"), a joint venture that designs, manufactures and sells
          heavy duty aluminum wheels, the rationalization of certain of the
          Company's engineered products operations, and the Company's
          investment to expand its capacity for heat treat flat-rolled
          products at its Trentwood, Washington, rolling mill. The
          restructuring activities resulted in the Company recording a net
          pre-tax charge of $19.7 million in June 1997.  See Notes 3 and 4
          of Notes to Consolidated Financial Statements.

          The portfolio analysis process also resulted in the Company's
          fourth quarter 1998 decision to seek a strategic partner for
          further development and deployment of the Company's Micromill(TM)
          technology.  While technological progress has been good,
          management concluded that additional time and investment would be
          required for success.  Given the Company's other strategic
          priorities, the Company believes that introducing added
          commercial and financial resources is the appropriate course of
          action for capturing the maximum long term value.  This change in
          strategic course required a different accounting treatment, and
          the Company correspondingly recorded a $45.0 million impairment
          charge to reduce the carrying value of the Micromill assets to
          approximately $25.0 million.  See Note 3 of Notes of Consolidated
          Finanacial Statements.

          Another area of emphasis has been a continuing focus on managing
          the Company's legacy liabilities.  One element of this process
          has been actively pursuing claims in respect of insurance
          coverage for certain incurred and future environmental costs. 
          During the fourth quarter of 1998, the Company received
          recoveries totaling approximately $35.0 million related to
          current and future claims against certain of its insurers. 
          Recoveries of $12.0 million were deemed to be allocable to
          previously accrued (expensed) items and were reflected in
          earnings during the fourth quarter of 1998.  The remaining
          recoveries were offset against increases in the total amount of
          environmental reserves.  No assurances can be given that the
          Company will be successful in other attempts to recover incurred
          or future costs from other insurers or that the amount of any
          recoveries received will ultimately be adequate to cover costs
          incurred.  See Note 10 of Notes to Consolidated Financial
          Statements.

          In early 1999, the Company's program to focus its efforts and
          capital in sectors of the industry which it considers to be the
          most attractive, and in which the Company believes it is well
          positioned to capture value, has resulted in an agreement to sell
          one joint venture interest and a separate agreement to purchase
          another.  In January 1999, the Company signed a letter of intent
          to sell its 50% interest in AKW to its joint venture partner. The
          transaction, which would result in the Company recognizing a
          substantial gain, is currently expected to close on or about
          March 31, 1999.  However, as the transaction is subject to
          negotiation of a definitive purchase agreement, no assurances can
          be given that this transaction will be consummated.  Also, in
          February 1999, the Company completed the acquisition of the
          remaining 45% interest in Kaiser LaRoche Hydrate Partners, an
          alumina marketing venture, from its joint venture partner for a
          cash purchase price of approximately $10.0 million.  See Note 14
          of Notes to Consolidated Financial Statements.  Additional
          portfolio analysis and initiatives are continuing.

          Sensitivity to Prices and Hedging Programs

          The Company's operating results are sensitive to changes in the
          prices of alumina, primary aluminum, and fabricated aluminum
          products, and also depend to a significant degree upon the volume
          and mix of all products sold and on the Company's hedging
          strategies. Primary aluminum prices have historically been
          subject to significant cyclical fluctuations.  Alumina prices, as
          well as fabricated aluminum product prices (which vary
          considerably among products), are significantly influenced by
          changes in the price of primary aluminum and generally lag behind
          primary aluminum prices.  From time to time in the ordinary
          course of business the Company enters into hedging transactions
          to provide price risk management in respect of its net exposure
          resulting from (i) anticipated sales of alumina, primary
          aluminum, and fabricated aluminum products, less (ii) expected
          purchases of certain items, such as aluminum scrap, rolling
          ingot, and bauxite, whose prices fluctuate with the price of
          primary aluminum.  Forward sales contracts are used by the
          Company to lock-in or fix the effective price that the Company
          will receive for its sales.  The Company also uses option
          contracts (i) to establish a minimum price for its product sales,
          (ii) to establish a "collar" or range of prices for its
          anticipated sales, and/or (iii) to permit the Company to realize
          possible upside price movements.  See "Management's Discussion
          and Analysis of Financial Condition and Results of Operations -
          Market-related Factors" and Note 1 - "Derivative Financial
          Instruments" and Note 11 of Notes to Consolidated Financial
          Statements.

          ITEM 1.   BUSINESS (CONTINUED)

          Business Operations

          The Company conducts its business through four main business
          units, each of which is discussed below.

          -    Alumina Business Unit
               ---------------------

          The following table lists the Company's bauxite mining and
          alumina refining facilities as of December 31, 1998:

          <TABLE>
          <CAPTION>
                                                                                           Annual
                                                                                       Production           Total
                                                                                         Capacity          Annual
                                                                          Company    Available to      Production
          Activity                       Facility        Location       Ownership     the Company        Capacity
          --------------           --------------  --------------  --------------  --------------  --------------
                                                                                           (tons)          (tons)
          <S>                      <C>             <C>             <C>             <C>             <C>
          Bauxite Mining           KJBC(1)         Jamaica                  49.0%       4,500,000       4,500,000
                                   Alpart(2)       Jamaica                  65.0%       2,275,000       3,500,000
                                                                                   --------------  --------------

                                                                                        6,775,000       8,000,000
                                                                                   ==============  ==============

          Alumina Refining         Gramercy        Louisiana               100.0%       1,050,000       1,050,000
                                   Alpart          Jamaica                  65.0%         942,500       1,450,000
                                   QAL             Australia                28.3%       1,032,950       3,650,000
                                                                                   --------------  --------------

                                                                                        3,025,450       6,150,000
                                                                                   ==============  ==============




          </TABLE>

          ---------------
          (1)  Although the Company owns 49% of Kaiser Jamaica Bauxite
               Company ("KJBC"), it has the right to receive all of KJBC's
               output.
          (2)  Alumina Partners of Jamaica ("Alpart") bauxite is refined
               into alumina at the Alpart refinery.

          The Company's principal customers for bauxite and alumina consist
          of other aluminum producers that purchase bauxite and
          smelter-grade alumina, trading intermediaries who resell raw
          materials to end-users, and users of chemical-grade alumina.  The
          Company believes that among alumina producers the Company is the
          world's second largest seller of smelter-grade alumina to third
          parties.  The Company's strategy is to sell a substantial portion
          of the alumina available to it in excess of its internal smelting
          requirements under multi-year sales contracts with prices linked
          to the price of primary aluminum.  See "- Competition" and "-
          Sensitivity to Prices and Hedging Programs."

          Bauxite mined in Jamaica by KJBC is refined into alumina at the
          Company's plant at Gramercy, Louisiana, or is sold to third
          parties. In 1979, the Government of Jamaica granted the Company a
          mining lease for the mining of bauxite sufficient to supply the
          Company's then-existing Louisiana alumina refineries at their
          annual capacities of 1,656,000 tons per year until January 31,
          2020.  Alumina from the Gramercy plant is sold to third parties. 
          The Gramercy, Louisiana, refinery is one of the five Company
          plants which is subject to the continuing USWA dispute.  See "-
          Labor Matters" and "Management's Discussion and Analysis of
          Financial Condition and Results of Operations - Labor Matters."

          In February 1999 the Company, through a subsidiary, purchased its
          partner's 45% interest in Kaiser LaRoche Hydrate Partners, a
          partnership which markets chemical-grade alumina manufactured by
          the Company's Gramercy facility. These products are sold at a
          premium price over smelter-grade alumina, and this acquisition
          will permit the Company to expand its market position in this
          business in North America.  See "Management's Discussion and
          Analysis of Financial Condition and Results of Operations -
          Strategic Initiatives."

          ITEM 1.   BUSINESS (CONTINUED)

          Alpart holds bauxite reserves and owns a 1,450,000 ton per year
          alumina plant located in Jamaica.  The Company owns a 65%
          interest in Alpart, and Hydro Aluminium Jamaica a.s ("Hydro")
          owns the remaining 35% interest.  The Company has management
          responsibility for the facility on a fee basis.  The Company and
          Hydro have agreed to be responsible for their proportionate
          shares of Alpart's costs and expenses.  The Government of Jamaica
          has granted Alpart a mining lease and has entered into other
          agreements with Alpart designed to assure that sufficient
          reserves of bauxite will be available to Alpart to operate its
          refinery, as it may be expanded up to a capacity of 2,000,000
          tons per year, through the year 2024.

          In 1999, Alpart and JAMALCO, a joint venture between affiliates
          of Alcoa Inc. and the government of Jamaica, reached an
          agreement to form a joint venture bauxite mining operation to
          consolidate their bauxite mining operations in Jamaica, with the
          objective of optimizing mining operating and capital costs.  The
          transaction is subject to various conditions.  Subject to
          satisfaction of those conditions, the joint venture is expected
          to commence operations during the second half of 1999.

          The Company owns a 28.3% interest in Queensland Alumina Limited
          ("QAL"), which owns the largest and one of the most competitive
          alumina refineries in the world, located in Queensland,
          Australia.  QAL refines bauxite into alumina, essentially on a
          cost basis, for the account of its stockholders under long-term
          tolling contracts.  The stockholders, including the Company,
          purchase bauxite from another QAL stockholder under long-term
          supply contracts.  The Company has contracted with QAL to take
          approximately 792,000 tons per year of capacity or pay standby
          charges.  The Company is unconditionally obligated to pay amounts
          calculated to service its share ($97.6 million at December 31,
          1998) of certain debt of QAL, as well as other QAL costs and
          expenses, including bauxite shipping costs.

          The Company sold alumina in 1998 to approximately 20 customers,
          the largest and top five of which accounted for approximately 19%
          and 67% of such sales, respectively.  All of the Company's third-
          party sales of bauxite in 1998 were made to one customer, which
          represents approximately 6% of total bauxite and alumina third
          party revenues.

          -    Primary Aluminum Business Unit
               ------------------------------

          The following table lists the Company's primary aluminum smelting
          facilities as of December 31, 1998:

          <TABLE>
          <CAPTION>
                                                                         Annual Rated           Total            1998
                                                                             Capacity          Annual         Average
                                                              Company   Available to            Rated       Operating
          Location                           Facility       Ownership     the Company        Capacity            Rate
          -----------------            --------------  --------------  --------------  --------------  --------------
          <S>                          <C>             <C>             <C>             <C>             <C>
          Domestic
               Washington              Mead                      100%         200,000         200,000        103% (1)
               Washington              Tacoma                    100%          73,000          73,000         94%    
                                                                       --------------  --------------
                    Subtotal                                                  273,000         273,000
                                                                       --------------  --------------

          International
               Ghana                   Valco                      90%         180,000         200,000         25%    
               Wales, United Kingdom   Anglesey                   49%          66,150         135,000        100%    
                                                                       --------------  --------------
                    Subtotal                                                  246,150         335,000
                                                                       --------------  --------------

                         Total                                                519,150         608,000
                                                                       ==============  ==============

          </TABLE>

          ---------------
          (1)  In recent years the Mead smelter has consistently operated 
               at an annual rate in excess of its rated capacity of 200,000
               tons. As a result of the strike-related partial curtailment
               of the Mead smelter, the 1998 average operating rate
               declined from that of a year ago but remained above 100% of
               rated capacity.

          ITEM 1.   BUSINESS (CONTINUED)

          The Company's principal primary aluminum customers consist of
          large trading intermediaries and metal brokers.  In 1998, the
          Company sold its primary aluminum production not utilized for
          internal purposes to approximately 42 customers, the largest and
          top five of which accounted for approximately 30% and 58% of such
          sales, respectively.  See "- Competition."  Marketing and sales
          efforts are conducted by personnel located in Pleasanton,
          California; Houston, Texas; and Tacoma and Spokane, Washington. 
          A majority of the business unit's sales are based upon long-term
          relationships with metal merchants and end-users.

          The Company has developed and installed proprietary retrofit and
          control technology in all of its smelters, as well as at third
          party locations.  This technology - which includes the redesign
          of the cathodes, anodes and bus that conduct electricity through
          reduction cells, improved feed systems that add alumina to the
          cells, computerized process control and energy management
          systems, and furnace technology for baking of anode carbon - has
          significantly contributed to increased and more efficient
          production of primary aluminum and enhanced the Company's ability
          to compete more effectively with the industry's newer smelters. 
          The Company engages in efforts to license this technology and
          sell technical and managerial assistance to other producers
          worldwide, and may participate in joint ventures or similar
          business partnerships which employ the Company's technical and
          managerial knowledge.  See "-Research and Development."

               Domestic Smelters

          The Mead facility uses pre-bake technology and produces primary
          aluminum.  Approximately 64% of Mead's 1998 production was used
          at the Company's Trentwood, Washington, rolling mill, and the
          balance was sold to third parties.  The Tacoma facility uses
          Soderberg technology and produces primary aluminum and
          high-grade, continuous-cast, redraw rod, which currently commands
          a premium price in excess of the price of primary aluminum.  Both
          smelters have achieved significant production efficiencies
          through retrofit technology and a variety of cost controls,
          leading to increases in production volume and enhancing their
          ability to compete with newer smelters.  The Mead and Tacoma,
          Washington, smelters are two of the five Company plants which are
          subject to the continuing USWA dispute.  See "-Labor Matters."

          The Company has modernized and expanded the carbon baking furnace
          at its Mead smelter at an estimated cost of approximately $55.3
          million.  The project has improved the reliability of the carbon
          baking operations, increased productivity, enhanced safety, and
          improved the environmental performance of the facility.  The
          first stage of this project, the construction of a new $40.0
          million 90,000 ton per year furnace, was completed in 1997.  The
          remaining modernization work was completed in 1998 and early
          1999. A portion of this project was financed with the net
          proceeds (approximately $18.6 million) of 7.6% Solid Waste
          Disposal Revenue Bonds due 2027 issued in March 1997 by the
          Industrial Development Corporation of Spokane County, Washington.

               Foreign Smelters

          The Company manages, and owns a 90% interest in, the Volta
          Aluminium Company Limited ("Valco") aluminum smelter in Ghana. 
          The Valco smelter uses pre-bake technology and processes alumina
          supplied by the Company and the other participant into primary
          aluminum under tolling contracts which provide for proportionate
          payments by the participants.  The Company's share of the primary
          aluminum is sold to third parties.

          During most of 1998, the Valco smelter operated only one of its
          five potlines, as compared to 1997, when Valco operated four
          potlines.  Each of Valco's potlines produces approximately 40,000
          tons of primary aluminum per year.  Valco received compensation
          (in the form of energy credits to be utilized over the last half
          of 1998 and during 1999) from the Volta River Authority ("VRA")
          in lieu of the power necessary to run two of the potlines that
          were curtailed during 1998.  The compensation substantially
          mitigated the financial impact of the curtailment of such lines. 
          Valco did not receive any compensation from the VRA for one
          additional potline which was curtailed in January 1998.  Based on
          Valco's proposed 1999 power allocation from the VRA, Valco has
          announced that it expects to operate three lines during 1999. 
          The decision to operate at that level was based on the power
          allocation that Valco has received from the VRA as well as
          consideration of market and other factors.  Valco has notified
          the VRA that it believes it had the contractual rights at the
          beginning of 1998 to sufficient energy to run four and one-half
          potlines for the balance of the year.  Valco continues to seek
          compensation from the VRA with respect to the January 1998
          reduction of its power allocation.  Valco and the VRA also are in
          continuing discussions concerning other matters, including steps
          that might be taken to reduce the likelihood of power
          curtailments in the future.  No assurances can be given as to the
          success of these discussions.

          ITEM 1.   BUSINESS (CONTINUED)

          The Company owns a 49% interest in the Anglesey Aluminium Limited
          ("Anglesey") aluminum smelter and port facility at Holyhead,
          Wales.  The Anglesey smelter uses pre-bake technology.  The
          Company supplies 49% of Anglesey's alumina requirements and
          purchases 49% of Anglesey's aluminum output.  The Company sells
          its share of Anglesey's output to third parties.

               Electric Power

          Electric power represents an important production cost for the
          Company at its aluminum smelters.  For a discussion of this
          subject, see "Factors Affecting Future Performance - Electric
          Power."

          -    Flat-Rolled Products Business Unit
               ----------------------------------

          The flat-rolled products business unit operates the Trentwood,
          Washington, rolling mill.  The Trentwood facility accounted for
          approximately 58% of the Company's 1998 fabricated aluminum
          products shipments.  The business unit supplies the aerospace and
          general engineering markets (producing heat treat sheet and plate
          products), the beverage container market (producing body, lid,
          and tab stock), and the specialty coil markets (producing
          automotive brazing sheet, wheel, and tread products), both
          directly and through distributors.  The Trentwood facility is one
          of the five Company plants which is subject to the continuing
          USWA dispute. See "- Labor Matters," and "Management's Discussion
          and Analysis of Financial Condition and Results of Operations -
          Labor Matters."

          The Company continues to enhance the process and product mix of
          its Trentwood rolling mill in an effort to maximize its
          profitability and maintain full utilization of the facility.  In
          1998, the Company continued to implement a plan to improve the
          reliability and to expand the annual production capacity of heat
          treat flat-rolled products at the Trentwood facility by
          approximately one-third over 1996 levels.  Approximately $8.0
          million remains to be spent to implement the plan. Global sales
          of the Company's heat treat products are made primarily to the
          aerospace and general engineering markets, and remained strong in
          the first half of 1998 after record shipments in 1997; demand for
          such products softened in the second half of 1998.  In 1998, the
          business unit shipped products to approximately 141 customers in
          the aerospace, transportation, and industrial ("ATI") markets,
          most of which were distributors who sell to a variety of
          industrial end-users.  The top five customers in the ATI markets
          for flat-rolled products accounted for approximately 18% of the
          business unit's revenue.

          The Company's flat-rolled products are also sold to beverage
          container manufacturers located in the western United States and
          in the Asian Pacific Rim countries where the Trentwood plant's
          location provides the Company with a transportation advantage.
          Quality of products for the beverage container industry, service,
          and timeliness of delivery are the primary bases on which the
          Company competes.  The Company is one of the highest quality
          producers of aluminum beverage can stock in the world.  In 1998,
          the business unit had approximately 21 domestic and foreign can
          stock customers, supplying approximately 41 can plants worldwide. 
          The largest and top five of such customers accounted for
          approximately 12% and 35%, respectively, of the business unit's
          revenue.  See "- Competition."  The marketing staff for the
          business unit is located at the Trentwood facility and in
          Pleasanton, California.  Sales are made directly to end-use
          customers and distributors from four sales offices in the United
          States, from a sales office in England, and by independent sales
          agents in Asia and Latin America.

          The Micromill facility was constructed near Reno, Nevada, in 1996
          as a demonstration and production facility.  Micromill technology
          is based on a proprietary thin-strip, high-speed, continuous-belt
          casting technique linked directly to hot and cold rolling mills. 
          The Company is continuing its efforts to implement the Micromill
          technology on a full-scale basis.  However, the Micromill
          technology has not yet been fully implemented or commercialized,
          and there can be no assurance that it will be successfully
          implemented and commercialized for use at full-scale facilities. 
          The Company has decided to seek a strategic partner for further
          development and deployment of the Micromill technology.  See
          "Management's Discussion and Analysis of Financial Condition and
          Results of Operations - Strategic Initiatives" and Note 3 of
          Notes to Consolidated Financial Statements.

          ITEM 1.   BUSINESS (CONTINUED)

          -    Engineered Products Business Unit
               ---------------------------------

          The engineered products business unit operates soft-alloy and
          hard-alloy extrusion facilities and engineered component
          (forgings) facilities in the United States and Canada.  Major
          markets for extruded products are in the transportation industry,
          to which the business unit provides extruded shapes for
          automobiles, trucks, trailers, cabs, and shipping containers, and
          in the distribution, durable goods, defense, building and
          construction, ordnance and electrical markets.  The business unit
          supplies forged parts to customers in the automotive, commercial
          vehicle and ordnance markets.  The high strength-to-weight
          properties of forged aluminum make it particularly well-suited
          for automotive applications.  The business unit maintains its
          headquarters and a sales and engineering office in Southfield,
          Michigan, which works with automobile makers and other customers
          and plant personnel to create new automotive component designs
          and to improve existing products.

          Soft-alloy extrusion facilities are located in Los Angeles,
          California; Sherman, Texas; Richmond, Virginia; and London,
          Ontario, Canada.  Each of the soft-alloy extrusion facilities has
          fabricating capabilities and provides finishing services.  The
          Richmond, Virginia, facility was acquired in mid-1997 and
          increased the Company's extruded products capacity and enhanced
          its existing extrusion business due to that facility's ability to
          manufacture seamless tubing and large circle size extrusions and
          to serve the distribution and ground transportation industries. 
          Hard-alloy rod and bar extrusion facilities are located in
          Newark, Ohio, and Jackson, Tennessee, and produce screw machine
          stock, redraw rod, forging stock, and billet.  The Newark
          facility is one of the five Company plants which is subject to
          the continuing USWA dispute.  See "- Labor Matters," and
          "Management's Discussion and Analysis of Financial Condition and
          Results of Operations - Labor Matters."  A facility located in
          Richland, Washington, produces seamless tubing in both hard and
          soft alloys for the automotive, other transportation, export,
          recreation, agriculture, and other industrial markets.  The
          business unit also operates a cathodic protection business
          located in Tulsa, Oklahoma, that extrudes both aluminum and
          magnesium.  The business unit operates forging facilities at
          Oxnard, California, and Greenwood, South Carolina, and a machine
          shop at Greenwood, South Carolina.  The Company has entered into
          an agreement to sell its casting operations in Canton, Ohio.

          In 1997 the Company and Accuride Corporation formed AKW L.P. to
          design, manufacture and sell heavy-duty aluminum truck wheels. In
          January 1999, the Company signed a letter of intent to sell its
          50% interest in AKW to its partner, which would result in the
          Company recognizing a substantial gain.  The Company expects the
          transaction to close on or about March 31, 1999; however, as the
          transaction is subject to certain conditions, no assurances can
          be given that the transaction will be consummated.  See 
          "Management's Discussion and Analysis of Financial Condition and
          Results of Operations - Strategic Initiatives" and Note 14 of
          Notes to Consolidated Financial Statements.

          In 1998, the engineered products business unit had approximately
          445 customers, the largest and top five of which accounted for
          approximately 5% and 18%, respectively, of the business unit's
          revenue.  See "- Competition."  Sales are made directly from
          plants, as well as marketing locations elsewhere in the United
          States.

          Competition

          The Company competes with both domestic and foreign producers of
          bauxite, alumina and primary aluminum, and with domestic and
          foreign fabricators.  Many of the Company's competitors have
          greater financial resources than the Company.  Primary aluminum
          and, to some degree, alumina are commodities with generally
          standard qualities, and competition in the sale of these
          commodities is based primarily upon price, quality and
          availability.  Aluminum competes in many markets with steel,
          copper, glass, plastic, and other materials.  In the United
          States, beverage container materials, including aluminum, face
          increased competition from plastics as increased polyethylene
          terephthalate ("PET") container capacity is brought on line by
          plastics manufacturers.  The Company competes with numerous
          domestic and international fabricators in the sale of fabricated
          aluminum products.  The Company manufactures and markets
          fabricated aluminum products for the transportation, packaging,
          construction, and consumer durables markets in the United States
          and abroad. Sales in these markets are made directly and through
          distributors to a large number of customers. Competition in the
          sale of fabricated products is based upon quality, availability,
          price and service, including delivery performance.  The Company
          concentrates its fabricating operations on selected products in
          which it has production expertise, high-quality capability, and
          geographic and other competitive advantages. The Company believes
          that, assuming the current relationship between worldwide supply
          and demand for alumina and primary aluminum does not change
          materially, the loss of any one of the Company's customers,
          including intermediaries, would not have a material adverse
          effect on the Company's consolidated financial condition or
          results of operations.

          ITEM 1.   BUSINESS (CONTINUED)

          See the discussion of competitive conditions, markets, and
          principal methods of competition in the description of each
          business unit under the headings "-Alumina Business Unit,"
          "-Primary Aluminum Business Unit," "-Flat-Rolled Products
          Business Unit," and "-Engineered Products Business Unit."

          Research and Development

          The Company conducts research and development activities
          principally at two facilities - CFT in Pleasanton, California,
          and the Northwest Engineering Center adjacent to the Mead smelter
          in Spokane, Washington.  Net expenditures for Company-sponsored
          research and development activities were $13.7 million in 1998,
          $19.7 million in 1997, and $20.5 million in 1996.  The Company's
          research staff totaled 52 at December 31, 1998.  The Company
          estimates that research and development net expenditures will be
          in the range of $10 million to $15 million in 1999.

          CFT performs research and development of aluminum process and
          product technologies to support the Company's business units and
          new business opportunities.  In 1998 patents were issued to the
          Company concerning the manufacture of continuous cast can sheet,
          the brazing of aluminum alloys for heat exchanger applications,
          improved lead-free aluminum machining alloys, and joining methods
          for aluminum extrusions used in transportation applications. In
          1998 CFT continued to support the development of the Micromill
          technology deployed at the Micromill facility near Reno, Nevada,
          for the production of can sheet and other sheet products.  The
          Northwest Engineering Center maintains specialized laboratories
          and a miniature carbon plant where experiments with new anode and
          cathode technology are performed.  The Northwest Engineering
          Center supports the Company's primary aluminum smelters, and
          concentrates on the development of cost-effective technical
          innovations such as equipment and process improvements.

          The Company licenses its technology and sells technical and
          managerial assistance to other producers worldwide.  The
          Company's technology has been installed in alumina refineries,
          aluminum smelters and rolling mills located in the United States
          and fourteen foreign countries.

          Employees

          During 1998, the Company employed an average of approximately
          9,200 persons, compared with an average of approximately 9,600
          persons in 1997 and 1996.  At December 31, 1998, the Company
          employed approximately 8,900 persons; this number does not
          include persons employed temporarily during the USWA labor
          dispute at the five facilities subject to the labor dispute.

          In 1998, Alpart entered into a new three-year labor agreement
          with workers at its refinery in Jamaica, and Valco entered into a
          new three-year labor agreement with workers at its smelter in
          Ghana.  Each agreement includes productivity improvements.

          Environmental Matters

          The Company and Kaiser are subject to a wide variety of
          international, federal, state and local environmental laws and
          regulations.  For a discussion of this subject, see "Factors
          Affecting Future Performance - Environmental Contingencies and
          Asbestos Contingencies."

          Factors Affecting Future Performance

          This section discusses certain factors that could cause actual
          results to vary, perhaps materially, from the results described
          in forward-looking statements made in this Report.  Forward-
          looking statements in this Report are not guarantees of future
          performance and involve significant risks and uncertainties. 
          Actual results may vary materially from those in such forward-
          looking statements as a result of factors including the
          effectiveness of management's strategies and decisions, general
          economic and business conditions, developments in technology, new
          or modified statutory or regulatory requirements, and changing
          prices and market conditions.  No assurance can be given that
          these factors and the specific factors discussed below are all of
          the factors that could cause actual results to vary materially
          from the forward-looking statements.

          ITEM 1.   BUSINESS (CONTINUED)

          -    Sensitivity to Prices and Hedging Programs
               ------------------------------------------

          The Company's operating results are sensitive to changes in the
          prices of alumina, primary aluminum, and fabricated aluminum
          products, and also depend to a significant degree upon the volume
          and mix of all products sold and on the Company's hedging
          strategies. Primary aluminum prices have historically been
          subject to significant cyclical fluctuations.  Alumina prices, as
          well as fabricated aluminum product prices (which vary
          considerably among products), are significantly influenced by
          changes in the price of primary aluminum and generally lag behind
          primary aluminum prices.  Since 1993, the Average Midwest United
          States transaction price (the "AMT Price") for primary aluminum
          has ranged from approximately $.50 to $1.00 per pound.  During
          1998, the AMT Price per pound of primary aluminum declined during
          the year, beginning the year in the $.70 to $.75 range and ending
          the year in the low $.60 range.  Subsequent to 1998, the AMT
          Price continued to decline, and at February 26, 1999, the AMT
          Price was approximately $.58 per pound.

          From time to time in the ordinary course of business, the Company
          enters into hedging transactions to provide price risk management
          in respect of its net exposure resulting from (i) anticipated
          sales of alumina, primary aluminum, and fabricated aluminum
          products, less (ii) expected purchases of certain items, such as
          aluminum scrap, rolling ingot, and bauxite, whose prices
          fluctuate with the price of primary aluminum.  No assurance can
          be given that the Company's hedging program will adequately
          reduce its exposure to the risk of fluctuating primary aluminum
          prices.

          The Company is exposed to energy price risk from fluctuating
          prices for fuel oil and natural gas consumed in the production
          process.  From time to time in the ordinary course of business,
          the Company enters into hedging transactions with major suppliers
          of energy and energy related financial instruments.  The Company
          also enters into foreign exchange contracts to hedge material
          cash commitments to foreign subsidiaries and affiliates.  No
          assurance can be given that the Company's hedging program will
          adequately reduce the Company's exposure to the risk from
          fluctuating prices for fuel oil, natural gas, and foreign
          currencies.

          Note 11 of Notes to Consolidated Financial Statements is
          incorporated herein by reference.  See also "Quantitative and
          Qualitative Disclosures about Market Risk," and Note 1 "-
          Derivative Financial Instruments" of Notes to Consolidated
          Financial Statements.

          -    Leverage
               --------

          The Company's ratio of consolidated indebtedness to consolidated
          net worth is greater than the comparable ratio of most of its
          North American competitors, who generally have greater financial
          resources than the Company.  Due to its highly leveraged
          condition, the Company is more sensitive than less leveraged
          companies to certain factors affecting its operations, including
          changes in the prices for its products, changes in interest
          rates, and general economic conditions.  See "Management's
          Discussion and Analysis of Financial Condition and Results of
          Operations - Financing Activities and Liquidity."

          -    Electric Power
               --------------

          The process of converting alumina into aluminum requires
          significant amounts of electric power, and the cost of electric
          power is an important production cost for the Company at its
          aluminum smelters.  A portion of the electric power used at the
          Mead and Tacoma, Washington, smelters, as well as the rolling
          mill at Trentwood, Washington, is purchased from the Bonneville
          Power Administration (the "BPA") under contracts which expire in
          September 2001, and a portion of such electric power is purchased
          from other suppliers.  The Company has long-term arrangements,
          expiring in 2015, with the BPA for the transmission of electric
          power by the BPA to those facilities.  The amount of electric
          power which may be provided by the BPA to the Company after the
          expiration of the contracts in 2001 is not yet determined;
          however, the Company believes that adequate electric power will
          be available at that time, from the BPA and other suppliers, for
          the operation of its facilities in Washington.  The electric
          power supplied to the Valco smelter in Ghana is produced by
          hydroelectric generators, and the delivery of electric power to
          the smelter is subject to interruption from time to time because
          of drought and other factors beyond the control of Valco.  Such
          power is supplied under an agreement with the VRA which expires
          in 2017.  The agreement indexes a portion of the price of power
          to the market price of primary aluminum and provides for a review
          and adjustment of the base power rate and the price index every
          five years.  Such a review is now underway together with
          discussions concerning the reliability of the long-term supply of
          power. Electric power for the Anglesey smelter in Wales is
          supplied under an agreement which expires in 2001.  The Company
          is working to address these power supply and power price issues;
          however, there can be no assurance that electric power at
          affordable prices will be available in the future for these
          smelters.  See "Management's Discussion and Analysis of Financial
          Condition and Results of Operations - Valco Operating Level."

          -    Labor Matters
               -------------

          The material under the heading "Labor Matters" at page 2 of this
          Report is incorporated herein by reference.

          In connection with the USWA strike and subsequent lock-out by the
          Company, certain allegations of unfair labor practices ("ULPs")
          have been filed with the National Labor Relations Board by the
          USWA and its members.  The Company has responded to all such
          allegations and believes that they are without merit.  If the
          allegations were sustained, the Company could be required to make
          locked-out employees whole for back wages from the date of the
          lock-out in January 1999.  While uncertainties are inherent in
          the final outcome of such matters, the Company believes that the
          resolution of the alleged ULPs should not result in a material
          adverse impact on the Company's consolidated financial position,
          results of operations, or liquidity.

          -    Environmental Contingencies and Asbestos Contingencies
               ------------------------------------------------------

          The Company and Kaiser are subject to a wide variety of
          international, federal, state and local environmental laws and
          regulations (the "Environmental Laws").  The Environmental Laws
          regulate, among other things, air and water emissions and
          discharges; the generation, storage, treatment, transportation,
          and disposal of solid and hazardous waste; the release of
          hazardous or toxic substances, pollutants and contaminants into
          the environment; and, in certain instances, the environmental
          condition of industrial property prior to transfer or sale.  In
          addition, the Company and Kaiser are subject to various federal,
          state, and local workplace health and safety laws and regulations
          ("Health Laws").

          From time to time, the Company is subject, with respect to its
          current and former operations, to fines or penalties assessed for
          alleged breaches of the Environmental and Health Laws and to
          claims and litigation brought by federal, state or local agencies
          and by private parties seeking remedial or other enforcement
          action under the Environmental and Health Laws or damages related
          to alleged injuries to health or to the environment, including
          claims with respect to certain waste disposal sites and the
          remediation of sites presently or formerly operated by the
          Company.  The Company currently is subject to certain lawsuits
          under the Comprehensive Environmental Response, Compensation and
          Liability Act of 1980, as amended by the Superfund Amendments and
          Reauthorization Act of 1986 ("CERCLA").  The Company, along with
          certain other entities, has been named as a Potentially
          Responsible Party ("PRP") for remedial costs at certain
          third-party sites listed on the National Priorities List under
          CERCLA and, in certain instances, may be exposed to joint and
          several liability for those costs or damages to natural
          resources.  The Company's Mead, Washington, facility has been
          listed on the National Priorities List under CERCLA.  The
          Washington State Department of Ecology has advised the Company
          that there are several options for remediation at the Mead
          facility that would be acceptable to the Department.  The Company
          expects that one of these remedial options will be agreed upon
          and incorporated into a Consent Decree.  In addition, in
          connection with certain of its asset sales, the Company has
          agreed to indemnify the purchasers with respect to certain
          liabilities (and associated expenses) resulting from acts or
          omissions arising prior to such dispositions, including
          environmental liabilities.

          Based on the Company's evaluation of these and other
          environmental matters, the Company has established environmental
          accruals, primarily related to potential solid waste disposal and
          soil and groundwater remediation matters.  At December 31, 1998,
          the balance of such accruals, which are primarily included in
          Long-term liabilities, was $50.7 million.  These environmental
          accruals represent the Company's estimate of costs reasonably
          expected to be incurred based on presently enacted laws and
          regulations, currently available facts, existing technology, and
          the Company's assessment of the likely remediation to be
          performed.  The Company expects remediation to occur over the
          next several years and estimates that annual expenditures to be
          charged to these environmental accruals will be approximately
          $3.0 million to $8.0 million per year for the years 1999 through
          2003 and an aggregate of approximately $29.0 million thereafter. 
          As additional facts are developed and definitive remediation
          plans and necessary regulatory approvals for implementation of
          remediation are established or alternative technologies are
          developed, changes in these and other factors may result in
          actual costs exceeding the current environmental accruals.  Cash
          expenditures of $3.5 million in 1998, $5.6 million in 1997, and
          $8.8 million in 1996 were charged to previously established
          accruals relating to environmental costs.  Approximately $4.5
          million is expected to be charged to such accruals in 1999.  In
          addition to cash expenditures charged to environmental accruals,
          environmental capital spending was $5.7 million in 1998, $6.8
          million in 1997, and $18.4 million in 1996.  Annual operating
          costs for pollution control, not including corporate overhead or
          depreciation, were approximately $34.3 million in 1998, $27.5
          million in 1997, and $30.1 million in 1996.  Legislative,
          regulatory and economic uncertainties make it difficult to
          project future spending for these purposes.  However, the Company
          currently anticipates that in the 1999-2000 period, environmental
          capital spending will be approximately $11.0 million per year,
          and operating costs for pollution control will be approximately
          $38.0 million per year.

          While uncertainties are inherent in the final outcome of these
          environmental matters, and it is presently impossible to
          determine the actual costs that ultimately may be incurred, the
          Company currently believes that the resolution of such
          uncertainties should not have a material adverse effect on the
          Company's consolidated financial position, results of operations,
          or liquidity.

          The Company is a defendant in a number of lawsuits, some of which
          involve claims of multiple persons, in which the plaintiffs
          allege that certain of their injuries were caused by, among other
          things, exposure to asbestos during, and as a result of, their
          employment or association with the Company or exposure to
          products containing asbestos produced or sold by the Company. 
          The lawsuits generally relate to products the Company has not
          manufactured for at least 20 years.  See "Management's Discussion
          and Analysis of Financial Condition and Results of Operations -
          Commitments and Contingencies."

          The portion of Note 10 of Notes to Consolidated Financial
          Statements under the headings "Environmental Contingencies" and
          "Asbestos Contingencies" is incorporated herein by reference.

          -    Year 2000 Disclosure Statement
               ------------------------------

          The Company utilizes software and related technologies throughout
          its business that will be affected by the date change to the year
          2000.  There may also be technology embedded in certain of the
          equipment owned or used by the Company that is susceptible to the
          year 2000 date change as well.  The Company has implemented a
          company-wide program to coordinate the year 2000 efforts of its
          individual business units and to track their progress.  The
          intent of the program is to make sure that critical items are
          identified on a sufficiently timely basis to assure that the
          necessary resources can be committed to address any material risk
          areas that could prevent the Company's systems and assets from
          being able to meet the Company's business needs and objectives. 
          In addition to addressing the Company's internal systems, the
          company-wide program involves identification of key suppliers,
          customers, and other third-party relationships that could be
          impacted by year 2000 issues.

          While the Company believes that its program is sufficient to
          identify the critical issues and associated costs necessary to
          address possible year 2000 problems in a timely manner, there can
          be no assurances that the program, or underlying steps
          implemented, will be successful in resolving all such issues by
          the Company's mid-1999 goal.  If the steps taken by the Company
          (or critical third parties) are not made in a timely manner, or
          are not successful in identifying and remediating all significant
          year 2000 issues, business interruptions or delays could occur
          and could have a material adverse impact on the Company's results
          and financial condition.  However, based on the information the
          Company has gathered to date and the Company's expectations of
          its ability to remediate problems encountered, the Company
          currently believes that no significant business interruptions
          that would have a material impact on the Company's results or
          financial condition will be encountered.  See "Management's
          Discussion and Analysis of Financial Condition and Results of
          Operations - Year 2000."

          -    Foreign Activities
               ------------------

          The Company's operations are located in several foreign
          countries, including Australia, Canada, Ghana, Jamaica, and the
          United Kingdom.  Foreign operations, in general, may be more
          vulnerable than domestic operations because of a variety of
          political or governmental actions and other factors which may,
          for example, disrupt or restrict operations and markets, impose
          taxes and levies, impose import or export restrictions, restrict
          the movement of funds, or impose limitations on foreign exchange
          transactions.  While the Company believes that its relationships
          with the governments of the countries in which it conducts
          operations directly or through joint ventures continue to be
          satisfactory, there can be no assurance as to the future
          influence of the foregoing factors.

          ITEM 2.   PROPERTIES

          The locations and general character of the principal plants,
          mines, and other materially important physical properties
          relating to the Company's operations are described in Item 1 "-
          Business Operations" and those descriptions are incorporated
          herein by reference.  The Company owns in fee or leases all the
          real estate and facilities used in connection with its business. 
          Plants and equipment and other facilities are generally in good
          condition and suitable for their intended uses, subject to
          changing environmental requirements.  Although the Company's
          domestic aluminum smelters and alumina facility were initially
          designed early in the Company's history, they have been modified
          frequently over the years to incorporate technological advances
          in order to improve efficiency, increase capacity, and achieve
          energy savings.  The Company believes that its plants are cost
          competitive on an international basis.

          The Company's obligations under the Credit Agreement entered into
          on February 15, 1994, as amended (the "Credit Agreement"), are
          secured by, among other things, mortgages on the Company's major
          domestic plants (other than the Gramercy alumina refinery and
          Nevada Micromill).  See Note 5 of Notes to Consolidated Financial
          Statements.

          ITEM 3.   LEGAL PROCEEDINGS

          This section contains statements which constitute "forward-
          looking statements" within the meaning of the Private Securities
          Litigation Reform Act of 1995.  See Item 1, above, for cautionary
          information with respect to such forward-looking statements.

          Hammons v. Alcan Aluminum Corp. et al

          On March 5, 1996, a class action complaint was filed against
          Kaiser, Alcan Aluminum Corp., Aluminum Company of America,
          Alumax, Inc, Reynolds Metal Company, and the Aluminum Association
          in the Superior Court of California for the County of Los
          Angeles, alleging that the defendants conspired, in violation of
          the California Cartwright Act (Bus. & Prof. Code Section16720 &
          16750), in conjunction with a Memorandum of Understanding ("MOU")
          entered into in 1994 by representatives of Australia, Canada, the
          European Union, Norway, the Russian Federation and the United
          States, to restrict the production of primary aluminum resulting
          in rises in prices for primary aluminum and aluminum products. 
          The complaint sought certification of a class consisting of
          persons who at any time between January 1, 1994, and the date of
          the complaint purchased aluminum or aluminum products
          manufactured by one or more of the defendants and estimated
          damages sustained by the class to be $4.4 billion during the year
          1994, before trebling.  On July 11, 1996, the United States
          District Court granted summary judgment in favor of Kaiser and
          other defendants and dismissed the complaint as to all
          defendants.  On July 18, 1996, the plaintiff filed a notice of
          appeal to the United States Court of Appeals for the Ninth
          Circuit.  On December 11, 1997, the United States Court of
          Appeals for the Ninth Circuit affirmed the decision of the
          District Court.  On December 23, 1997, the plaintiff filed a
          petition for rehearing en banc, which was denied May 4, 1998.  On
          August 12, 1998, the plaintiff filed a petition with the Supreme
          Court of the United States for a writ of certiorari, which
          petition was denied on October 19, 1998.  The plaintiff
          subsequently requested reconsideration of its petition which was
          also denied.

          Asbestos-related Litigation

          The Company is a defendant in a number of lawsuits, some of which
          involve claims of multiple persons, in which the plaintiffs
          allege that certain of their injuries were caused by, among other
          things, exposure to asbestos during, and as a result of, their
          employment or association with the Company or exposure to
          products containing asbestos produced or sold by the Company. 
          The lawsuits generally relate to products the Company has not
          manufactured for at least 20 years.  For additional information,
          see "Management's Discussion and Analysis of Financial Condition
          and Results of Operations - Commitments and Contingencies."  The
          portion of Note 10 of Notes to Consolidated Financial Statements
          under the heading "Asbestos Contingencies" is incorporated herein
          by reference.

          ITEM 3.   LEGAL PROCEEDINGS (CONTINUED)

          Labor Matters

          In connection with the USWA strike and subsequent lock-out by the
          Company, certain allegations of unfair labor practices ("ULPs")
          have been filed with the National Labor Relations Board by the
          USWA and its members.  The Company has responded to all such
          allegations and believes that they are without merit.  If the
          allegations were sustained, the Company could be required to make
          locked-out employees whole for back wages from the date of the
          lock-out in January 1999.  While uncertainties are inherent in
          the final outcome of such matters, the Company believes that the
          resolution of the alleged ULPs should not result in a material
          adverse impact on the Company's consolidated financial position,
          results of operations, or liquidity.

          Other Matters

          Various other lawsuits and claims are pending against the
          Company.  While uncertainties are inherent in the final outcome
          of such matters and it is presently impossible to determine the
          actual costs that ultimately may be incurred, management believes
          that the resolution of such uncertainties and the incurrence of
          such costs should not have a material adverse effect on the
          Company's consolidated financial position, results of operations,
          or liquidity.

          ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          No matter was submitted to a vote of security holders of the
          Company during the fourth quarter of 1998.

          PART II

          ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                    STOCKHOLDER MATTERS

          There is no established public trading market for the Company's
          common stock, which is held solely by Kaiser.  The information in
          Note 5 of Notes to Consolidated Financial Statements under the
          heading "Loan Covenants and Restrictions" at page 34 of
          this Report is incorporated herein by reference.  The Company 
          has not paid any dividends on its common stock during the two
          most recent fiscal years.

          The Indentures and the Credit Agreement (Exhibits 4.1 through
          4.28 to this Report) contain restrictions on the ability of the
          Company to pay dividends on or make distributions on account of
          the Company's common stock and restrictions on the ability of the
          Company's subsidiaries to transfer funds to the Company in the
          form of cash dividends, loans or advances.  Exhibits 4.1 through
          4.28 to this Report, Note 5 of Notes to Consolidated Financial
          Statements in this Report, and the information under the heading
          "Financing Activities and Liquidity" at page 21 of this Report,
          are incorporated herein by reference.

          ITEM 6.   SELECTED FINANCIAL DATA

          Selected financial data for the Company is incorporated herein by
          reference to the table at page 1 of this Report, to the table at
          pages 15 - 16 of this Report, to the discussion under the heading
          "Results of Operations" at pages 18 - 20 of this Report, to Note
          1 of Notes to Consolidated Financial Statements in this Report,
          and to pages 53 - 54 of this Report.

          ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

          The Company operates in all principal aspects of the aluminum
          industry through the following business segments: Bauxite and
          alumina, Primary aluminum, Flat-rolled products and Engineered
          products.  The Company uses a portion of its bauxite, alumina,
          and primary aluminum production for additional processing at
          certain of its downstream facilities.  Intersegment transfers are
          valued at estimated market prices.  The table below provides
          selected operational and financial information on a consolidated
          basis with respect to the Company for the years ended December
          31, 1998, 1997, and 1996.  This information is presented in a
          different format from that used in prior years as a result of the
          Company's adoption of Statement of Financial Accounting Standards
          No.131 as of December 31, 1998.  Prior year information has been
          restated to conform to the Company's new presentation format. The
          following data should be read in conjunction with the Company's
          consolidated financial statements and the notes thereto,
          contained elsewhere herein.  See Note 12 of Notes to Consolidated
          Financial Statements for further information regarding segments. 
          (All references to tons refer to metric tons of 2,204.6 pounds.)

          <TABLE>
          <CAPTION>
                                                                                  Year Ended December 31,
                                                                      ----------------------------------------------
          (In millions of dollars, except shipments and prices)                 1998            1997            1996
          ----------------------------------------------------------------------------------------------------------
          <S>                                                         <C>             <C>             <C>
          Shipments: (000 tons)
               Alumina
                    Third Party                                             2,250.0         1,929.8         2,073.7 
                    Intersegment                                              750.7           968.0           912.4 
                                                                      --------------  --------------  --------------
                         Total Alumina                                      3,000.7         2,897.8         2,986.1 
                                                                      --------------  --------------  --------------
               Primary Aluminum
                    Third Party                                               263.2           327.9           355.6 
                    Intersegment                                              162.8           164.2           128.3 
                                                                      --------------  --------------  --------------
                         Total Primary Aluminum                               426.0           492.1           483.9 
                                                                      --------------  --------------  --------------
               Flat-Rolled Products                                           235.6           247.9           204.8 
                                                                      --------------  --------------  --------------
               Engineered Products                                            169.4           152.1           122.3 
                                                                      --------------  --------------  --------------
          Average Realized Third Party Sales Price: (1)
               Alumina (per ton)                                      $         197   $         198   $         195 
               Primary Aluminum (per pound)                           $        0.71   $        0.75   $        0.69 
          Net Sales:
               Bauxite and Alumina
                    Third Party (includes net sales of bauxite)       $       472.7   $       411.7   $       431.0 
                    Intersegment                                              135.8           201.7           194.1 
                                                                      --------------  --------------  --------------
                         Total Bauxite & Alumina                              608.5           613.4           625.1 
                                                                      --------------  --------------  --------------
               Primary Aluminum
                    Third Party                                               409.8           543.4           538.3 
                    Intersegment                                              233.5           273.8           217.4 
                                                                      --------------  --------------  --------------
                         Total Primary Aluminum                               643.3           817.2           755.7 
                                                                      --------------  --------------  --------------
               Flat-Rolled Products                                           714.6           743.3           626.0 
               Engineered Products                                            581.3           581.0           504.4 
               Minority Interests                                              78.0            93.8            90.8 
               Eliminations                                                  (369.3)         (475.5)         (411.5)
                                                                      --------------  --------------  --------------
                         Total Net Sales                              $     2,256.4   $     2,373.2   $     2,190.5 
                                                                      ==============  ==============  ==============
          Operating Income (Loss):
               Bauxite & Alumina (2)                                  $        42.0   $        54.2   $        27.7 
               Primary Aluminum (2)                                            49.9           148.3            79.1 
               Flat-Rolled Products (2) (3)                                    70.8            28.2            35.3 
               Engineered Products (2) (3)                                     47.5            42.3            21.7 
               Micromill(TM) (4)                                              (63.4)          (24.5)          (14.5)
               Eliminations                                                     8.9            (5.9)            8.3 
               Corporate (3)                                                  (64.7)          (72.7)          (57.5)
                                                                      --------------  --------------  --------------
                         Total Operating Income                       $        91.0   $       169.9   $       100.1 
                                                                      ==============  ==============  ==============
          Net Income                                                  $         2.7   $        52.1   $        13.2 
                                                                      ==============  ==============  ==============
          Capital Expenditures                                        $        77.6   $       128.5   $       161.5 
                                                                      ==============  ==============  ==============

          </TABLE>

          (1)  Average realized prices for the Company's Flat-rolled
               products and Engineered products segments are not presented
               as such prices are subject to fluctuations due to changes in
               product mix.  Average realized third party sales prices for
               alumina and primary aluminum include the impact of hedging
               activities.
          (2)  Fourth quarter 1998 results for the Bauxite and alumina,
               Primary aluminum, Flat-rolled products and Engineered
               products segments included unfavorable strike-related
               impacts of approximately $10.0, $24.0, $13.0, and $3.0,
               respectively.
          (3)  Second quarter 1997 results included pre-tax charges of
               $2.6, $12.5 and $4.6 related to restructuring of operations
               for the Flat-rolled products, Engineered products and
               Corporate segments, respectively.
          (4)  Fourth quarter 1998 results included a non-cash charge of
               $45.0 related to impairment of the Company's Micromill
               assets.

          This section contains statements which constitute "forward-
          looking statements" within the meaning of the Private Securities
          Litigation Reform Act of 1995.  These statements appear in a
          number of places in this section (see "Overview," "Results of
          Operations," "Liquidity and Capital Resources" and "Other
          Matters").  Such statements can be identified by the use of
          forward-looking terminology such as "believes," "expects," "may,"
          "estimates," "will," "should," "plans" or "anticipates" or the
          negative thereof or other variations thereon or comparable
          terminology, or by discussions of strategy.  Readers are
          cautioned that any such forward-looking statements are not
          guarantees of future performance and involve significant risks
          and uncertainties, and that actual results may vary materially
          from those in the forward-looking statements as a result of
          various factors.  These factors include the effectiveness of
          management's strategies and decisions, general economic and
          business conditions, developments in technology, year 2000
          technology issues, new or modified statutory or regulatory
          requirements and changing prices and market conditions. No
          assurance can be given that these are all of the factors that
          could cause actual results to vary materially from the forward-
          looking statements.

          OVERVIEW

          Market-related Factors
          The Company's operating results are sensitive to changes in
          prices of alumina, primary aluminum, and fabricated aluminum
          products, and also depend to a significant degree on the volume
          and mix of all products sold and on the Company's hedging
          strategies.  Primary aluminum prices have historically been
          subject to significant cyclical price fluctuations.  See Notes 1
          and 11 of Notes to Consolidated Financial Statements for a
          discussion of the Company's hedging activities.

          During 1998, the Average Midwest United States transaction price
          ("AMT Price") per pound of primary aluminum experienced a steady
          decline during the year, beginning the year in the $.70 to $.75
          range and ending the year in the low $.60 range.  During 1997,
          the AMT Price remained in the $.75 to $.80 price range for the
          first eleven months before declining to the low $.70 range in
          December.  The AMT Price for 1996 remained fairly stable,
          generally in the $.70 to $.75 range, through June and then
          declined during the second half of the year, reaching a low of
          approximately $.65 per pound for October 1996, before recovering
          late in the year.

          Subsequent to December 31, 1998, the AMT Price has continued to
          decline.  At February 26, 1999, the AMT Price was approximately
          $.58.

          Labor Matters
          Substantially all of the Company's hourly workforce at the
          Gramercy, Louisiana, alumina refinery, Mead and Tacoma,
          Washington, aluminum smelters, Trentwood, Washington, rolling
          mill, and Newark, Ohio, extrusion facility were covered by a
          master labor agreement with the United Steelworkers of America
          (the "USWA") which expired on September 30, 1998.  The parties
          did not reach an agreement prior to the expiration of the master
          agreement and the USWA chose to strike.  As previously announced,
          in January 1999 the Company declined an offer by the USWA to have
          the striking workers return to work at the five plants without a
          new agreement.  The Company imposed a lock-out to support its
          bargaining position and continues to operate the plants with
          salaried employees and other workers as it has since the strike
          began.  Based on operating results to date, the Company believes
          that a significant business interruption will not occur.

          The Company and the USWA continue to communicate; however, no
          formal schedule for bargaining sessions has been developed at
          this time.  The objective of the Company has been, and continues
          to be, to negotiate a fair labor contract that is consistent with
          its business strategy and the commercial realities of the
          marketplace.

          As a result of the USWA strike, the Company temporarily curtailed
          three out of a total of eleven potlines at its Mead and Tacoma,
          Washington, aluminum smelters at September 30, 1998.  The
          curtailed potlines represent approximately 70,000 tons of annual
          production capacity out of a total combined production capacity
          of 273,000 tons per year at the facilities.  As previously
          announced, in February 1999, the Company began restarting the two
          curtailed potlines at its Mead smelter representing approximately
          50,000 tons of the previously idle capacity.  The Company has
          also announced that it has completed preparations to restart
          20,000 tons of idle capacity at its Tacoma smelter.  However, the
          timing for any restart of the Tacoma potline has yet to be
          determined and will depend upon market conditions and other
          factors.  Costs associated with the preparation and restart of
          the potlines at the Mead and Tacoma facilities are expected to
          adversely affect the Company's first quarter results.

          While the Company initially experienced an adverse strike-related
          impact on its profitability in the fourth quarter of 1998, the
          Company currently believes that its operations at the affected
          facilities have been substantially stabilized and will be able to
          run at, or near, full capacity, and that the incremental costs
          associated with operating the affected plants during the dispute
          were eliminated or substantially reduced as of January 1999
          (excluding the impacts of the restart costs discussed above and
          the effect of market factors such as the continued market-related
          curtailment at the Tacoma smelter).  However, no assurances can
          be given that the Company's efforts to run the plants on a
          sustained basis, without a significant business interruption or
          material adverse impact on the Company's operating results, will
          be successful.

          Strategic Initiatives
          The Company has previously disclosed that it set a goal of
          achieving $120.0 million of pre-tax cost reductions and other
          profit improvements, independent of metal price changes, with the
          full effect planned to be realized in 1998 and beyond, measured
          against 1996 results.  The Company believes that its operations
          had achieved the run rate necessary to meet this objective prior
          to the end of the third quarter of 1998, when the impact of such
          items as smelter operating levels, the USWA strike and foreign
          currency changes are excluded from the analysis.  Further, the
          Company believes that it has implemented the steps that will
          allow it to sustain the stated goal over the long term.  The
          Company remains committed to sustaining the full $120.0 million
          improvement and to generating additional profit improvements in
          future years; however, no assurances can be given that the
          Company will be successful in this regard.

          In addition to working to improve the performance of the
          Company's existing assets, the Company has devoted significant
          efforts analyzing its existing asset portfolio with the intent of
          focusing its efforts and capital in sectors of the industry that
          are considered most attractive, and in which the Company believes
          it is well positioned to capture value.  The initial steps of
          this process resulted in the June 1997 acquisition of the
          Bellwood extrusion facility, the May 1997 formation of AKW L.P.
          ("AKW"), a joint venture that designs, manufactures and sells
          heavy duty aluminum wheels, the rationalization of certain of the
          Company's engineered products operations and the Company's
          investment to expand its capacity for heat treat flat-rolled
          products at its Trentwood, Washington, rolling mill. The
          restructuring activities resulted in the Company recording a net
          pre-tax charge of $19.7 million in June 1997.  See Notes 3 and 4
          of Notes to Consolidated Financial Statements.

          The portfolio analysis process also resulted in the Company's
          fourth quarter 1998 decision to seek a strategic partner for
          further development and deployment of the Company's Micromill 
          technology.  While technological progress has been good,
          management concluded that additional time and investment would be
          required for success.  Given the Company's other strategic
          priorities, the Company believes that introducing added
          commercial and financial resources is the appropriate course of
          action for capturing the maximum long term value.  This change in
          strategic course required a different accounting treatment, and
          the Company correspondingly recorded a $45.0 million impairment
          charge to reduce the carrying value of the Micromill assets to
          approximately $25.0 million.

          Another area of emphasis has been a continuing focus on managing
          the Company's legacy liabilities.  One element of this process
          has been actively pursuing claims in respect of insurance
          coverage for certain incurred and future environmental costs. 
          During the fourth quarter of 1998, the Company received
          recoveries totalling approximately $35.0 million related to
          current and future claims against certain of its insurers. 
          Recoveries of $12.0 million were deemed to be allocable to
          previously accrued (expensed) items and were reflected in
          earnings during the fourth quarter of 1998.  The remaining
          recoveries were offset against increases in the total amount of
          environmental reserves.  No assurances can be given that the
          Company will be successful in other attempts to recover incurred
          or future costs from other insurers or that the amount of any
          recoveries received will ultimately be adequate to cover costs
          incurred.  See Note 10 of Notes to Consolidated Financial
          Statements.

          Additional portfolio analysis and initiatives are continuing.

          In early 1999, the Company's program to focus its efforts and
          capital in sectors of the industry which it considers to be the
          most attractive, and in which the Company believes it is well
          positioned to capture value, has resulted in an agreement to sell
          one joint venture interest and a separate agreement to purchase
          another.  As previously announced, in January 1999, the Company
          signed a letter of intent to sell its 50% interest in AKW to its
          joint venture partner. The transaction, which would result in the
          Company recognizing a substantial gain, is currently expected to
          close on or about March 31, 1999.  However, as the transaction is
          subject to negotiation of a definitive purchase agreement, no
          assurances can be given that this transaction will be
          consummated.  Also, in February 1999, as previously announced,
          the Company completed the acquisition of the remaining 45%
          interest in Kaiser LaRoche Hydrate Partners, an alumina marketing
          venture, from its joint venture partner for a cash purchase price
          of approximately $10.0 million.  See Note 14 of Notes to
          Consolidated Financial Statements.

          Valco Operating Level
          During most of 1998, the Company's 90%-owned Volta Aluminium
          Company Limited ("Valco") smelter in Ghana operated only one of
          its five potlines, as compared to 1997, when Valco operated four
          potlines.  Each of Valco's potlines produces approximately 40,000
          tons of primary aluminum per year.  Valco received compensation
          (in the form of energy credits to be utilized over the last half
          of 1998 and during 1999) from the Volta River Authority ("VRA")
          in lieu of the power necessary to run two of the potlines that
          were curtailed during 1998.  The compensation substantially
          mitigated the financial impact of the curtailment of such lines. 
          Valco did not receive any compensation from the VRA for one
          additional potline which was curtailed in January 1998.  Based on
          Valco's proposed 1999 power allocation from the VRA, Valco has
          announced that it expects to operate three lines during 1999. 
          The decision to operate at that level was based on the power
          allocation that Valco has received from the VRA as well as
          consideration of market and other factors.  As previously
          announced, Valco has notified the VRA that it believes it had the
          contractual rights at the beginning of 1998 to sufficient energy
          to run four and one-half potlines for the balance of the year. 
          Valco continues to seek compensation from the VRA with respect to
          the January 1998 reduction of its power allocation.  Valco and
          the VRA also are in continuing discussions concerning other
          matters, including steps that might be taken to reduce the
          likelihood of power curtailments in the future.  No assurances
          can be given as to the success of these discussions.

          RESULTS OF OPERATIONS

          1998 AS COMPARED TO 1997
          Summary - The Company reported net income of $2.7 million for
          1998 compared to net income of $52.1 million for 1997.  Net sales
          in 1998 totaled $2,256.4 million compared to $2,373.2 million in
          1997.

          Net income for 1998 included the effect of certain non-recurring
          items, including approximately $60.0 million of pre-tax
          incremental expense and the earnings impact of lost volume
          associated with a strike by members of the USWA (more fully
          discussed above), a $45.0 million pre-tax non-cash charge to
          reduce the carrying value of the Company's Micromill assets and
          an $8.3 million non-cash tax benefit resulting from the
          resolution of certain tax matters.  Net income for 1997 included
          the effect of two essentially offsetting non-recurring items: a
          $19.7 million pre-tax restructuring charge and an approximate
          $12.5 million non-cash tax benefit related to settlement of
          certain tax matters.

          Bauxite and Alumina - Third party net sales of alumina were up
          16% in 1998 as compared to 1997 primarily due to a 17% increase
          in third party shipments.  The increase in 1998 third party
          shipments (and offsetting decrease in 1998 intersegment
          shipments) resulted from reduced shipments to Valco, due to the
          production curtailment more fully discussed above and to a lesser
          extent, the fourth quarter strike-related curtailment of three
          potlines at the Company's Washington smelters.  The average
          realized price for third party alumina sales was down only
          slightly as the allocated net gains from the Company's hedging
          activities substantially offset the decline in market prices
          related to the Company's primary aluminum-linked customer sales
          contracts.  In addition to being impacted by the reduced
          shipments to Valco and the Washington smelters as discussed
          above, intersegment sales were adversely affected by a
          substantial market-related decline in intersegment average sales
          prices.

          Segment operating income was essentially unchanged, excluding the
          impact of the approximate $11.0 million of incremental strike-
          related costs.  The adverse impact of reduced intersegment
          realized prices was essentially offset by improved operating
          performance resulting from higher production as well as lower
          energy costs.

          Primary Aluminum - 1998 third party net sales of primary aluminum
          were down 25% as compared to 1997 primarily as a result of a 20%
          reduction in shipments, caused by the 1998 potline curtailments
          at Valco and the Washington smelters.  A 5% reduction in average
          realized third party sales prices between 1998 and 1997
          (reflecting lower market prices offset, in part, by allocated net
          gains from the Company's hedging activities), also adversely
          impacted third party net sales.  Intersegment net sales were down
          approximately 15% between 1998 and 1997.  While intersegment
          shipments were essentially unchanged from the prior year, average
          realized prices dropped by 14% reflecting lower market prices for
          primary aluminum.

          Segment operating income in 1998 was down significantly from
          1997.  The operating income impact of the Valco potline
          curtailments was partially mitigated by the compensation from the
          VRA for two of the three curtailed potlines.  In addition to the
          impact of the one uncompensated potline curtailment at Valco,
          1998 results were also negatively affected by the impact of the
          potline curtailments at the Company's Washington smelters,
          reduced average realized prices (primarily on intersegment
          sales), and an adverse strike-related impact of approximately
          $29.0 million.

          Flat-Rolled Products - Net sales of flat-rolled products
          decreased by 4% during 1998 as compared to 1997 as a 5% reduction
          in product shipments was modestly offset by the price impact of
          changes in product mix.  The mix of product shipments in 1998
          reflects a higher demand for heat treat products, primarily in
          the first half of the year, offset by reduced can sheet shipments
          and an increased level of tolling, all as compared to 1997.

          Segment operating income increased significantly in 1998
          primarily as a result of the increased demand for heat treat
          products in the first half of 1998 and improved operating
          efficiencies.  Segment results for 1998 were particularly strong
          in light of the unfavorable strike-related impact of
          approximately $16.0 million.  Segment results for 1997 included a
          non-cash charge recorded in the second quarter of 1997 in
          connection with restructuring activities.

          Engineered Products - Net sales of engineered products were
          relatively flat year to year.  An 11% increase in product
          shipments was effectively offset by market-related reductions in
          product prices as well as by the price impact of changes in
          product mix.  The increase in year-over-year shipments is in part
          due to the impact of the Company's ownership of the Bellwood
          extrusion facility in Richmond, Virginia, for all of 1998 versus
          only half of 1997.  This was, in part, offset by a decline in
          year-over-year sales, attributable to the AKW wheels joint
          venture formation in May 1997 and reduced shipments caused by
          labor difficulties at two major customers.

          Segment operating income declined by approximately 6% in 1998 as
          compared to 1997, excluding the 1997 pre-tax net charge related
          to restructuring of operations and approximately $4.0 million of
          adverse incremental strike-related impact in 1998, as a result of
          the market impact of the previously mentioned labor difficulties
          at two major customers and due to an overall softening in demand,
          particularly in the second half of the year.

          Eliminations - Eliminations of intersegment profit vary from
          period to period depending on fluctuations in market prices as
          well as the amount and timing of the affected segments'
          production and sales.

          Corporate and Other - Corporate operating expenses represent
          corporate general and administrative expenses which are not
          allocated to the Company's business segments.  Excluding the 1997
          pre-tax charge associated with the Company's restructuring of
          operations, corporate expenses were lower in 1998 than in 1997
          primarily as a result of lower consulting and other costs
          associated with the Company's ongoing profit improvement program
          and portfolio review initiatives.

          1997 AS COMPARED TO 1996
          Summary - The Company reported net income of $52.1 million for
          1997 compared to net income of $13.2 million for 1996.  Net
          income for 1997 included the effect of two essentially offsetting
          non-recurring items: a $19.7 million pre-tax restructuring and an
          approximate $12.5 million non-cash tax benefit related to
          settlement of certain tax matters.  Net sales in 1997 totaled
          $2,373.2 million compared to $2,190.5 million in 1996.

          Bauxite and Alumina - Third party net sales of alumina in 1997
          decreased by 4% as compared to 1996 as a 7% decline in third
          party shipments more than offset a 2% increase in average
          realized prices.  Third party shipment volumes were down as
          compared to 1996 as a result of the timing of shipments and a 6%
          increase in intersegment transfers, primarily due to the
          operation in 1997 of an additional one-half of a potline at Valco
          over the 1996 operating level.  Intersegment net sales increased
          by approximately 4% between 1996 and 1997 as a result of the
          previously mentioned increase in intersegment shipments offset by
          a 2% decline in intersegment prices.

          Segment operating income improved substantially in 1997 from
          1996, despite the reduced level of shipments and certain
          increased costs in part resulting from a slowdown at the
          Company's 49%-owned Kaiser Jamaica Bauxite Company, prior to the
          signing of a new labor contract in December 1997, primarily due
          to lower overall operating costs.

          Primary Aluminum - Third party net sales of primary aluminum were
          up only slightly in 1997 as compared to 1996 as a 9% increase in
          average realized prices was substantially offset by an 8% decline
          in third party shipments.  Intersegment net sales were up 26%
          year-over-year as a result of a 28% increase in intersegment
          shipments offset, in part by a 2% decline in intersegment prices. 
          The change in intersegment shipments of primary aluminum between
          1996 and 1997 was attributable to increased requirements of the
          flat-rolled and engineered products segments.

          Segment operating income improved significantly in 1997 from 1996
          as a result of the aforementioned volume and price effects as
          well as reduced power, raw material and supply costs and improved
          operating efficiencies.  Segment operating income for 1997 also
          included $10.3 million related to the settlement of certain
          energy service contract issues.

          Flat-Rolled Products - Net sales of flat-rolled products in 1997
          increased by 19% over 1996 levels as a 21% increase in product
          shipments was only slightly offset by the pricing impact of
          changes in product mix.  The increase in 1997 product shipments
          over 1996 was primarily the result of the increased international
          shipments of can sheet and increased shipments of heat treat
          products reflecting in part, increased aerospace demand.

          Segment operating income in 1997 declined as a result of a second
          quarter pre-tax charge related to restructuring of operations
          together with reduced profitability of international can sheet
          sales.

          Engineered Products - Net sales of engineered products increased
          15% year-to-year as a 24% increase in product shipments was
          partially offset by the price impact of changes in product mix.  
          The increase in 1997 shipments over 1996 levels was primarily the
          result of the Company's June 1997 acquisition of the Bellwood
          extrusion facility in Richmond, Virginia, offset, in part, by the
          formation of AKW in May 1997.

          Segment operating income improved substantially over 1996,
          despite a second quarter 1997 pre-tax net charge related to
          restructuring of operations, as a result of the aforementioned
          volume and product mix effects along with improved operating
          efficiencies.

          Eliminations - Eliminations of intersegment profit vary from
          period to period depending on fluctuations in market prices as
          well as the amount and timing of the affected segments'
          production and sales.

          Corporate and Other - Corporate operating results for 1997
          included a second quarter pre-tax charge associated with the
          Company's restructuring of operations.  Corporate operating
          expenses for the year ended December 31, 1997, also include
          consulting and other costs associated with the Company's ongoing
          profit improvement program and portfolio review initiatives.

          LIQUIDITY AND CAPITAL RESOURCES

          See Note 5 of Notes to Consolidated Financial Statements for a
          listing of the Company's indebtedness and information concerning
          certain restrictive debt covenants.

          Operating Activities
          Cash provided by operating activities was $171.2, $45.6 and $22.9
          million in 1998, 1997 and 1996, respectively.  The improvement in
          cash flows from operating activities between 1998 and 1997 was
          due primarily to a reduced investment in working capital
          (excluding cash), the receipt of $35.0 million of environmental
          insurance recoveries and the impact of current year results
          (excluding non-cash charges).  The improvement in cash flows from
          operating activities between 1996 and 1997 was primarily due to
          higher earnings resulting from increased product prices and
          increased sales of fabricated products partially offset by
          increased investment in working capital.

          Investing Activities
          Total consolidated capital expenditures were $77.6, $128.5 and
          $161.5 million in 1998, 1997 and 1996, respectively (of which
          $7.2, $6.6 and $7.4 million were funded by the minority partners
          in certain foreign joint ventures), and were made primarily to
          improve production efficiency, reduce operating costs, expand
          capacity at existing facilities and construct or acquire new
          facilities.  Total consolidated capital expenditures are
          currently expected to be between $70 and $90 million per annum in
          each of 1999 through 2001 (of which approximately 8% is expected
          to be funded by the Company's minority partners in certain
          foreign joint ventures).  Management continues to evaluate
          numerous projects, all of which would require substantial
          capital, both in the United States and overseas.  The level of
          capital expenditures may be adjusted from time to time depending
          on the Company's price outlook for primary aluminum and other
          products, the Company's ability to assure future cash flows
          through hedging or other means, the Company's financial position
          and other factors.

          A substantial portion of the increase in capital expenditures in
          1996 was attributable to the development and construction of the
          Company's proprietary Micromill technology for the production of
          can sheet and other sheet products from molten metal.  During
          1998, the Micromill facility, near Reno, Nevada, commenced
          product shipments to customers, but the amount of such shipments
          was nominal.  As previously announced, in order to attempt to
          capture the maximum long-term value and given other strategic
          priorities, the Company has decided to seek a strategic partner
          for the further development and deployment of the Micromill
          technology.  As more fully discussed in Note 3 of Notes to
          Consolidated Financial Statements, this change in strategic
          course required a different accounting treatment, and
          accordingly, the Company recorded a $45.0 million non-cash charge
          to reduce the carrying value of the Micromill assets.  There can
          be no assurances regarding whether the future development or
          deployment of the Micromill technology will be successful.

          Financing Activities and Liquidity
          The Company has a credit agreement (as amended, the "Credit
          Agreement") under which it is able to borrow by means of
          revolving credit advances and letters of credit (up to $125.0
          million) an aggregate amount equal to the lesser of $325.0
          million or a borrowing base relating to eligible accounts
          receivable and eligible inventory.  The Credit Agreement, which
          matures in August 2001, is guaranteed by Kaiser and by certain of
          the Company's significant subsidiaries.  The Credit Agreement
          requires the Company to comply with certain financial covenants,
          places significant restrictions on the Company and Kaiser, and is
          secured by a substantial majority of the Company's and Kaiser's
          assets.  The Credit Agreement does not permit the Company or
          Kaiser to pay any dividends on their common stock.  The Company's
          public indebtedness also includes various restrictions on the
          Company and its subsidiaries and repurchase obligations upon a
          Change of Control.

          As of December 31, 1998, the Company's total consolidated
          indebtedness was $963.0 million.  No amounts were outstanding
          under the revolving credit facility of the Credit Agreement.  The
          Company had $274.1 million of unused availability remaining under
          the Credit Agreement at February 28, 1999, after allowances of
          $50.9 million for outstanding letters of credit.

          Management believes that the Company's existing cash resources,
          together with cash flows from operations and borrowings under the
          Credit Agreement, will be sufficient to satisfy its working
          capital and capital expenditure requirements for the next year.
          With respect to long-term liquidity, management believes that
          operating cash flow, together with the ability to obtain both
          short and long-term financing, should provide sufficient funds to
          meet the Company's working capital and capital expenditure
          requirements.

          Commitments and Contingencies
          The Company is subject to a number of environmental laws, to
          fines or penalties assessed for alleged breaches of the
          environmental laws, and to claims and litigation based upon such
          laws.  The Company currently is subject to a number of lawsuits
          and, along with certain other entities, has been named as a
          potentially responsible party for remedial costs at certain
          third-party sites listed on the National Priorities List under
          CERCLA.  Based on the Company's current evaluation of these and
          other environmental matters, the Company has established
          environmental accruals of $50.7 million at December 31, 1998.

          The Company is also a defendant in a number of lawsuits, some of
          which involve claims of multiple persons, in which the plaintiffs
          allege that certain of their injuries were caused by, among other
          things, exposure to asbestos during, and as a result of, their
          employment or association with the Company or exposure to
          products containing asbestos produced or sold by the Company. The
          lawsuits generally relate to products the Company has not sold
          for at least 20 years.  Based on past experience and reasonably
          anticipated future activity, the Company has established a $186.2
          million accrual for estimated asbestos-related costs for claims
          filed and estimated to be filed through 2008, before
          consideration of insurance recoveries.  However, the Company
          believes that substantial recoveries from insurance carriers are
          probable.  The Company reached this conclusion based on prior
          insurance-related recoveries in respect of asbestos-related
          claims, existing insurance policies and the advice of outside
          counsel with respect to applicable insurance coverage law
          relating to the terms and conditions of these policies. 
          Accordingly, the Company has recorded an estimated aggregate
          insurance recovery of $152.5 million (determined on the same
          basis as the asbestos-related cost accrual) at December 31, 1998. 
          Although the Company has settled asbestos-related coverage
          matters with certain of its insurance carriers, other carriers
          have not yet agreed to settlements.  The timing and amount of
          future recoveries from these carriers will depend on the pace of
          claims review and processing by such carriers and on the
          resolution of any disputes regarding coverage under such policies
          that may arise.

          While uncertainties are inherent in the final outcome of these
          matters and it is presently impossible to determine the actual
          costs that ultimately may be incurred and insurance recoveries
          that ultimately may be received, management currently believes
          that the resolution of these uncertainties and the incurrence of
          related costs, net of any related insurance recoveries, should
          not have a material adverse effect on the Company's consolidated
          financial position, results of operations, or liquidity.

          In connection with the USWA strike and subsequent "lock-out" by
          the Company, certain allegations of unfair labor practices
          ("ULPs") have been filed with the National Labor Relations Board
          by the USWA and its members.  The Company has responded to all
          such allegations and believes that they are without merit.  If
          the allegations were sustained, the Company could be required to
          make locked-out employees whole for back wages from the date of
          the lock-out in January 1999.  While uncertainties are inherent
          in the final outcome of such matters, the Company believes that
          the resolution of the alleged ULPs should not result in a
          material adverse impact on the Company's financial position,
          results of operations, or liquidity.

          See Note 10 of Notes to Consolidated Financial Statements for a
          more detailed discussion of these contingencies and the factors
          affecting management's beliefs.  See also "Overview."

          OTHER MATTERS

          Year 2000 Readiness Disclosure
          The Company utilizes software and related technologies throughout
          its business that will be affected by the date change to the year
          2000.  There may also be technology embedded in certain of the
          equipment owned or used by the Company that is susceptible to the
          year 2000 date change as well.  The Company has implemented a
          company-wide program to coordinate the year 2000 efforts of its
          individual business units and to track their progress.  The
          intent of the program is to make sure that critical items are
          identified on a sufficiently timely basis to assure that the
          necessary resources can be committed to address any material risk
          areas that could prevent the Company's systems and assets from
          being able to meet the Company's business needs and objectives. 
          Year 2000 progress and readiness has also been the subject of the
          Company's normal, recurring internal audit function.

          Each of the Company's business units has developed, or is
          completing, year 2000 plans specifically tailored to their
          individual situations.  A wide range of solutions is being
          implemented, including modifying existing systems and, in limited
          cases where it is cost effective, purchasing new systems.  Total
          spending related to these projects, which began in 1997 and is
          expected to continue through 1999, is currently estimated to be
          in the $10-15 million range.  Approximately half of the year 2000
          expenditures are expected to be made during 1999.  System
          modification costs are being expensed as incurred.  Costs
          associated with new systems are being capitalized and will be
          amortized over the life of the product.  The Company has
          established an internal goal of having all necessary system
          changes in place and tested by mid-year 1999.  The Company plans
          to commit the necessary resources to meet this deadline.

          In addition to addressing the Company's internal systems, the
          company-wide program involves identification of key suppliers,
          customers, and other third-party relationships that could be
          impacted by year 2000 issues.  A general survey has been
          conducted of the Company's supplier and customer base.  Direct
          contact has been made, or is in progress, with parties which are
          deemed to be particularly critical including financial
          institutions, power suppliers, and customers, with which the
          Company has a material relationship.

          Each business unit, including the corporate group, is developing
          a contingency plan covering the steps that would be taken if a
          year 2000 problem were to occur despite the Company's best
          efforts to identify and remediate all critical at-risk items. 
          Each contingency plan will address, among other things, matters
          such as alternative suppliers for critical inputs, incremental
          standby labor requirements at the millennium to address any
          problems as they occur, and backup processing capabilities for
          critical equipment or processes.  The goal of the contingency
          plans will be to minimize any business interruptions and the
          associated financial implications.

          While the Company believes that its program is sufficient to
          identify the critical issues and associated costs necessary to
          address possible year 2000 problems in a timely manner, there can
          be no assurances that the program, or underlying steps
          implemented, will be successful in resolving all such issues by
          the Company's mid-1999 goal or prior to the year 2000.  If the
          steps taken by the Company (or critical third parties) are not
          made in a timely manner, or are not successful in identifying and
          remediating all significant year 2000 issues, business
          interruptions or delays could occur and could have a material
          adverse impact on the Company's results and financial condition. 
          However, based on the information the Company has gathered to
          date and the Company's expectations of its ability to remediate
          problems encountered, the Company currently believes that
          significant business interruptions that would have a material
          impact on the Company's results or financial condition will not
          be encountered.

          Recent Accounting Pronouncements
          The Company adopted Statement of Financial Accounting Standards
          No. 130, Reporting Comprehensive Income ("SFAS No. 130") as of
          January 1, 1998.  SFAS No. 130 requires the presentation of an
          additional income measure (termed "comprehensive income"), which
          adjusts traditional net income for certain items that previously
          were only reflected as direct charges to equity (such as minimum
          pension liabilities).

          Statement of Financial Accounting Standards No. 133, Accounting
          for Derivative Instruments and Hedging Activities ("SFAS No.
          133") was issued in June 1998 and requires companies to recognize
          all derivative instruments as assets or liabilities in the
          balance sheet and to measure those instruments at fair value. 
          SFAS No. 133 must be adopted by the Company no later than January
          1, 2000, although earlier application is permitted.  The Company
          is currently evaluating how and when to implement SFAS No. 133.

          Currently, the dollar amount of the Company's comprehensive
          income adjustments is not significant so there is not a
          significant difference between "traditional" net income and
          comprehensive income.  However, differences between comprehensive
          income and traditional net income may become significant in
          future periods as a result of SFAS No. 133.  As discussed more
          fully in Notes 1 and 11 of Notes to Consolidated Financial
          Statements, the intent of the Company's hedging program is to
          "lock-in" a price (or range of prices) for products sold/used so
          that earnings and cash flows are subject to reduced risk of
          volatility.  Under SFAS No. 133, the Company will be required to
          "mark-to-market" its hedging positions at each period end in
          advance of reflecting the physical transaction to which the hedge
          relates.  Pursuant to SFAS No. 130, the Company will reflect
          changes in the fair value of its open hedging positions as an
          increase or reduction in stockholders' equity through
          comprehensive income.  Under SFAS No. 130, the impact of the
          changes in fair value of financial instruments will reverse out
          of comprehensive income (net of any fluctuations in other "open"
          positions) and will be reflected in traditional net income when
          the subsequent physical transaction occurs.

          The combined effect of SFAS No's. 130 and 133 will result in
          fluctuations in comprehensive income and stockholders' equity in
          periods of price volatility, despite the fact that the Company's
          cash flow and earnings will be "fixed" to the extent hedged.  The
          amount of such fluctuations could be significant.

          Income Tax Matters
          The Company's net deferred income tax assets as of December 31,
          1998, were $376.5 million, net of valuation allowances of $107.7
          million.  The Company believes a long-term view of profitability
          is appropriate and has concluded that these net deferred income
          tax assets will more likely than not be realized. See Note 6 of
          Notes to Consolidated Financial Statements for a discussion of
          these and other income tax matters.

          ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                    RISK

          This section contains forward-looking statements that involve
          risk and uncertainties.  Actual results could differ materially
          from those projected in these forward-looking statements.

          As discussed more fully in Notes 1 and 11 of Notes to
          Consolidated Financial Statements, the Company utilizes hedging
          transactions to lock-in a specified price or range of prices for
          certain products which it sells or consumes and to mitigate the
          Company's exposure to changes in foreign currency exchange rates. 
          The following sets forth the impact on future earnings of adverse
          market changes related to the Company's hedging positions with
          respect to commodity and foreign exchange contracts described
          more fully in Note 11 of Notes to Consolidated Financial
          Statements.  The impact of market changes on energy derivative
          activities is generally not significant.

          Alumina and Primary Aluminum

          Alumina and primary aluminum production in excess of internal
          requirements is sold in domestic and international markets,
          exposing the Company to commodity price risks.  The Company's
          hedging transactions are intended to provide price risk
          management in respect of the net exposure of earnings resulting
          from (i) anticipated sales of alumina, primary aluminum and
          fabricated aluminum products, less (ii) expected purchases of
          certain items, such as aluminum scrap, rolling ingot, and
          bauxite, whose prices fluctuate with the price of primary
          aluminum.  On average, before consideration of hedging
          activities, any fixed price contracts with fabricated aluminum
          products customers, variation in production and shipment levels,
          and timing issues related to price changes the Company estimates
          that each $.01 increase (decrease) in the market price per price-
          equivalent pound of primary aluminum increases (decreases) the
          Company's annual pre-tax earnings by approximately $15 million.

          Based on the December 31, 1998 London Metal Exchange cash price
          for primary aluminum of approximately 56 cents per pound, the
          Company estimates that it would realize approximately $100
          million of net aggregate pre-tax benefits from its hedging
          positions and fixed price customer contracts during 1999 and
          2000.  The Company also estimates that a hypothetical 10 cent
          decrease from the above stated year-end 1998 price level would
          result in additional net aggregate pre-tax benefits of
          approximately $150 million being realized during 1999 and 2000
          related to the Company's hedging positions and fixed price
          customer contracts.  Both amounts are versus what the Company's
          results would have been without the derivative commodity
          contracts and fixed price customer contracts discussed above. 
          Conversely, the Company estimates that a hypothetical 10 cent
          increase from the above stated year-end 1998 price would result
          in a net aggregate reduction to pre-tax earnings of approximately
          $20 million being realized during 1999 and 2000 related to the
          Company's hedging positions and fixed price customer contracts. 
          It should be noted, however, that, since the hedging positions
          and fixed price customer contracts lock-in a specified price or
          range of prices, any increase or decrease in earnings
          attributable to the Company's hedging positions or fixed price
          customer contracts would be significantly offset by a decrease or
          increase in the value of the hedged transactions.

          The foregoing estimated earnings impact on 2000 excludes the
          possible effect on pre-tax income of Statement of Financial
          Accounting Standards No. 133, "Accounting for Derivative
          Instruments and Hedging Activities," which must be adopted by the
          Company as of January 1, 2000.  The foregoing estimate of a
          hypothetical 10 cent-per-pound increase in primary aluminum
          prices on the Company's hedging positions and fixed price
          customer contracts excludes the cash impact of possible margin
          deposit requirements.  The Company estimates that its cash
          exposure related to margin deposit requirements on such
          positions, if such a hypothetical price increase were to occur,
          would not have a material adverse impact on the Company's current
          liquidity or financial position.

          Foreign Currency

          The Company enters into forward exchange contracts to hedge
          material cash commitments for foreign currencies.  The Company's
          primary foreign exchange exposure is related to the Company's
          Australian Dollar (A$) commitments in respect of activities
          associated with its 28.3%-owned affiliate, Queensland Alumina
          Limited.  The Company estimates that, before consideration of any
          hedging activities, a US $0.01 increase (decrease) in the value
          of the A$ results in an approximate $1-2 million (decrease)
          increase in the Company's annual pre-tax earnings.

          At December 31, 1998, the Company held derivative foreign
          currency contracts hedging approximately 75% and 50% of its A$
          currency commitments for 1999 and 2000, respectively.  The
          Company estimates that a hypothetical 10% reduction in the A$
          exchange rate would result in the Company recognizing a net
          aggregate pre-tax cost of approximately $10-15 million during
          1999 and 2000 related to the Company's foreign currency hedging
          positions.  This cost is versus what the Company's results would
          have been without the Company's derivative foreign currency
          contracts.  It should be noted, however, that, since the hedging
          positions lock-in specified rates, any increase or decrease
          in earnings attributable to currency hedging instruments would be
          offset by a corresponding decrease or increase in the value of
          the hedged commitments.

          ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                                                                      Page
                                                                      ----

          Report of Independent Public Accountants................... 25

          Consolidated Balance Sheets................................ 26

          Statements of Consolidated Income (Loss)................... 27

          Statements of Consolidated Cash Flows...................... 28

          Notes to Consolidated Financial Statements................. 29

          Quarterly Financial Data (Unaudited)....................... 52

          Five-Year Financial Data................................... 53

          Financial statement schedules are inapplicable or the required
          information is included in the Consolidated Financial Statements 
          or the Notes thereto.