FORM 10Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549

                                    FORM 10Q



(X)  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the period ended                June 30, 1998                 

( )  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the transition period from                 to                 

     Commission File Number:                   1-8676                  


                              FANSTEEL INC.                           
             (Exact name of registrant as specified in its charter)


                 Delaware                                36-1058780   
      (State or other jurisdiction of                   (IRS Employer
       incorporation or organization)             Identification No.)


      Number One Tantalum Place, North Chicago, IL          60064     
        (Address of principal executive offices)          (Zip Code)

                               (847) 689-4900                         
              (Registrant's telephone number, including area code)


                                Not applicable                        
              (Former name, former address and former fiscal year,
                          if changed since last report)


     Indicate by check mark whether the registrant (1) has filed all
     reports required to be filed by Section 13 or 15(d) of the Securities
     Exchange Act of 1934 during the preceding 12 months (or for such
     shorter period that the registrant was required to file such reports),
     and (2) has been subject to such filing requirements for the past 90
     days.

                                             (X) Yes        ( ) No

                                 8,598,858                            
          (Number of shares of $2.50 par value common stock outstanding
                              as of June 30, 1998)


                         PART 1 - FINANCIAL INFORMATION                Form 10-Q
                          ITEM 1 - FINANCIAL STATEMENTS                   Page 2

                                  FANSTEEL INC.
                           CONSOLIDATED BALANCE SHEET  

                                                       June 30,    December 31,

                                                         1998          1997    
     ASSETS                                           (Unaudited)        *
     Current Assets
      Cash and cash equivalents (including
       securities purchased under agreement
       to resell of $9,993,000 in 1998
       and $6,750,000 in 1997)                       $11,778,467   $ 8,038,229
      Marketable securities                                    -     5,041,196
      Accounts receivable - net                       21,582,945    21,782,872
      Inventories
       Raw material and supplies                       4,166,698     3,815,376 
       Work-in-process                                16,295,547    15,306,393
       Finished goods                                  8,323,984     7,273,625
                                                      28,786,229    26,395,394
       Less reserve to state certain 
        inventories at LIFO cost                       6,931,677     6,931,677
          Total inventories                           21,854,552    19,463,717
      Other assets - current
       Deferred income taxes                           2,269,133     2,279,162
       Other                                           1,469,777     1,576,333
           Total current assets                       58,954,874    58,181,509
     Net Assets of Discontinued Operations             6,702,165     4,073,442
     Property, Plant and Equipment
      Land                                             1,311,631     1,421,641
      Buildings                                       11,128,139    10,802,718
      Machinery and equipment                         52,240,736    51,293,733
                                                      64,680,506    63,518,092
      Less accumulated depreciation                   49,538,412    48,853,529
        Net Property, Plant and Equipment             15,142,094    14,664,563
     Other Assets
      Prepaid pension asset                            7,827,723     7,493,212
      Property held for sale                           1,417,652     1,249,692
      Goodwill                                         3,013,124     3,128,276
      Other                                               56,341        41,721
        Total Other Assets                            12,314,840    11,912,901

     Total Assets                                    $93,113,973   $88,832,415




                 * - Derived from audited financial statements 

                (See Notes to Consolidated Financial Statements)


                         PART 1 - FINANCIAL INFORMATION                Form 10-Q
                          ITEM 1 - FINANCIAL STATEMENTS                   Page 3

                                  FANSTEEL INC.
                       CONSOLIDATED BALANCE SHEET   (Contd.)


                                                      June 30,     December 31,
                                                        1998          1997     
                                                     (Unaudited)         *

     LIABILITIES AND SHAREHOLDERS' EQUITY
     Current Liabilities
      Accounts payable                               $11,020,236   $10,678,303
      Accrued liabilities                             11,292,647    11,553,266
      Accrued income taxes                               688,711       501,745
      Current maturities of long-term debt               420,688       322,499
           Total current liabilities                  23,422,282    23,055,813
     Long-term Debt                                    2,126,685     1,599,962
     Other Liabilities

      Discontinued operations and environmental      
       remediation                                    16,300,000    16,900,000
      Deferred income taxes                              994,801       356,220
            Total other liabilities                   17,294,801    17,256,220
     Shareholders' Equity
      Preferred stock without par value
       Authorized and unissued 1,000,000 shares                -             -
      Common stock, par value $2.50
       Authorized 12,000,000 shares
       Issued and outstanding 8,598,858 shares        21,497,145    21,497,145
       Retained earnings                              28,773,060    25,423,275
         Total Shareholder's Equity                   50,270,205    46,920,420

     Total Liabilities and Shareholders' Equity      $93,113,973   $88,832,415

                 * - Derived from audited financial statements 

                (See Notes to Consolidated Financial Statements)

FANSTEEL INC.                                                          Form 10-Q
                        CONSOLIDATED STATEMENT OF INCOME                  Page 4
                                   (UNAUDITED)


                                             For the Three Months Ended 
                                                    June 30,       June 30,
                                                      1998           1997    

     Net sales                                    $ 39,643,710   $ 35,841,277

     Costs and expenses
      Cost of products sold                         32,761,600     29,196,317
      Selling, general and administrative            4,531,455      4,218,835

                                                    37,293,055     33,415,152


     Operating income                                2,350,655      2,426,125

     Other income (expense)
      Interest income on investments                   135,828        171,546
      Interest expense                                 (22,219)       (22,283)
      Other                                             98,833            935

                                                       212,442        150,198


     Income before income taxes                      2,563,097      2,576,323


     Income tax provision                              942,000      1,018,000


     Net income                                   $  1,621,097   $  1,558,323


     Weighted average number of common
      shares outstanding                             8,598,858      8,598,858



     Basic and diluted net income per share              $0.19          $0.18
      


     Dividends per common share                          $   -          $   -

                                                  






                (See Notes to Consolidated Financial Statements)


                         PART 1 - FINANCIAL INFORMATION                Form 10-Q
                          ITEM 1 - FINANCIAL STATEMENTS                   Page 5

                                  FANSTEEL INC.
                        CONSOLIDATED STATEMENT OF INCOME
                                   (UNAUDITED)

                                                     For the Six Months Ended  
                                                    June 30,       June 30,
                                                      1998           1997     

     Net sales                                    $ 79,433,195   $ 69,555,519

     Costs and expenses
      Cost of products sold                         65,365,087     56,883,651
      Selling, general and administrative            9,052,378      8,167,437 

                                                    74,417,465     65,051,088 


     Operating income                                5,015,730      4,504,431

     Other income (expense)
      Interest income on investments                   292,146        329,136
      Interest expense                                 (43,244)       (45,505)
      Other                                             64,153        (16,813)

                                                       313,055        266,818 

                                                                    
     Income before income taxes                      5,328,785      4,771,249


     Income tax provision                            1,979,000      1,878,000 

     Net income                                   $  3,349,785   $  2,893,249 


     Weighted average number of common
      shares outstanding                             8,598,858      8,598,858 



     Basic and diluted net income per share              $0.39          $0.34
      


     Dividends per common share                          $   -          $   -






                (See Notes to Consolidated Financial Statements)

                         PART 1 - FINANCIAL INFORMATION                Form 10-Q
                          ITEM 1 - FINANCIAL STATEMENTS                   Page 6

                                  FANSTEEL INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)  

FOR THE SIX MONTHS ENDED JUNE 30,
                                                      1998           1997   

                                                       Increase (decrease) in   
                                                     cash and cash equivalents  
     Cash flows from operating activities:        

      Net income                                  $ 3,349,785    $ 2,893,249

      Adjustments to reconcile net income to net
       cash provided by operating activities:
        Depreciation and amortization               1,116,532      1,109,895
        Net pension (credit) charge                  (334,511)        70,636
        Deferred income tax charge                    648,610        456,748
        Gain from disposals of property, plant,   
          and equipment                              (136,527)             -
       Changes in assets and liabilities:
        Decrease in marketable securities              41,196        126,933    
        Decrease (increase) in accounts           
          receivable                                  199,927     (1,322,634)   
        (Increase) in inventories                  (2,390,835)    (1,149,599)
        Decrease (increase) in other assets-      
          current                                     106,556       (187,486)
        (Decrease) in accounts payable & accruals    (518,686)      (100,617)
        Increase in income taxes payable              186,966         79,163
        (Increase) in other assets                   (182,580)       (59,714) 
       Net cash provided by operating activities    2,086,433      1,916,574

     Cash flows from investing activities:
       Additions to property, plant and equipment  (1,588,921)      (523,054)
       Increase in net assets of discontinued
         operations-design, engineering and       
            equipment for processing plant         (2,628,723)      (216,845)
       Proceeds from disposition of marketable
        securities - current                        5,000,000      5,000,000
       Proceeds from sale of property, plant and                   
           equipment                                  246,537              -
      Net cash provided by investing activities     1,028,893      4,260,101
                                                   
     Cash flows from financing activities:          
       Proceeds from long-term debt                   828,774        143,404
       Payments of long-term debt                    (203,862)      (202,103)
       Principal payments for capital leases                -         (8,638)
      Net cash provided by (used in) financing    
          activities                                  624,912        (67,337)
                                                                  
     Net increase in cash and cash equivalents      3,740,238      6,109,338

     Cash and cash equivalents at beginning of     
      period                                        8,038,229      3,588,290 

     Cash and cash equivalents at June 30         $11,778,467    $ 9,697,628

                (See Notes to Consolidated Financial Statements)

PART 1 - FINANCIAL INFORMATION                                         Form 10-Q
                          ITEM 1 - FINANCIAL STATEMENTS                   Page 7

FANSTEEL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Consolidated Financial Statements

  The consolidated balance sheet at June 30, 1998, and the consolidated
statements of income for the three months and six months ended June 30, 1998 and
1997, and the consolidated statements of cash flows for the six months ended
June 30, 1998 and 1997, are unaudited, but include all adjustments (consisting
only of normal and recurring accruals) which the Company considers necessary for
fair presentation.

  The accompanying consolidated financial statements do not include all
disclosures normally provided in annual financial statements and, therefore,
should be read in conjunction with the year-end financial statements.

 The Company determines its securities to be "held-to-maturity" or "available-
for-sale" securities, depending upon the applicable security.  Marketable
securities with a maturity date of one year or less are classified as current,
and over one year maturity date are classified as non-current on the balance
sheet. As of June 30, 1998, the Company had no marketable securities.  

 The Company increased its line of credit in the first quarter of 1997 by adding
a $17 million revolving credit agreement, which expires in January, 2000, to its
existing lines of credit. The credit lines are currently being used for letters
of credit needed for funding assurance related to environmental issues,
insurance policies, and development loans. Total unused lines of credit,
including the revolving credit agreement, were $12.1 million as of June 30,
1998.

 The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. 
Actual results could differ from those estimates.

 As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, adoption of this Statement has no impact on net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on available-for-sale
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive income. For the three months and six months ended June 30, 1998
and 1997, total comprehensive income was equal to net income.

 In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information, which
changes the reporting requirements for segment information in annual financial
statements and also requires selected segment information in interim reports to
shareholders. The statement is effective for financial statements for years
beginning after December 15, 1997.  The Company has not determined the impact,
if any, on its statements. 


                         PART 1 - FINANCIAL INFORMATION                Form 10-Q
                          ITEM 1 - FINANCIAL STATEMENTS                   Page 8

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
                                   (UNAUDITED)

Business Segment Information

  The Company is engaged in the manufacture of specialty metal products, which
it classifies into two business segments:  Industrial Tools and Metal

Fabrications.  Net sales and operating income for the second quarter and six
months ended June 30, 1998 and 1997 for each of the Company's business segments
are summarized below:

                          Second Quarter                Six Months       
                             1998          1997          1998          1997   

   Net Sales:                                        

Industrial Tools 

     Sales               $15,102,758   $14,204,615   $30,455,788   $27,555,445
     Intersegment sales         (579)            -        (4,807)            -
                          15,102,179    14,204,615    30,450,981    27,555,445

Metal Fabrications 

     Sales                24,545,312    21,668,621    48,994,984    42,057,543
     Intersegment sales       (3,781)      (31,959)      (12,770)      (57,469)
                          24,541,531    21,636,662    48,982,214    42,000,074

                         $39,643,710   $35,841,277   $79,433,195   $69,555,519

   Operating Income:                                 

    Industrial Tools     $   958,223   $   989,400   $ 2,102,592   $ 1,814,785

    Metal Fabrications     1,403,892     1,453,184     2,940,368     2,717,115

    Corporate                (11,460)      (16,459)      (27,230)      (27,469)

                         $ 2,350,655   $ 2,426,125   $ 5,015,730   $ 4,504,431




                  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS        Form 10-Q
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          Page 9


 The following Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which can be
identified by the use of forward-looking terminology such as "believes",
"expects", "prospects", "estimated", "should", "may" or the negative thereof or
other variations thereon or comparable terminology indicating the Company's
expectations or beliefs concerning future events. The Company cautions that such
statements are qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, a number of
which are identified in the discussion which follows. Other factors could also
cause actual results to differ materially from expected results included in
these statements.

Quarter Ended June 30, 1998 Compared to Quarter Ended June 30, 1997

 Net sales for the quarter ended June 30, 1998 of $39,644,000 increased
$3,803,000, or 10.6%, from the second quarter, 1997 net sales of $35,841,000.

 Industrial Tools business segment net sales for the second quarter of 1998 were
$15,102,000 compared to $14,205,000 for the same period of 1997, an increase of
$897,000, or 6.3%. The tungsten carbide cutting tools product line provided most
of this increase, primarily in sales of rotary tools, as recent equipment
investments resulted in expanded production capacity.  Construction tool sales
experienced its strongest quarterly sales in the last two years, as demand
increased overall due to the addition of new tool designs, the efforts of an

increased marketing staff, and a higher level of investment into conventional
marketing strategies. Compared to the second quarter of 1997, coal mining tool
sales improved in the current quarter as order activity was strong from the
mines in the Midwest. Sales of wear parts declined in the second quarter of 1998
compared to the second quarter sales of 1997 primarily due to a slowdown in the
oil drilling and die markets. 

  Metal Fabrications business segment net sales for the quarter ended June 30,
1998 were $24,542,000, an increase of $2,905,000, or 13.4%, from the second
quarter, 1997 net sales of $21,637,000. Sales of machined aircraft parts, which
were added to our product offerings with the September 30, 1997 acquisition of
Schulz Products Inc., contributed over a third of the total increase, but the
operation represents less than 5% of the total segment sales. Forging sales
increased 12.5% over the second quarter of 1997 based on the continuing strength
of the commercial aircraft market. Sales of magnesium and aluminum sand casting
products also increased in the second quarter of 1998, due to the strength of
the commercial aircraft market. The mix of production castings sold versus new
casting tooling sold also improved. Investment castings revenues posted strong
sales gains over the second quarter of 1997, due to increased customer demand,
particularly in the medium-duty truck market. After recording its highest ever
quarterly sales in the first quarter of 1998, wire formed products exceeded that
record in the second quarter of 1998. Sales to the lawn and garden equipment
market, which is the largest market served by the wire formed products line, are
historically the highest in the first quarter, as shipments generally decline in
the following quarters due to the seasonal nature of the industry. However,
demand for wire formed products from this industry continued to be strong into
the second quarter of 1998. Increased demand from a more diversified customer
base also impacted sales of this product line. Sales of powdered metal
components decreased from the second quarter of 1997, as key customers
experienced capacity problems which caused them to reduce inventory inputs. 


                  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS        Form 10-Q
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS         Page 10

  The Company's operating income for the quarter ended June 30, 1998 of 
$2,351,000 decreased $75,000, or 3.1%, from second quarter, 1997 operating
income of $2,426,000. As a percentage of net sales, operating income in the
second quarter of 1998 decreased to 5.9% from 6.8% in the second quarter of
1997.  

  Industrial Tools business segment operating income for the second quarter of
1998 was $958,000 compared to $989,000 for the same period of 1997, a decrease
of $31,000, or 3.1%. As a percentage of net sales, operating income was 6.3% for
the second quarter of 1998 compared to 7.0% for the same period last year. 
Increases in labor, manufacturing overhead, and selling expenses offset the
profits from the higher sales volume. The largest increase was in manufacturing
overhead, of which a substantial portion relates to facility expansion. As a
percentage of sales, material and outside processing costs declined.

   Operating income for the Metal Fabrications business segment for the second
quarter of 1998 was $1,404,000, compared to $1,453,000 for the same period of
1997, a decrease of $49,000, or 3.4%.  As a percentage of net sales, operating
income was 5.7% for the second quarter of 1998 compared to 6.7% in the same
period last year. Despite the higher sales volume, operating income as a
percentage of sales was lower as a result of production inefficiencies.
Production flows were hindered at the Company's forging operation as the steam
delivery system was not able to meet current capacity requirements. The steam
delivery system is being upgraded and replaced concurrently with a new system
that is scheduled to be fully operational during the latter part of the third
quarter. In addition, the Company's investment casting facility experienced a
degree of inefficiency caused by ramping up production quickly to meet
escalating sales and the need to maintain on-time deliveries. The Company is
exploring methods of providing the operation with capacity expansion relatively
quickly. 

  Other income for the second quarter of 1998 was $212,000, an increase of
$62,000 from 1997 other income of $150,000. Nonrecurring gains of $137,000 were
recorded during the second quarter of 1998, which included the sale of excess,
unused land. Interest earned on marketable securities decreased $36,000 from the
second quarter of 1997 as less cash was available for investment since the
September 30, 1997 acquisition of Schulz Products.  

  Net income for the quarter ended June 30, 1998 was $1,621,000 or $.19 per
share compared to $1,558,000 or $.18 per share for the same period of 1997, an
increase of $63,000, or 4.0%. Net income as a percentage of net sales for the
second quarter of 1998 was 4.1% compared to 4.3% for the second quarter of 1997.
Net income benefited from a lower tax rate in the second quarter of 1998 related
to state income tax valuation allowance reduction.


Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997

  Net sales for the first six months of 1998 were $79,433,000 compared to
$69,556,000 for the same period in 1997, an increase of $9,877,000, or 14.2%.

  Net sales for the Industrial Tools business segment for the first six months
of 1998 were $30,451,000, an increase of $2,896,000, or 10.5%, from net sales of
$27,555,000 for the same period of 1997. Increased shipments of rotary tools,
classified within the tungsten carbide cutting tools product line, were the
primary reason for the improvement in this business segment. Production capacity
increases from 1997 equipment investments have allowed for the improvement in
sales over the prior year. Insert sales also showed improvement within the
cutting tool product line, as customers placed higher emphasis on 
                  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS        Form 10-Q
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS         Page 11

special orders. Construction tool sales for the first half of 1998 improved over
the prior year as demand for the new pyramid-tipped construction tool was
greater than anticipated and the investments into marketing staff and
conventional marketing strategies started to materialize. In addition,
construction tool shipments for the first half of 1998 included sales for a
municipality contract which did not begin until the second quarter of 1997.
Compared to the first six months of 1997, coal mining tool sales improved as
order activity for existing tool designs increased from the mines in the
Midwest. Sales of wear parts declined in the first six months of 1998 compared
to 1997 primarily due to a slowdown in the oil drilling and die markets. 

  Metal Fabrications business segment net sales for the first six months of 1998
were $48,982,000 compared to $42,000,000 for the first half of 1997, an increase
of $6,982,000, or 16.6%. Machined aircraft components, produced by Schulz
Products Inc. which was acquired September 30, 1997, were responsible for nearly
a third of this increase. Sales of forgings were up 23.4% from the prior year
due to the continued strength of the commercial aircraft market.  Also
increasing on the strength of the commercial aircraft market were sales of
magnesium and aluminum sand casting products which increased 4.4% over the prior
year. The increase in sand casting products was not as large as other aerospace-
related product lines due to the decrease in new casting tooling sales. The mix
of sales shifted to production castings, which increased 15.1%. Investment
casting revenues grew 6.3% over the prior year, based largely on the increased
demand for engine components used in the medium-duty truck industry. Wire formed
products reported its two strongest quarters ever, resulting in a 12.5% increase
over last year. Demand for wire formed products was especially strong in the
lawn and garden equipment industry. Sales of powdered metal components increased
2.1% over the first six months of 1997, partially as a result of increased
production capacity made available through 1997 capital investments.

  The Company's operating income of $5,016,000 for the six months ended June 30,
1998 increased by $512,000, or 11.4%, from operating income of $4,504,000 for
the first six months of 1997. As a percentage of net sales, operating income for
the first half of 1998 decreased to 6.3% from 6.5% in the first half of 1997. 

  Industrial Tools business segment operating income for the first six months of

1998 was $2,103,000, compared to $1,815,000 for the same period of 1997, an 
increase of $288,000, or 15.9%. As a percentage of net sales, operating income
was 6.9% for the first half of 1998 compared to 6.6% in the same period of the
prior year. Operating income increased in relation to the higher sales volume.
As a percentage of net sales, operating income was positively impacted by lower
material and outside processing costs, offset partially by higher labor and
overhead costs. Selling, general and administrative expenses remained the same
as a percent of net sales compared to the first six months of 1997.

  Metal Fabrications business segment operating income for the first half of
1998 was $2,940,000, compared to $2,717,000 for the same period of 1997, an
increase of $223,000, or 8.2%. Operating income increased in relation to the
higher sales volume. As a percentage of net sales, operating income was 6.0% for
the six months ended June 30, 1998 compared to 6.5% for the same period last
year. Operating income as a percentage of sales was negatively impacted by the
second quarter production inefficiencies at the forging facility and investment
casting facility. Operating income as a percentage of sales was positively
impacted by reduced selling, general, and administrative expenses for the six
months ended June 30, 1998 compared to the same period of the prior year. 

                  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS        Form 10-Q
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS         Page 12

  Other income for the first half of 1998 was $313,000, an increase of $46,000
from other income of $267,000 for the first half of 1997. Nonrecurring gains
increased $137,000 during the first half of 1998 compared to the same period of
1997 as a result of the sale of excess, unused land. Interest earned on
marketable securities decreased $37,000 from the prior first six months as less
cash was available for investment since the September 30, 1997 acquisition of
Schulz Products.  

  Net income for the six months ended June 30, 1998 was $3,350,000 or $.39 per
share compared to $2,893,000, or $.34 per share, for the same period of 1997, an
increase of $457,000, or 15.8%. Net income as a percentage of net sales at 4.2%
for the first half of 1998 remained the same as the same period of the prior
year. 

  Order backlog at June 30, 1998 was $60,151,000 compared to $52,069,000 at June
30, 1997, an increase of $8,082,000, or 15.5%, with most of the increase coming
from the aircraft market within the Metal Fabrications business segment. Schulz
Products, acquired on September 30, 1997 and classified under Metal
Fabrications, contributed $1,165,000 to the backlog for machined aircraft
components. Industrial Tools business segment backlog at $7,116,000 at June 30,
1998 remained nearly the same compared to June 30, 1997, increasing $40,000 or
0.6%.  Within the tungsten carbide cutting tool product line, backlog for rotary
tools and inserts increased as customer demand for these products remained
strong. These increases were offset by lower backlogs for carbide wear parts,
construction tools and mining tools. Wear parts backlog decreased due to a
decline in orders for other die parts and drilling compacts. While the
construction tools backlog decreased, the change in the backlog is not a key
indicator of construction tool business as the majority of sales are from
finished stock. Coal mining tools backlog decreased from June 30, 1997 partially
due to the inclement weather in the eastern part of the United States during the
first quarter of 1998. Metal Fabrications business segment backlog at June 30,
1998 was $53,035,000, an increase of $8,042,000, or 17.9%, from June 30, 1997.
The forgings and sand casting products backlogs increased $1,155,000 and
$3,889,000, respectively, from June 30, 1997 based on the strength of the
aerospace market. Orders received for investment castings were strong during the
second quarter, resulting in a 41.4% increase in the ending backlog over the
prior year. The wire forming backlog improved as order activity was strong in
1998, but tapered off during the second quarter which is indicative of the lawn
and garden season slowing. The powdered metal backlog increased from June 30,
1997, as order activity improved in the second quarter of 1998. 

  Inflation factors did not, and generally do not, significantly affect the
overall operations of the Company.


Outlook

  A continued high level of activity in the commercial aircraft market, combined
with steady demand from other markets served such as automotive, lawn and
garden, metalworking, oil drilling and military ordnance, is key in continuing
operating profitability. The strong commercial aircraft market is expected to
continue for the near term based on the numerous orders received to date for
forgings and sand castings. Long-term prospects will depend on a steady build
rate of new aircraft and sales of spare parts for the planes now being built.
Improvements in the Company's production processes, new product development, and
investment in capital equipment, directed primarily at commercial markets,
should increase opportunities for growth. The Company is seeking increased share
of current markets, as well as new markets, through 
                  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS        Form 10-Q
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS         Page 13


investment in current operating units and acquisitions. The Company has
utilized, and is constantly seeking, funding assistance on favorable terms from
states and municipalities for expansion of production capabilities. Cost control
programs remain active in all operating plans throughout the Company. 


Liquidity and Capital Resources  

 Cash and cash equivalents amounted to $11,778,000 at June 30, 1998, an increase
of $3,740,000 from December 31, 1997. Investing activities provided $1,029,000
as a $5,000,000 marketable security matured and was reinvested in interest-
bearing cash equivalents. Investments in plant and equipment at operating
locations totaled $1,589,000, in accordance with management's program to expand
the operations of the Company. Design, engineering, and equipment costs of
$2,629,000 were incurred for the processing plant being built for reclamation
and decommissioning purposes in Muskogee, Oklahoma. Proceeds from the sale of
property, plant, and equipment provided $247,000. Working capital needs were
greater due to higher sales and production volumes resulting in an inventory
increase of $2,391,000. Inventory turns have improved compared to prior periods.
Cash flows from financing activities provided $625,000, with $829,000 received
from the state of Pennsylvania for low-interest development loans for expansion
at the Company's two Pennsylvania facilities. Debt payments were $204,000. 
 
  In the fourth quarter of 1995, the Company announced the suspension of the
quarterly shareholder dividend for the purpose of conserving cash for capital
reinvestment, possible future acquisitions, and due to potential changes in
funding requirements for decommissioning at the Company's discontinued operation
in Muskogee, Oklahoma.

  Cash, cash equivalents and marketable securities on hand have been sufficient
to date to meet the demands of increased working capital investments,
expenditures for machinery and equipment, environmental costs and other normal
operating requirements. However, in anticipation of Company programs to expand
current operations, possible future acquisitions, and reclamation and
decommissioning costs for the Muskogee, Oklahoma plant, the Company increased
its line of credit in the first quarter of 1997 by adding a $17 million
revolving credit agreement, which expires in January, 2000, to its existing
lines of credit. The credit lines are currently being used for letters of credit
needed for funding assurance related to environmental issues, insurance
policies, and development loans. Total unused lines of credit, including the
revolving credit agreement, were $12.1 million as of June 30, 1998.

  Funding assistance by states and municipalities is investigated when any
significant expenditures are proposed. All of the Company's debt is related to
development loans obtained from various states. In February 1998, the Company
received proceeds from the state of Pennsylvania for the expansion of the
powdered metal components facility. In April 1998, the Company closed on a
development loan of $1,100,000 from the state of Pennsylvania to fund expansion

of an Industrial Tools facility. Funds of $704,000 were received in the second
quarter for this loan.

 On April 30, 1998 the Company's marketable securities, classified as held-to-
maturity and invested in a U.S. Treasury Note, matured. Proceeds from this
security were $5,000,000, which were reinvested in interest-bearing cash
equivalents.



                  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS        Form 10-Q
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS        Page 14 

Environmental Remediation and Discontinued Operations

 The Company discontinued its Metal Products business segment in 1989.
Environmental reclamation and decommissioning is required for the segment's
primary plant that processed certain ores which are subject to regulations of
several government agencies. The residues from these processed ores were stored
on site. Remaining assets were written down to estimated realizable value, and
provisions were made for the estimated costs for decommissioning. The Company,
in association with outside consultants, has developed a decommissioning plan 
for the site involved, and has submitted that plan and a related decommissioning
funding plan to the Nuclear Regulatory Commission (NRC) as required by law.

 Prior to decommissioning, the Company will construct and operate for
approximately ten years a commercial plant to complete the processing of
residues currently contained in storage ponds at the site, which will materially
reduce the amount of radioactive materials to be disposed of during
decommissioning. In conjunction with construction of the processing plant, the
Company will modify the wastewater treatment plant at the site and install a
drainage system. Decommissioning would include construction of an engineered on-
site cell for containment of contaminated soils; consolidation and stabilization
of the contaminated soils in the containment cell; and the performance of
required plant surveys and characterizations after residue processing ceases to
determine whether additional contaminated soils exist which may require
remediation.

  The Company has received an amendment to its current NRC license and a
revision to its current wastewater discharge permit to allow for the
construction and operation of the processing plant. Construction has begun on
the processing plant which, when completed, will extract commercially valuable
materials such as tantalum, columbium, scandium and other rare earth and rare
metal elements from the feedstock residues. The estimated cost of construction
is approximately $12 million. Residue processing is expected to start in the
first quarter of 1999. 

  At June 30, 1998 and 1997, the Company had recorded liabilities of $10.4
million and $3.9 million, respectively, for discontinued operations including
the estimated net costs of reclaiming and decommissioning the site during and
after approximately ten years of processing the residues described above. An
additional provision for discontinued operations of $7,100,000 was recorded in
the fourth quarter of 1997 to increase the established liabilities for the
estimated cost of additional studies which may be required by regulatory
agencies, higher start-up costs, and potentially greater disposal costs after
completion of the residue processing period, as well as for cost estimates
related to probable future environmental remediation at a second site which had
been part of the Metal Products business segment. The second site is regulated
under the Resource Conservation and Recovery Act and, as a result of alleged
migration of contaminants from this second site, the Company also has been
identified as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) at a neighboring
third-party site.

  The estimated net costs of reclaiming and decommissioning the site during the
residue processing period include estimated annual revenues of approximately $8

million per year over the ten year processing period and estimated annual
operating costs, including depreciation, of approximately the same amount,
related to residue processing. The estimated value of materials to be extracted
is based on analysis of samples taken from the residues and a valuation of such
materials using current market prices discounted to reflect possible price
                  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS        Form 10-Q
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS         Page 15

decreases, including those which could result from the increased quantities of
certain of these materials made available for sale. However, there can be no
assurance as to the level of demand for the extracted materials or the actual
prices which may be obtained for them, which could vary over time. The estimated
costs of residue processing were developed by Company personnel and independent
consultants using third-party evaluations based on the pilot testing performed.
Unforeseen production complications could cause processing costs to increase
from current estimates.

  In October 1995 the NRC advised the Company that a decommissioning funding
plan cost estimate based upon on-site disposal of most of the radioactive wastes
at the site was appropriate to consider. The NRC cautioned the Company, however,
that on-site disposal may require preparation of an Environmental Impact
Statement and that, in addition to the required NRC approval, local and other
federal agencies may have to be satisfied that the Company's disposal plan is
sound. Such approval process can be expected to extend over a number of years.
Management believes that a decommissioning plan including on-site containment
will ultimately be acceptable to the appropriate regulatory authorities, based
on current and proposed NRC regulations and a provision of the Nuclear Waste
Policy Act of 1982 requiring the Department of Energy to take title to certain
"special sites" which may include the Company's site; however, there is no
assurance that a plan providing for on-site containment will ultimately be
approved. Implementation of a decommissioning plan for the Company's site which
includes off-site disposal may not be financially feasible.

  The NRC decommissioning regulations require licensees to estimate the cost for
decommissioning and to assure in advance that adequate funds will be available
to cover those costs. NRC regulations identify a number of acceptable methods
for assuring funds for decommissioning, including surety instruments such as
letters of credit, cash deposits and combinations thereof. The NRC October 1995
letter requested that the Company submit a decommissioning
funding plan contemplating on-site containment and stated that the cost of
residue processing should be included in the Company's cost estimate. In March
1996, the Company submitted a revised decommissioning plan and related
decommissioning funding plan. The initial level of assurance for decommissioning
is $4,456,000 provided through letters of credit. The amount does not include
assurance for costs of construction or operation of the residue processing
facility. This initial level of assurance, however, may be changed upon further
review by the NRC. The Company's available cash and/or borrowing capacity will
be reduced by the amount of funding assurance as required at any particular
time. As the decommissioning plan is implemented, deposited funds or the amount
of any surety instruments may be reduced, provided the Company can demonstrate
the sufficiency of the remaining funds or surety to assure the completion of
decommissioning.

 In addition to the two sites included in the discontinued operations, the
Company has a total of eight sites at other Company facilities where
environmental remediation is ongoing or will be undertaken. Certain of these
sites were identified as a result of environmental studies conducted by the
Company during 1997 at all of its owned sites, including testing of soil and
groundwater at selected sites as indicated by the environmental studies.

 The remaining land and buildings of the Company's former Precision Sheet Metal
(PSM) operation within the Metal Fabrications business segment are carried as
Other Assets - Property held for sale at a cost of $1,418,000 at June 30, 1998.
The cost of preparing the property for sale, principally environmental clean-up,
will be capitalized. Management believes that proceeds from the sale of the
property will be adequate to recover its

                  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS        Form 10-Q
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS         Page 16

costs, including costs of preparing the property for sale. The Company believes
the liabilities established for other costs associated with the close-down of
PSM are adequate to cover such costs. A significant decline in real estate
values in Los Angeles and/or identification of additional contamination on-site
could require the liabilities to be adjusted.

 The Company has also been notified that it is a potentially responsible party
at five sites owned by third parties. The Company's participation at three sites
is de minimis, and at two other sites the Company is being defended by its
insurance carriers.

  The Company has accrued for estimated environmental investigatory and
noncapital remediation costs based upon an evaluation of currently available
facts with respect to each individual site, including the results of
environmental studies and testing conducted in 1997, and considering existing
technology, presently enacted laws and regulations, and prior experience in
remediation of contaminated sites. An additional provision of $6,900,000 was
recorded in the fourth quarter of 1997 for the estimated potential exposure for
such costs expected to be incurred in the future. Actual costs to be incurred in
future periods at identified sites may vary from the estimates, given the
inherent uncertainties in evaluating environmental exposures. Future information
and developments will require the Company to continually reassess the expected
impact of these environmental matters. The Company does not expect that any sums
it may have to pay in connection with these environmental liabilities would have
a materially adverse effect on its consolidated financial position.



                                                                       Form 10-Q
                                                                         Page 17

                           PART II - OTHER INFORMATION

     Item 4.    Submission of Matters to a Vote of Security Holders

        a) The Annual Meeting of Shareholders was held on May 20, 1998.

        c) The nominations for Directors of the Company were brought
        before shareholders of the Company at the Annual Meeting of
        Shareholders.  The votes cast for and votes withheld for each
        of the following nominees are as follows:

                               Votes            Votes  
              Nominee           For           Withheld 

        E. P. Evans           8,055,586      162,773

        R. S. Evans           8,055,586      162,773

        T. M. Evans, Jr.      8,055,586      162,773

        W. D. Jarosz          8,055,520      162,839

        P. J. Kalis           8,055,586      162,773

        J. S. Petrik          8,055,496      162,863


        The appointment of Ernst & Young LLP as auditors of the Company for the
        year ending December 31, 1998 was placed before shareholders for
        ratification at the Annual Meeting of Shareholders.  The appointment of
        Ernst & Young LLP as auditors of the Company was ratified with
        8,099,142 votes cast for, 9,356 votes cast against, and 5,599

        abstentions.

        A Long-Term Incentive Compensation plan, designed to assist in
        attracting and retaining highly competent employees and to act as an
        incentive in motivating selected officers and other key employees of
        the Company and its Subsidiaries to achieve long-term corporate
        objectives, was placed before shareholders for approval at the Annual
        Meeting of Shareholders.  The Long-Term Incentive Compensation plan was
        approved, with 6,674,104 votes cast for the plan, 1,359,723 votes cast
        against the plan, and 80,587 abstentions.



     Item 6.    Exhibits and Reports on Form 8-K

        b) No reports on Form 8-K were filed during the quarter ended
        June 30, 1998.

                                                                       Form 10-Q
                                                                         Page 18








                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                       Fansteel Inc.                        
                                   (Registrant)








Date -  08/11/98                       /s/William D. Jarosz                     
William D. Jarosz
                                  Chairman, Chief Executive Officer
                                            and President







Date -  08/11/98                     /s/R. Michael McEntee                    R.
Michael McEntee
                             Vice President and Chief Financial Officer