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, 2001
                              --------------------------------------------------

( ) 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               (IRS  Employer Identification No.)
of incorporation or organization)


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

                                    8,698,858
--------------------------------------------------------------------------------
          (Number of shares of $2.50 par value common stock outstanding
                              as of June 30, 2001)


<PAGE>


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

<TABLE>
<CAPTION>
                                  FANSTEEL INC.
                           CONSOLIDATED BALANCE SHEET
                           ---------------------------
<S>                                                         <C>                       <C>

                                                                June 30,                December 31,
                                                                  2001                     2001
                                                              --------------           --------------
                                                                (Unaudited)                  *

ASSETS
Current Assets
  Cash and cash equivalents                                   $     27,032             $     19,793
  Accounts receivable - net                                     26,389,200               23,118,698
  Inventories
    Raw material and supplies                                    7,255,866                4,811,195
    Work-in-process                                             18,779,075               18,789,057
    Finished goods                                               9,191,400                7,868,894
                                                              ------------             ------------
                                                                35,226,341               31,469,146
    Less reserve to state certain
      inventories at LIFO cost                                   6,674,530                6,674,530
                                                              ------------             ------------
                                                                28,551,811               24,794,616
  Other assets - current
    Deferred income taxes                                        1,804,556                1,768,470
    Other                                                        1,012,744                  998,776
                                                              ------------             ------------
        Total current assets                                    57,785,343               50,700,353
                                                              ------------             ------------
Net Assets of Discontinued Operations                           32,898,928               30,198,580
                                                              ------------             ------------
Property, Plant and Equipment
  Land                                                           1,872,631                1,872,631
  Buildings                                                     13,046,957               13,046,957
  Machinery and equipment                                       60,950,257               59,659,748
                                                              ------------             ------------
                                                                75,869,845               74,579,336
  Less accumulated depreciation                                 55,664,691               54,500,736
                                                              ------------             ------------
    Net Property, Plant and Equipment                           20,205,154               20,078,600
                                                              ------------             ------------
Other Assets
  Prepaid pension asset                                          9,688,609                9,007,480
  Goodwill                                                       2,322,212                2,437,364
  Other                                                             63,289                   65,551
                                                              ------------             ------------
    Total Other Assets                                          12,074,110               11,510,395
                                                              ------------             ------------
Total Assets                                                  $122,963,535             $112,487,928
                                                              ============             ============


                 * - Derived from audited financial statements

                (See Notes to Consolidated Financial Statements)



</TABLE>




<PAGE>

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


                                 FANSTEEL INC.
                      CONSOLIDATED BALANCE SHEET (Contd.)
                      --------------------------
<TABLE>
<CAPTION>
<S>                                                <C>                          <C>


                                                      June 30,                 December 31,
                                                        2001                       2000
                                                    ------------                ------------
                                                     (Unaudited)                     *

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
  Accounts payable                                  $ 17,525,415                $ 13,759,578
  Accrued liabilities                                 11,353,872                  11,103,324
  Accrued income taxes                                    19,093                     841,449
  Current maturities of long-term debt                   416,057                     267,325
                                                    ------------                ------------
        Total current liabilities                     29,314,437                  25,971,676
                                                    ------------                ------------
Long-term Debt                                         9,794,453                   3,646,149
                                                    ------------                ------------
Other Liabilities
  Environmental remediation                           15,151,000                  15,151,000
  Deferred income taxes                                5,972,693                   5,191,013
                                                    ------------                ------------
     Total other liabilities                          21,123,693                  20,342,013
                                                    ------------                ------------

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 8,698,858 shares           21,747,145                  21,747,145
  Capital in excess of par value                         316,000                     316,000
  Unamortized cost of restricted stock awards           (107,638)                   (202,470)
  Retained earnings                                   40,771,215                  40,669,620
  Other comprehensive income
    Foreign currency translation                           4,230                     (2,205)
                                                    ------------                ------------
      Total other comprehensive income                     4,230                     (2,205)
                                                    ------------                ------------

                                                      62,730,952                  62,528,090
                                                    ------------                ------------

Total Liabilities and Shareholders' Equity          $122,963,535                $112,487,928
                                                    ============                ============

                 * - Derived from audited financial statements

                (See Notes to Consolidated Financial Statements)


</TABLE>



<PAGE>




PART 1 - FINANCIAL INFORMATION                                         Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS                                             Page 4

                                  FANSTEEL INC.
                        CONSOLIDATED STATEMENT OF INCOME
                        ---------------------------------
                                   (UNAUDITED)

<TABLE>
<CAPTION>
<S>                                                                 <C>               <C>


                                                                     FOR THE THREE MONTHS ENDED
                                                                     --------------------------

                                                                       June 30,        June 30,
                                                                         2001            2000
                                                                     -----------      -----------
Net sales                                                            $37,812,403      $38,555,259

Costs and expenses
  Cost of products sold                                               32,113,110       31,137,286
  Selling, general and administrative                                  5,226,293        5,137,079
  Plant closure and management changes                                 1,121,000                -
                                                                     -----------      -----------
                                                                      38,460,403       36,274,365
                                                                     -----------      -----------

Operating income (loss)                                                (648,000)        2,280,894

Other income (expense)
  Interest expense                                                      (112,196)         (23,626)
  Other                                                                   85,949          209,838
                                                                     -----------       ----------
                                                                         (26,247)         186,212
                                                                     -----------       ----------


Income (loss) before income taxes                                       (674,247)       2,467,106

Income tax provision (benefit)                                          (273,000)         853,000
                                                                     -----------      -----------

Net income (loss)                                                    $  (401,247)     $ 1,614,106
                                                                     ===========      ===========

Weighted average number of common
  shares outstanding                                                   8,665,524        8,632,191
                                                                     ===========      ===========

Basic and diluted net income (loss) per share                             ($ .05)           $ .19
                                                                           =====            =====

Dividends per common share                                                 $   -            $   -
                                                                           =====            =====


                (See Notes to Consolidated Financial Statements)



</TABLE>

<PAGE>




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

                                  FANSTEEL INC.
                        CONSOLIDATED STATEMENT OF INCOME
                        ---------------------------------
                                   (UNAUDITED)

<TABLE>
<CAPTION>
<S>                                                                 <C>               <C>


                                                                     FOR THE SIX MONTHS ENDED
                                                                     ------------------------

                                                                       June 30,        June 30,
                                                                         2001            2000
                                                                     -----------      -----------
Net sales                                                            $76,412,703      $78,052,963

Costs and expenses
  Cost of products sold                                               64,406,252       63,005,362
  Selling, general and administrative                                 10,589,613       10,126,018
  Plant closure and management changes                                 1,121,000                -
                                                                     -----------      -----------
                                                                      76,116,865       73,131,380
                                                                     -----------      -----------

Operating income                                                         295,838        4,921,583

Other income (expense)
  Interest expense                                                      (199,949)         (49,944)
  Other                                                                   69,706          177,073
                                                                     -----------       ----------
                                                                        (130,243)         127,129
                                                                     -----------       ----------


Income before income taxes                                               165,595        5,048,712

Income tax provision                                                      64,000        1,723,000
                                                                     -----------      -----------

Net income                                                           $   101,595      $ 3,325,712
                                                                     ===========      ===========

Weighted average number of common
  shares outstanding                                                   8,660,920        8,627,612
                                                                     ===========      ===========

Basic and diluted net income per share                                     $ .01            $ .39
                                                                           =====            =====

Dividends per common share                                                 $   -            $   -
                                                                           =====            =====


                (See Notes to Consolidated Financial Statements)



</TABLE>

<PAGE>


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

                                  FANSTEEL INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                      ------------------------------------
                                   (UNAUDITED)




<TABLE>
<CAPTION>
<S>                                                                             <C>                    <C>

FOR THE SIX MONTHS ENDED JUNE 30,                                                    2001                   2000
                                                                                ----------------       --------------

                                                                                           Increase (decrease) in
                                                                                         cash and cash equivalents

Cash flows from operating activities:

  Net income                                                                    $    101,595           $  3,325,712

  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation and amortization                                                1,296,707              1,268,282
      Amortization of unearned stock awards                                           94,832                 94,833
      Net pension (credit)                                                          (681,129)              (527,858)
      Deferred income tax charge                                                     745,594              1,074,709
      Gain from disposals of property, plant and
        equipment                                                                    (17,900)              (220,000)

  Changes in assets and liabilities:
    (Increase) in accounts receivable                                             (3,270,502)            (3,242,274)
    (Increase) in inventories                                                     (3,757,195)              (584,462)
    (Increase) decrease in other assets-current                                      (13,968)                71,886
    Increase in accounts payable and accruals                                      4,022,820              2,340,174
    (Decrease) increase in income taxes payable                                     (822,356)             1,001,420
    Decrease in other assets                                                           2,262                  2,012
                                                                                ------------           ------------
  Net cash (used in) provided by operating
    activities                                                                    (2,299,240)             4,604,434
                                                                                ------------           ------------


Cash flows from investing activities:
  Additions to property, plant and equipment                                      (1,325,709)              (601,541)
  Increase in net assets of discontinued
    operations-design, engineering and
    equipment for processing plant                                                (2,700,348)            (3,953,101)
  Proceeds from sale of property, plant and
    equipment                                                                         35,500                259,000
                                                                                ------------           ------------
Net cash (used in) investing activities                                           (3,990,557)            (4,295,642)
                                                                                ------------           ------------

Cash flows from financing activities:
  Proceeds from long-term debt                                                     6,508,833                      -
  Payments of long-term debt                                                        (211,797)              (191,674)
                                                                                ------------           ------------
Net cash provided by (used in) financing
  activities                                                                       6,297,036               (191,674)
                                                                                ------------           ------------

Net increase in cash and cash equivalents                                              7,239                117,118

Cash and cash equivalents at beginning of
  period                                                                              19,793                 16,516
                                                                                ------------           ------------

Cash and cash equivalents at June 30                                            $     27,032           $    133,634
                                                                                ============           ============

                (See Notes to Consolidated Financial Statements)




</TABLE>


<PAGE>



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,  2001,  and the  consolidated
statements of income for the three months and six months ended June 30, 2001 and
2000,  and the  consolidated  statements  of cash flows for the six months ended
June 30, 2001 and 2000, 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 has a $30 million unsecured revolving credit agreement renewable
on May 20,  2002 and a credit  agreement  for $3 million  renewable  on June 30,
2002.  As of June 30, 2001,  $7.5 million was borrowed  from the lines of credit
and $7.5  million  was being  used for  letters  of credit  needed  for  funding
assurance  related  to  environmental   issues,   self-insurance   policies  and
development loans.

    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.

    For the six months ended June 30, 2001 total comprehensive income was $6,435
more than net income  due to foreign  currency  translation  gains.  For the six
months ended June 30, 2000 total  comprehensive  income was $2,085 less than net
income due to foreign currency translation losses.

    Included in the second quarter 2001 results of operations were non-recurring
charges of $1,121,000.  Charges of $782,000 related  primarily to severance were
recorded  for the closure of the Addison,  IL  investment  casting  facility and
relocation of its  manufacturing  to the Reynosa,  Mexico  facility.  Charges of
$339,000 were recorded for non-recurring management changes related primarily to
severance.


<PAGE>




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

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
               ------------------------------------------
                                   (UNAUDITED)

BUSINESS SEGMENT INFORMATION
----------------------------

    The Company is engaged in the manufacture of specialty metal products, which
it  classifies  into  three  business  segments:   Industrial  Tools,   Advanced
Structures,  and Industrial  Metal  Components.  Net sales and operating  income
(loss) for the second  quarter  and six months  ended June 30, 2001 and 2000 for
each of the Company's business segments are summarized below:

<TABLE>
<CAPTION>

<S>                                     <C>                                         <C>
                                                  Second Quarter                                     Six Months
                                        ----------------------------------------    -------------------------------------
                                            2001                   2000                     2001             2000
                                        ----------------------------------------    -------------------------------------

NET SALES:

Industrial Tools
   Sales                               $13,021,978              $15,317,428         $28,292,527           $29,621,358
   Intersegment sales                       (3,127)                  (1,302)             (5,111)               (2,554)
                                       -----------              -----------         -----------           -----------
                                        13,018,851               15,316,126          28,287,416            29,618,804
                                       -----------              -----------         -----------           -----------

Advanced Structures
   Sales                                14,759,540               12,184,612          28,038,656            25,435,054
   Intersegment sales                            -                        -                   -                     -
                                       -----------              -----------         -----------           -----------
                                        14,759,540               12,184,612          28,038,656            25,435,054
                                       -----------              -----------         -----------           -----------

Industrial Metal
 Components
   Sales                                10,043,921               11,057,350          20,098,016            23,016,352
   Intersegment sales                       (9,909)                  (2,829)            (11,385)              (17,247)
                                       -----------              -----------         -----------           -----------
                                        10,034,012               11,054,521          20,086,631            22,999,105
                                       -----------              -----------         -----------           -----------

Total Net Sales                        $37,812,403              $38,555,259         $76,412,703           $78,052,963
                                       ===========              ===========         ===========           ===========

Operating Income
(Expense):
 Industrial Tools                      $   353,583              $ 1,159,641         $   978,337           $ 2,380,043
 Advanced Structures                        98,711                  510,988             410,061             1,029,869
 Industrial Metal
  Components                              (751,702)                 618,816            (735,948)            1,536,881
 Corporate                                (348,592)                  (8,551)           (356,612)              (25,210)
                                       -----------              -----------         -----------           -----------

Total Operating
 Income (Expense)                      $  (648,000)             $ 2,280,894         $   295,838           $ 4,921,583
                                       ===========              ===========         ===========           ===========


</TABLE>

<PAGE>


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.

    The following discussion should be read in conjunction with the consolidated
financial  statements of the Company and the related  notes to the  consolidated
financial statements.


QUARTER ENDED JUNE 30, 2001 COMPARED WITH QUARTER ENDED JUNE 30, 2000
---------------------------------------------------------------------

      Second quarter 2001 net sales for Fansteel were $37,812,000  compared with
$38,555,000 for the second quarter 2000.  Decreased  demand for tungsten carbide
cutting tools in the Industrial  Tools  business  segment and for powdered metal
components and investment  castings in the Industrial Metal  Components  segment
accounted for the majority of the decline.  Partially  offsetting these declines
were  improved  sales of sand  castings,  forgings,  and  machined  parts in the
Advanced Structures segment.

      For the second  quarter  2001,  Fansteel  reported  an  operating  loss of
$648,000  compared with  operating  income of  $2,281,000 in the second  quarter
2000.  Results  in 2001  included  unusual  charges  of  $1,121,000.  Charges of
$782,000  were recorded for the closure of the Addison,  IL  investment  casting
facility  and  relocation  of its  manufacturing  to the  Company's  world-class
foundry in  Reynosa,  Mexico.  Closing  the Addison  operation  by year-end  and
transferring  production  to  Reynosa  will allow the  Company to reduce  costs,
improve   operating   efficiencies,   improve   customer  service  and  maximize
production.  Additional  closure and relocation costs of approximately  $200,000
will be  incurred  for the  Addison  facility  in the last half of 2001.  Second
quarter 2001 results also included  charges of $339,000 for one-time  management
changes.  Operationally,  the  benefits  of  increased  sales  at  the  Advanced
Structures business segment were offset by higher manufacturing and energy costs
within  this  segment.  The sales  decline  and  higher  operating  costs at the
Industrial Tools and Industrial Metal  Components  business  segments also had a
negative  impact on income.  In response to the reduced  volume,  cost reduction
actions,   including  employee  layoffs,   reduced   workweeks,   and  temporary
plant-shutdowns, have been undertaken by a number of the Company's businesses.

      Other  expenses  for the Company in the second  quarter  2001 were $26,000
compared with other income of $186,000 in the second quarter 2000.  Other income
in the second  quarter 2000 included a  non-recurring  gain of $220,000 from the
sale of unused land and equipment.

      For the  quarter  ended  June 30,  2001,  Fansteel  recorded a net loss of
$401,000, or $.05 per share, compared with net income of $1,614,000, or $.19 per
share, in the second quarter 2000.  Results in 2001 included  unusual charges of
$.08 per share for the closure and  relocation  of the Addison,  IL facility and
for

<PAGE>


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


one-time  management  changes.  Results for the second  quarter 2000  included a
non-recurring gain of $.02 per share from the sale of unused land and equipment.

      Industrial  Tools business segment net sales of $13,019,000 for the second
quarter 2001  decreased  15.0%  compared with  $15,316,000 in the second quarter
2000.  The  majority of the decline  was in sales of  tungsten  carbide  cutting
tools, which suffered from reduced customer purchases in response to the slowing
manufacturing environment.  Road construction tool sales declined along with the
decrease  in  road  repair  projects.  Mining  sales  for the  quarter  declined
partially as a result of low production output resulting from machine down time.

      Industrial Tools business segment  operating income for the second quarter
2001 was $354,000  compared  with  $1,160,000  for the same period of 2000. As a
percentage of sales,  operating  income for the second quarter 2001 fell to 2.7%
from 7.6% in the second  quarter 2000.  Lower volume along with higher costs for
material,  manufacturing  and  administration  resulted in the lower income.  In
response to the lower sales volume in this segment,  cost reduction actions were
implemented during the second quarter 2001.

      Net sales for the  Advanced  Structures  business  segment  for the second
quarter 2001 were $14,760,000, an increase of 21.1% compared with second quarter
2000 sales of $12,185,000.  Sales of forgings,  sand castings and machined parts
all posted strong growth as a result of increased orders received from the major
aircraft manufacturers in the first quarter 2001.

      Despite the growth in sales,  second quarter 2001 operating income for the
Advanced Structures business segment declined to $99,000, or 0.7% of sales, from
second quarter 2000 operating income of $511,000, or 4.2% of sales. High natural
gas costs,  which were three times  higher  than the prior year,  had a negative
impact on this segment's  operating income.  Energy consumption is a significant
cost component for both the forging and sand casting operations.

      For the second quarter 2001, net sales were  $10,034,000 in the Industrial
Metal Components  business segment compared with $11,055,000 for the same period
of the prior year. The decline in this business segment resulted  primarily from
less demand from the automotive and truck industries,  which negatively impacted
sales of powdered metal components and investment castings. Sales of wire formed
products were also down as the slow economy resulted in decreased  business in a
wide  cross-section  of markets,  with  significant  reductions  in the lawn and
garden and vending markets.

      The Industrial  Metal  Components  business  segment reported an operating
loss of $752,000 for the second quarter 2001 compared with  operating  income of
$619,000  in the second  quarter  2000.  Results in 2001  included  $782,000  in
unusual  charges for the closing and  relocation  of the Addison,  IL investment
casting facility to Reynosa,  Mexico.  Due to the phase out of operations at the
Addison  facility,  an  operating  loss of $270,000  was  incurred in the second
quarter 2001,  which was $140,000 worse than the second quarter 2000.  Operating
income for the Industrial Metal  Components  segment was further impacted by the
lower sales volume and higher  operating  costs at the  powdered  metal and wire
formed  operations.  In response to the reduced sales  activity,  cost reduction
programs were undertaken during the second quarter 2001.

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         Page 11


SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------

         For the  first  six  months  of  2001,  net  sales  for  Fansteel  were
$76,413,000  compared  with  $78,053,000  for the same period of the prior year.
Slower  economic  conditions in a number of key markets,  including  automotive,
truck, machine tool, marine, electronics,  appliance and road construction tools
negatively   impacted  sales  of  tungsten  carbide  products,   powdered  metal
components and investment casting products. Increased sales of sand castings and
machined parts for the aircraft industry partially offset the other product line
decreases.

         The Company's  operating income for the first half of 2001 was $296,000
compared with  $4,922,000 in the first half of 2000.  Results include charges of
$1,121,000 for both the Addison,  IL closing and  relocation  costs and one-time
management  changes.  Additionally,  lower sales volume at a number of locations
and higher operating costs had a negative impact on income.

      Other expenses for the Company were $130,000 compared with other income of
$127,000  for the  first  six  months of 2000.  Other  income  in 2000  included
$220,000 for a  non-recurring  gain from the sale of unused land and  equipment.
Interest  expense on debt was higher in 2001 in  correlation  with the Company's
additional  borrowings  related  to working  capital  increases,  investment  in
machinery and equipment, and funding of the reclamation plant in Muskogee, OK.

      The Company's net income for the first half of 2001 was $102,000,  or $.01
per share,  compared with  $3,326,000,  or $.39 per share, for the first half of
2000. Results in 2001 included unusual charges of $.08 per share for closure and
relocation  costs for the  Addison,  IL  facility  and for  one-time  management
changes. Results for the six months ended June 30, 2000 included a non-recurring
gain of $.02  per  share  from  the  second  quarter  sale of  unused  land  and
equipment.

      While  sales for the second  quarter  were down  15.0%,  sales for the six
months  ended June 30, 2001  decreased  4.5% in the  Industrial  Tools  business
segment. Net sales for the first half of 2001 were $28,287,000 compared with net
sales  of  $29,619,000  for the  first  half of 2000.  The  decline  was  spread
throughout nearly all markets in this business segment, as the slower industrial
economy has impacted sales of tungsten carbide road construction tools,  cutting
tools, wear parts, and mining tools.

      Industrial  Tools  business  segment  operating  income  for the first six
months of 2001 was $978,000 compared with $2,380,000 in same period of the prior
year. Lower sales volume and price reductions  resulting from stiff  competition
reduced  profit  margins.  In  addition,  higher  material  costs and  increased
operating expenses negatively impacted operating income.

      Advanced  Structures  business  segment net sales of  $28,039,000  for the
first half of 2001  increased  by 10.2% over sales of  $25,435,000  for the same
period of 2000. New aerospace  programs  requiring sand casting products and new
orders from a major aircraft  manufacturer for machined parts provided  positive
growth in this  segment.  Sales of forgings are down for the first six months of
the year,  despite strong second quarter 2001 sales,  due to reduced  production
releases from the aircraft  producers in the first quarter of 2001 and last half
of 2000.

<PAGE>

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


      Despite  the  increase  in  volume  in the  Advanced  Structures  business
segment,  operating  income for the first half of 2001 declined to $410,000 from
$1,030,000 in the first half of 2000. In the first half of 2001,  soaring energy
costs  resulted in  additional  expenses of $1.1 million when  compared with the
same period of the prior year.  This  segment was hit  particularly  hard by the
natural gas price  increases,  as these facilities  require  extensive energy to
power the boiler and  furnaces.  Management  has  undertaken  steps to stabilize
these energy costs and limit the future  impact on income.  Operating  income in
this segment also declined as a result of higher manufacturing costs at the sand
casting facility.  Process improvement and cost reduction  initiatives have been
implemented at this location,  but benefits are not  anticipated  until later in
the year.

       Industrial  Metal  Components  net sales for the first  half of 2001 were
$20,087,000,  a  decrease  of  $2,912,000,  or  12.7%,  compared  with  sales of
$22,999,000 in the first half of 2000.  Depressed market  conditions have caused
customers to utilize  their  on-hand  inventory  and  implement  periodic  plant
shutdowns. As a result, sales of investment castings,  powdered metal components
and  wire  formed  products  to the  automotive  and  truck,  lawn  and  garden,
agricultural,  construction,  electronic, vending and marine industries have all
suffered.

    The Industrial Metal Components  business segment reported an operating loss
of $736,000 for the first six months of 2001 compared with  operating  income of
$1,537,000 in 2000. Results in 2001 included charges of $782,000 for closure and
relocation costs for the Addison,  IL facility to Reynosa,  Mexico.  The reduced
sales volume and lower production efficiencies further impacted operating income
in this segment. Cost reduction plans have been implemented and will continue if
needed to combat the reduced sales level.


OUTLOOK
-------

      Order backlog at June 30, 2001 was $44,810,000  compared with  $45,430,000
at June 30, 2000, a decrease of $620,000, or 1.4%. Both the Industrial Tools and
Industrial Metal  Components  backlogs have decreased in response to the slowing
manufacturing environment.  Nearly offsetting these declines was the increase in
the Advanced  Structures' backlog which benefited from high order rates from the
aircraft manufacturers in the first quarter 2001.

    A number of the Company's key markets,  such as automotive,  truck,  machine
tool,  marine,  electronics,  appliance and road construction have experienced a
softening in the first half of 2001, which is anticipated to persist through the
remainder of the year.  The strong  aircraft  market is expected to continue for
the  remainder of the year.  In the first  quarter  2001,  the Company  began to
experience raw material price increases for selected high-use  materials such as
tungsten  carbide and titanium and it is unlikely that these cost  increases can
be fully  passed on to  customers.  In response to the  ongoing  reduced  volume
levels,  cost reduction  actions were  undertaken in the first half of 2001 by a
number of  Fansteel  businesses.  Management  will  continue  to  monitor  these
businesses  and will  implement  additional  cost  reductions  in the  future if
necessary.  Improvements in Fansteel's performance will come from increasing our
level of business with new and existing  customers  through  better  service and
greater  capabilities,  improving  management of working capital,  and improving
operating efficiencies.

<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         Page 13


    To further reduce costs and improve  operating  efficiencies,  Fansteel will
close its Addison,  IL investment  casting  facility by year-end and consolidate
manufacturing at its investment  casting operation in Reynosa,  Mexico. The move
will allow the  Company to maximize  production  at its  world-class  foundry in
Reynosa and offer improved service to its customers.

    Significant efforts continue in the current year to start residue processing
at the Muskogee facility, which is part of discontinued operations. Discontinued
operations  are  expected  to  generate  negative  cash  flow in 2001,  as pilot
production is anticipated to continue until late in 2001. Uncertainties, such as
production delays,  higher than anticipated  operating expenses,  and changes to
end-product prices could have additional negative cash flow impacts in 2001. The
Company is continuing to evaluate the economics of this  production  facility as
additional information becomes available.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

 Cash and cash  equivalents  were $27,000 at June 30, 2001 compared with $20,000
at December 31, 2000.  Operating activities used cash of $2,299,000 in the first
half of 2001 with working capital requirements increasing $3,742,000. As part of
management's  program to improve the  operations of the Company,  investments of
$1,326,000 were made in capital  equipment.  Engineering,  equipment,  and pilot
testing costs of $2,700,000  were incurred for the  processing  plant to be used
for reclamation and decommissioning purposes in Muskogee,  Oklahoma. Proceeds of
$6,509,000 from long-term debt borrowings were received, $5,945,000 of which was
borrowed from the revolving line of credit.

  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.

  The  Company  has $33 million in lines of credit.  As of June 30,  2001,  $7.5
million was  borrowed  from the lines of credit and $7.5  million was being used
for letters of credit  needed for  funding  assurance  related to  environmental
issues,  self-insurance policies, and development loans. The Company may further
use its line of credit during 2001 to fund the reclamation  processing  plant in
Muskogee and to meet working capital requirements.

    Funding  assistance by states and  municipalities  is investigated  when any
significant expenditures are proposed. All of the Company's debt, other than the
$7.5  million  borrowed  from  the  revolving  line of  credit,  is  related  to
development  loans obtained from various states.  In the first half of 2001, the
Company  received  $389,000 from GE Capital for a Pennsylvania  development loan
for equipment for the powdered metals facility. This development loan, which has
a variable  interest rate of 5.60%, is for $1.5 million,  the remainder of which
will be received  after  equipment  installation  in the second half of 2001. An
additional  $175,000  was  received  in the first half of 2001 from the State of
Iowa for a development loan with an interest rate of 6% for the modernization of
the sand casting facility.

<PAGE>

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 located in Muskogee,  Oklahoma that processed certain ores 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.  Prior to  decommissioning,  the  Company has  constructed  and
expects to operate for at least ten years a  commercial  plant to  complete  the
processing of residues  currently  contained in storage ponds at the site, which
would  materially  reduce the amount of radioactive  materials to be disposed of
during decommissioning. The processing plant is designed to extract commercially
valuable  materials  such as tantalum,  scandium,  and other rare earth and rare
metal elements from the feedstock residues. Pilot production processing began in
late  1999.   Production  problems  have  been  encountered  and  processing  at
anticipated production levels has not yet been tested.

         The  Company,  in  association  with outside  consultants,  developed a
decommissioning  plan  for  the  Muskogee  site  including  construction  of  an
engineered  on-site cell for containment of contaminated  soils that lie beneath
and  surround  the  residue  ponds;   consolidation  and  stabilization  of  the
contaminated  soils in the  containment  cell;  and the  performance of required
plant surveys and characterization  after residue processing ceases to determine
whether additional  contaminated soils exist which may require remediation,  and
submitted  that plan and a related  decommissioning  funding plan to the Nuclear
Regulatory  Commission ("NRC") as required by law. The NRC requested in May 1999
that the Company  change its  submittal to separate the property  (approximately
100 acres) being considered for unrestricted use from property (approximately 10
acres) being considered for the on-site  containment  cell. The unrestricted use
property plan was  submitted in June 1999 and approved in August 1999,  with the
NRC license amended  accordingly.  The plan dealing with the on-site containment
cell was  submitted in August 1999.  In September  1999,  the NRC  published its
intent to review this  submittal  for the purpose of amending  the  license.  In
response  to the  notice,  a  petition  was filed  with the NRC by the  Oklahoma
Attorney General requesting a hearing in order to dispute the appropriateness of
constructing  the on-site  containment  cell.  The  proceeding was terminated in
January 2001 upon joint motion of the  Company,  NRC, and the Oklahoma  Attorney
General.  The Company  requested  that the NRC  postpone  its review of the plan
dealing  with on-site  containment  while it  investigates  the  possibility  of
off-site disposal of the contaminated soils.

         On-site  containment of the contaminated soils may require  preparation
of an  Environmental  Impact  Statement  and, 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. The approval process for on-site  containment
would be expected to extend over a number of years.  Management  believes that a
decommissioning   plan  including   on-site   containment  could  ultimately  be
acceptable to the  appropriate  regulatory  authorities,  and could be approved,
based on current NRC  regulations  or provisions of the Nuclear Waste Policy Act
of 1982.  However,  there can be no assurance  that a plan providing for on-site
containment would ultimately receive approval.  Based on recent decreases in the
cost of off-site disposal, the Company currently is exploring the possibility of
off-site disposal of some or all of the contaminated  soils as an alternative to
on-site containment. There can be no assurance that off-site disposal would be a
cost-effective

<PAGE>

ITEM  2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS                     Form  10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         Page 15


alternative,  particularly  considering  the lengthy period required to complete
processing of the residues and the limited  number of licensed  disposal  sites.
The  implementation  of a  decommissioning  plan  for the  Company's  site  that
includes  off-site  disposal of significant  volumes of  contaminated  soils and
residues 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 level of
assurance for decommissioning the Muskogee site,  including on-site containment,
is currently  $4,456,000 provided through letters of credit. The amount does not
include  assurance  for costs of operation of the residue  processing  facility,
even though the NRC had previously  indicated that the cost of processing should
be included  in the cost  estimate.  This level of  assurance,  however,  may be
changed  upon further  review by the NRC. In  addition,  any proposal to include
off-site  disposal in the  decommissioning  plan would be expected to change the
amount of financial assurance, possibly materially. 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.

         Due to the problems  during pilot  production at the processing  plant,
the project has  experienced  delays and increased  costs.  Pilot  production is
anticipated to continue until late 2001. For the six months ended June 30, 2001,
$2,700,000 was spent for engineering, equipment, and pilot testing.

         The  Muskogee  processing  operation  was planned and is expected to be
operated  as  the  most   economical   and  feasible  way  of   reclaiming   and
decommissioning  the  site.  It is  being  accounted  for  as  an  environmental
reclamation and  decommissioning  activity.  The Company estimates on a periodic
basis the revenues  that will be generated  from the  estimated  amounts of rare
earth  and rare  metals  that  will be  extracted  and sold over the life of the
operation,  and the total operating costs,  including plant construction  costs,
over the life of the  operation,  and provides for any estimated  excess of such
total  costs  over  total  revenues.  The  estimated  value of  materials  to be
extracted  is based on  analyses  of  samples  taken  from  the  residues  and a
valuation of such materials using current market prices.  Market prices for some
of the materials have fluctuated significantly during plant construction.  There
can be no assurance as to the level of demand for the extracted materials or the
actual  prices that may be obtained  for them,  which could vary over time.  The
Company continues to estimate that aggregate  revenues for the sale of materials
to be extracted in the processing  operation at the site will approximate  total
operating costs, including depreciation,  related to residue processing over the
processing  period.  The Company is  continuing to evaluate the economics of the
production  facility as additional  information  about  production  capacity and
product quality becomes available.

         At June 30, 2001, the Company had recorded  liabilities of $9.0 million
for discontinued operations, including the estimated net costs of reclaiming and
decommissioning the site during and after the processing of the residues and the
Company's  estimated  share of costs at a second site which had been part of the
Metal Products business segment. The second site

<PAGE>

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


is regulated  under the Resource  Conservation  and Recovery Act. 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.

         In addition to the two sites included in the  discontinued  operations,
the  Company  has a total of  seven  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 Company has also been notified that it is a potentially responsible
party at seven sites owned by third parties. The Company's participation at four
sites is de minimis,  and at the other  three sites the Company is either  being
defended by its insurance carriers or has meritorious defenses to liability.

         At June 30, 2001, the Company had recorded  liabilities of $7.3 million
for estimated  environmental  investigatory  and 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.  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.



<PAGE>



                                                                       Form 10-Q
                                                                         Page 17

                           PART II - OTHER INFORMATION
                           ---------------------------


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------

  b) No reports on Form 8-K were filed during the quarter ended June 30, 2001.












<PAGE>
                                                                       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 8/13/2001                  /s/GARY L. TESSITORE
     ---------  -----------------------------------------------------
                                   Gary L. Tessitore
                 Chairman, President and Chief Executive Officer








Date 8/13/2001                   /s/R. MICHAEL MCENTEE
     ---------  -----------------------------------------------------
                                    R. Michael McEntee
                   Vice President and Chief Financial Officer