FORM 10-K

	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C.  20549




(Mark One)
  X    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES 
EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended September 26, 1998

	OR

_____  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D) OF THE 
SECURITIES
       EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from ________________ to __________________.

	Commission File No.  0-22416 

	KENTUCKY ELECTRIC STEEL, INC.
	(Exact name of Registrant as specified in its charter)


            Delaware                                     61-1244541  
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                         Identification 
                                                           Number) 

                  P. O. Box 3500, Ashland, Kentucky 41105-3500  
	(Address of principal executive office, Zip code)

                                  (606) 929-1222                
	(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None

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

	Common Stock, par value $.01 per share
	(Title of Class)

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:

	Yes  (x)    No  ( )

Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Registration S-K is not contained herein, and will not be 
contained, to the best of Registrant's knowledge, in  definitive proxy or 
information statements

	(Cover Page 1 of 2 Pages)



incorporated by reference in Part III of this Form 10-K or any amendment 
to this Form 10-K.(X)

Aggregate market value of the voting stock held by non-affiliates of the 
Registrant based on the closing price on December 11, 1998:  $10,552,000. 

Indicate the number of shares outstanding of each of the Registrant's 
classes of common stock as of December 11, 1998:

4,059,531 shares of Common Stock, par value $.01 per share.



	DOCUMENTS INCORPORATED BY REFERENCE


Portions of the registrant's Proxy Statement for the Annual Meeting 
of Shareholders to be filed with the Securities and Exchange Commission 
pursuant to Regulation 14(a) are incorporated herein by reference in 
response to items 10 through 13 in Part III of this report.

	(Cover Page 2 of 2 Pages)


<PAGE>



KENTUCKY ELECTRIC STEEL, INC.

FORM 10-K

TABLE OF CONTENTS

                                                              	       
  
 
                                                                         
                                                                    Page

PART I .............................................................   4 
                                                                      
     Item 1.  Business .............................................   4
     Item 2.  Properties ...........................................  10
     Item 3.  Legal Proceedings ....................................  10
     Item 4.  Submission of Matters to a Vote of Security Holders ..  10

PART II ............................................................  12
                                                                      
     Item 5.  Market for Registrant's Common Equity and Related
              Shareholder Matters ..................................  12
     Item 6.  Selected Financial Data ..............................  12
     Item 7.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations ..................  13
     Item 7A. Qualitative and Quantitative Disclosure about Market 
              Risk .................................................  12
              
     Item 8.  Financial Statements and Supplementary Data ..........  20
     Item 9.  Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure ..................  20

PART III ...........................................................  21
                                                                       
     Item 10. Directors and Executive Officers of the Registrant ...  21
     Item 11. Executive Compensation ...............................  21
     Item 12. Security Ownership of Certain Beneficial 
              Owners and Management ................................  21
     Item 13. Certain Relationships and Related Transactions .......  21

PART IV ............................................................  22
                                                                         
 
     Item 14. Exhibits, Financial Statement Schedules and
              Reports on Form 8-K ..................................  22

SIGNATURES .........................................................  25

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE  ........................  26

	
<PAGE>


	KENTUCKY ELECTRIC STEEL, INC.

	PART I


Item 1.	Business


General

Kentucky Electric Steel, Inc., a Delaware corporation incorporated 
in August, 1993 (the "Company"), owns and operates a steel mini-mill near 
Ashland, Kentucky. As a mini-mill producer of bar flats, the Company 
recycles steel from scrap, a process designed to result in lower 
production costs than those of integrated steel mills, which produce 
steel by processing iron ore and other raw materials in blast furnaces.  
Bar flats are produced to a variety of specifications and fall primarily 
into two general quality levels - merchant bar quality steel bar flats 
("MBQ Bar Flats") for generic types of applications, and special bar 
quality steel bar flats ("SBQ Bar Flats"), where more precise customer 
specifications require the use of various alloys, customized equipment 
and special production procedures to insure that the finished product 
meets critical end-use performance characteristics.  The Company is a 
leading manufacturer of SBQ Bar Flats for the cold drawn bar converter 
and truck trailer support beam markets. Approximately 80% of the 
Company's sales are of SBQ Bar Flats.

The Company completed a two-phase capital expenditure program in 
fiscal 1996. The first phase expanded the Company's casting, rolling and 
finishing capacity and increased the size range of products the Company 
can produce.  The second phase, installation of a ladle metallurgy 
facility, removed the refining cycle from the electric arc furnace, 
thereby increasing total melting capacity.
 
The Company manufactures over 2,600 different SBQ Bar Flat items 
which are sold to a variety of relatively small volume niche markets, 
including the leaf-spring suspension market for light and heavy-duty 
trucks, mini-vans and utility vehicles, cold drawn bar converters, 
certain specialty applications for steel service centers, truck trailer 
manufacturers and other miscellaneous markets.  The Company's mill was 
specifically designed to manufacture wider and thicker bar flats up to 
three inches in thickness and twelve inches in width that are required by 
these markets. In addition, the Company employs a variety of specially 
designed equipment which is necessary to manufacture SBQ Bar Flats to the 
specifications demanded by its customers.  Although the Company 
specializes in SBQ Bar Flats, particularly in the thicker and wider 
sections, it also, to a much lesser extent, competes in the MBQ Bar Flat 
market.

The Company's business strategy is to increase its share of the SBQ 
Bar Flat market and to expand into related niche market applications 
where it can profitably supply products for special customer needs.  The 
completion of the capital expenditure program increased the range of 
thickness and width of the Company's products, thereby creating the 
capacity for the Company to expand its business primarily by increasing 
the number of products it sells to existing customers and the development 
of new customers. The Company has increased its shipments of the thicker, 
wider products from fiscal 1997 to fiscal 1998 and has continued to 
decrease its sales to the leaf-spring suspension market. 	




Manufacturing Operations

The Company recycles steel by melting steel scrap in two 50-ton 
electric arc furnaces.  The molten steel is then taken to the ladle 
metallurgy facility where a variety of alloys are added to make different 
grades of steel in accordance with customer specifications.  The refined 
molten steel is then poured into a continuous caster to produce 
continuous strands of steel with cross-sectional dimensions ranging from 
approximately 16 to 72 square inches. The Company can utilize up to four 
continuous strands in producing certain sizes.  The strands are cut to 
produce billets of specified length which are reheated to approximately 
2,300 degrees Fahrenheit at the Company's rolling mill and fed through a 
series of roll stands to reduce their size and form them into steel bar 
sections.  These sections emerge from the rolling mill, are uniformly 
cooled on a cooling bed, and are cut to lengths specified by the 
customer.  The cut bar flats are stacked into bundles ready for shipment.

The production capacity of finished products from the Company's 
rolling and finishing facilities is approximately 400,000 tons per year 
but can vary with product mix.  The annual production capacity of the 
melting and casting operation is approximately 300,000 tons of finished 
product.  Thus, the Company is able to finish more product in its rolling 
operations than it is capable of producing with its melting facilities.  
The Company's ultimate goal is to balance its operations at approximately 
400,000 tons per year. The Company sold 240,300 tons of finished goods in 
1998 which constitutes 80% of its capacity.

The Company transports its products by common carrier, generally 
shipping by truck and by rail.  The Company has railroad sidings at its 
facilities.


Capital Improvements and Expansion

Annual capital expenditures over the last five fiscal years have 
averaged $8.1 million, which includes $2.8 million expended in fiscal 
year 1998.

The Board of Directors has approved the fiscal 1999 capital 
expenditure plan for approximately $3.1 million, which includes 
completion of various projects begun in fiscal 1998, and equipment 
upgrades and replacements.


Primary Markets and Products

The Company is primarily a special bar quality ("SBQ") producer of alloy 
and carbon steel bar flats.  Its primary markets are manufacturers of 
leaf-spring suspensions, cold drawn bar converters, flat bed truck 
trailer manufacturers and steel service centers. 


Leaf-Spring Suspension Market.  High tensile SBQ spring steel is produced 
to customer and industry specifications for use in leaf-spring 
assemblies.  These assemblies are utilized in light, medium and heavy 
duty trucks, trailers, mini-vans and four-wheel drive vehicles with off-
road capability.  The trend toward tapered leaf-spring products and air-
ride suspension continues.  These products use somewhat less steel but 
they are manufactured from larger cross section bar flats that match the 
Company's manufacturing strengths. 

Cold Drawn Bar Converters Market.  The Company sells its expanded range 
of SBQ hot rolled bar products to cold drawn bar manufacturers.  KESI's 
product range, 1/4" through 3" in thickness and 2" through 12" in width, 
enables the Company to supply practically all the sizes needed by the 
converters.  The converters remove the scale from the hot rolled bar and 
draw it through a carbide die.  The drawing reduces the cross section, 
improves surface and internal properties, and produces a more exacting 
tolerance bar.  The end product is sold directly to original equipment 
manufacturers and through distributors, with the majority being sold by 
steel service centers. 


Steel Service Centers Market.  Approximately 30% of all steel shipments 
to the end-user are distributed through steel service centers, making 
this the largest single market for steel manufacturers.  The Company 
sells both MBQ and SBQ bar flats into this market.  The majority of its 
sales consist of the less competitive heavier section sizes and difficult 
to make grades.  


Truck Trailers Market.  The Company is a significant supplier of SBQ Bar 
Flats for flat bed trailer support beam flange material.  This material 
is engineered and produced to exacting specifications consistent with 
trailer manufacturers' requirements.  



Miscellaneous Markets.  The Company supplies other markets including 
metal building, grader blades, agricultural equipment, 
construction/fabricating, railroad and industrial chain manufacturers.  
The products furnished to these markets are primarily SBQ Bar Flats along 
with a mixture of MBQ Bar Flats.

Although the Company has not focused its sales efforts on MBQ Bar Flats, 
attention to select sizes of MBQ Bar Flats has provided good balance for 
the Company's manufacturing facilities.  Within the MBQ Bar Flat market, 
the Company has concentrated its sales on specialty items as opposed to 
higher volume commodity products.  Targeted opportunities within this 
market match the Company's ability to produce thicker, wider bar flats 
described in "Business - General."


Customers

The Company sells to over 350 customers.  Two wholly-owned 
subsidiaries of Niagara Corporation represented approximately 10.4% of 
sales for fiscal 1998.  No other customer accounted for more than 10% of 
sales in fiscal 1998. The loss of a principal customer could have a 
material adverse effect on the Company's operations.

The Company's foreign sales as a percentage of total sales were 
7.5% in fiscal 1998. These sales consisted primarily of leaf-spring 
suspension products shipped to Canada, Mexico and South America.


Marketing

Senior management of the Company is directly involved in sales to 
new and existing customers.  Sales are nationwide and in certain foreign 
markets. Sales efforts are performed by seven in-house sales personnel 
and six manufacturers' representative companies.  The efforts of these 
sales representatives are directed by the Company's Vice President, Sales 
and Marketing.

Competition and Other Market Factors

The domestic and foreign steel industries are characterized by 
intense competition.  The Company competes with domestic and foreign 
producers, many of whom have financial resources substantially greater 
than those available to the Company.  The Company has identified its 
principal competition from the following sources:  (i) in its leaf-spring 
suspension market, the Company faces competition from five North American 
mills; (ii) in its cold drawn bar converters market, the Company competes 
with five North American mills; (iii) in the steel service center market, 
the Company encounters competition from numerous North American mills; 
and (iv) in its truck trailer market, the Company competes with one North 
American mill.  One company, which currently competes in the leaf spring 
market, has announced plans to increase the capacity of its plant and to 
expand the size range of the products it manufactures.  Also, another 
mini-mill which currently competes in two of the Company's markets, is 
building a new rolling mill to produce both rounds and bar flats.  Both 
of these projects may increase competition in the markets served by the 
Company.  The Company believes that the principal competitive factors 
affecting its business are quality, service, price and geographic 
location.


Backlog and Seasonality

As of September 26, 1998, the Company had firm orders for 
approximately 54,000 tons representing approximately $26.0 million in 
sales, as compared with approximately 58,000 tons representing 
approximately $27.7 million in sales, at September 27, 1997.  

The Company operates on a continuous basis with only occasional 
scheduled shutdowns for heavy maintenance work.  The Company's operations 
are not subject to seasonal fluctuations in operations or sales.


Raw Materials


The principal raw material used in the Company's steel mill is 
ferrous scrap.  Ferrous scrap is derived from, among other sources, 
discarded automobiles, appliances, structural steel, railroad cars and 
machinery.  The purchase price of scrap is subject to market conditions 
largely beyond the control of the Company.  The Company is located in an 
area where scrap is generally available and typically maintains less than 
one month of scrap supply.  Historically, price fluctuations of scrap 
have had no material long-term impact on the Company.  However, while the 
Company has generally been successful in passing on scrap cost increases 
through price increases, the effect of steel imports, market price 
competition and under-utilized industry capacity has in the past, and 
could in the future, limit the Company's ability to increase prices.  One 
scrap dealer supplied approximately 44% of the Company's scrap in fiscal 
1998.  In an attempt to insure an adequate source of raw materials, 
however, the Company has identified, inspected, and purchased scrap from 
over 30 dealers.

	The Company's manufacturing process consumes large amounts of 
electricity, which the Company purchases from Kentucky Power Company, 
d/b/a American Electric Power ("AEP").  An abundant regional supply of 
coal, used in producing electricity, helps keep the Company's energy 
costs relatively low.  Prior to November 13, 1997, the Company purchased 
electricity from AEP under an Interruptible Power Contract ("Prior 
Contract") which was terminable by either party upon 12 months notice and 
under which AEP could interrupt service during times of peak demand.  
Effective November 13, 1997, the Company and AEP entered into a contract 
for Operating Reserve Interruptible Electric Service ("1997 Contract") 
which will have a minimum term of five years unless the Company gives AEP 
at least one year's notice of termination.  The 1997 Contract limits 
AEP's right to interrupt service, for no more than 30 minutes at a time, 
in only those instances that an AEP unit goes offline or that AEP is 
responsible to share reserves with other electrical generators pursuant 
to the East Central Area Reliability Coordination Agreement (ECAR). 


Employees

As of September 26, 1998, the Company employed 421 people, 
approximately 78% of whom are members of the United Steelworkers of 
America. The Company and The United Steelworkers of America have agreed 
to a one-year extension of the current contract, which was to expire on 
September 10, 1998, and are continuing multi-year contract negotiations. 
The Company believes that its wage rates and benefits are competitive 
with other mini-mills.

The Company offers no postretirement employee health care benefits 
or other benefit program subject to accounting under the provisions of 
Statement of Financial Accounting Standards No. 106 - "Employers' 
Accounting for Postretirement Benefits other than Pensions".


Environmental and Regulatory Matters

The Company is subject to federal, state, and local environmental 
laws and regulations concerning, among other matters, wastewater 
discharge, air emissions and furnace dust disposal.  As with similar 
mills in the industry, the Company's furnaces are classified as 
generating hazardous waste (K061) because they produce certain types of 
dust containing lead, chromium and cadmium ("Furnace Dust").  The Company 
currently collects and handles Furnace Dust through a contract with 
Horsehead Resource Development Company, Inc. ("HRD"), which reclaims from 
the waste dust certain materials for reuse and arranges for further 
recycling or disposal of the residual material.  Some of the Furnace Dust 
generated by the Company and shipped to HRD was processed at HRD's 
Palmerton, Pennsylvania facility (the "Palmerton Site"), which is the 
subject of a civil action ("Civil Action") filed in the United States 
District Court for the Middle District of Pennsylvania by USEPA (No. CV. 
98-654) seeking recovery of costs for alleged environmental contamination 
at the Palmerton Site.  HRD has negotiated a Consent Decree and a 
settlement of $4,984,000 with USEPA for the approximate 250 companies 
which sent 3,348,287 tons of Furnace Dust to the Palmerton Site.  On 
October 16, 1998, the Company executed the Consent Decree in the Civil 
Action, which, if approved by the Court, will require the payment of 
$64,950.18 for the Company's 1.3032 percent volumetric share of the 
Furance Dust sent to the Palmerton Site.  In consideration of this 
payment, the Company will be relieved of any liability that the Company 
may have for contribution or claims for response costs incurred in 
connection with the Palmerton Site as provided by Sections 113(f)(2) and 
122(g)(5) of the Comprehensive Environmental Response, Compensation and 
Liability Act of 1980, as amended. HRD has represented to the Company 
that HRD will pay USEPA the entire settlement of $4,984,000.  However, 
should the settlement become final and HRD does not pay the $4,984,000 to 
USEPA, the Company will be required to pay $64,950.18.  Should the 
settlement not become final and if HRD were to become insolvent, the 
Company could incur liability with respect to the remediation of the 
Palmerton Site or other HRD disposal sites.  In addition, the cost of 
reclaiming or disposing of Furnace Dust may increase substantially in the 
future.


Between 1981 and 1983, the prior operator (the "Prior Operator") 
disposed of Furnace Dust in the Cooksey Brother's landfill, in 
Cannonsburg, Kentucky ("Cooksey Landfill"). Before 1981 the Prior 
Operator disposed of Furnace Dust in other locations, including a strip 
mine.  The Company did not assume any liability for disposal at the 
Cooksey Landfill or such other sites in the acquisition agreement 
pursuant to which the Company acquired its mini-mill in 1986.  The 
Cooksey Landfill is operating pursuant to a permit and bond issued and 
approved by the Kentucky Division of Waste Management, and the Company 
has no reason to believe that the Cooksey Landfill or other sites are 
likely targets for listing as a Kentucky "uncontrolled site" or federal 
superfund site.  Nevertheless, the Company could incur clean up expenses 
with respect to the Cooksey Landfill or such other sites if such sites 
are listed as a Kentucky "uncontrolled site" or federal superfund site 
and the Company is not successful in obtaining full indemnification from 
the Prior Operator.

	The Company's operations are subject to the Federal Clean Air Act 
which provides for regulation, through state implementation of federal 
require- ments, of the emission of certain air pollutants.  As required 
by applicable regulations, on December 14, 1996, the Company filed a 
Title V permit application with the Kentucky Division for Air Quality 
("DAQ").  The application required the Company to identify any of the 
nine emissions points within the Company's facility that were not in 
compliance with the Company's operating permits and/or applicable 
regulations.  The Company listed Emission Unit Nos. 02 and 03, its 
electric arc furnaces A and B ("EAFs") in the Company's melt shop.  In so 
doing, the Company's application indicated that the Company would conduct 
a diagnostic evaluation of its melt shop fume capture system and its 
baghouse. On July 10, 1998, the Company amended its application to 
provide a detailed description of the methods the Company would use to 
achieve compliance with the applicable regulations for the EAFs.  In this 
submittal, the Company stated that it will modify its melt shop to 
improve updraft velocity to the canopy hoods and thereby bring emissions 
into compliance with applicable regulations during the charging and 
tapping of the EAFs.  On July 24, 1998, the Company entered into an 
Agreed Order with DAQ which requires the Company to complete construction 
of the melt shop modifications and demonstrate compliance with applicable 
regulations by February 1, 1999.  The Company has completed certain 
modifications to its melt shop and is evaluating whether additional 
modifications will be necessary to demonstrate compliance by February 1, 
1999.  Though the Company anticipates that it will be able to demonstrate 
compliance with the regulations by February 1, 1999 as required by the 
Agreed Order, if it fails to do so, the Company could be the subject of 
an enforcement action for failure to comply with the Agreed Order. 
Additionally, on August 21, 1998, the Company received a preliminary 
draft of its Title V permit from DAQ.  The Company has submitted comments 
and has sought clarification concerning certain aspects of the draft 
permit but has not, as yet, received a response from DAQ. The Company, 
therefore, does not know whether it will be able to comply with its Title 
V Permit without additional capital and/or operating expense.  Further, 
there can be no assurance that evolving federal and state environmental 
requirements or discovery of unknown conditions will not require the 
Company to make material expenditures in the future or affect the 
Company's ability to obtain permits for its existing operations or any 
future expansion. The Company will continue to plan and budget, as 
appropriate, for any additional capital and operating expenses that may 
be required to upgrade or install new or additional pollution control 
equipment in order to comply with all permits.

	On April 29, 1997, the Company ceased melting operations due to the 
melting of a radioactive source.  The Company restarted its melt shop 
operations on May 11, 1997, after decontamination of the melt shop and 
related facilities.  The melting of the radioactive source resulted in 
the classification of approximately 13,530 cubic feet of Furnace Dust and 
7,000 cubic feet of baghouse filter bags and related supplies removed 
during decontamination as a mixed waste ("Mixed Waste") as defined in the 
Federal Facility Compliance Act.  HRD does not have the regulatory 
permits to process Mixed Waste.  The Company, therefore, on July 29, 
1997, entered into a contract with Zhagrus Environmental, Inc. 
("Zhagrus"), an affiliate of Envirocare of Utah, Inc. ("Envirocare"), for 
the packaging, transportation, treatment and disposal of the Mixed Waste 
at the waste disposal facility of Envirocare at Clive, Utah (the 
"Envirocare Facility").  The Envirocare Facility is licensed by the State 
of Utah to handle and dispose of the Mixed Waste.  Zhagrus has completed 
transportation of the Mixed Waste to the Envirocare Facility.  Zhagrus 
has advised that it has completed treatment of the Mixed Waste but was 
unable to complete disposal by September 1, 1998, as required by its 
contract due to lack of permitted disposal capacity at the Envirocare 
Facility.  Zhagrus, however, has advised the Company that additional 
disposal capacity has been constructed and near term regulatory approval 
is anticipated allowing for the disposal of the Company's mixed waste by 
February 28, 1999. 

 On June 29, 1998, the Company applied for reissuance of its 
Kentucky Pollutant Discharge Elimination System Permit ("KPDES Permit") 
which expired on October 31, 1998.  Though the Company has supplied the 
Kentucky Division of Water ("DOW") all requested information, DOW has not 
reissued the KPDES Permit and the Company continues to operate under the 
provisions of the existing KPDES Permit.  During warm weather, the 
Company has exceeded the discharge limitations for temperature at its 
Outfall No. 3.  Though the Company has not received a Notice of 
Violation, DOW may seek penalties for any such temperature exceedences.  
Additionally, since the Company has not received its reissued KPDES 
Permit, the Company does not know whether it will be able to comply with 
the reissued KPDES Permit without additional capital and operating 
expense.

Except as otherwise indicated, the Company believes it is in 
substantial compliance with applicable environmental laws and 
regulations.  Notwithstand-ing such compliance, if damage to persons or 
property or contamination of the environment has been or is caused by the 
conduct of the Company's business or by hazardous substances or wastes 
used, generated or disposed of by the Company (or possibly by prior 
operators of the Company's mini-mill or by third parties), the Company 
may be held liable for such damages and be required to pay the cost of 
investigation and remediation of such contamination.  The amount of such 
liability to the Company could be material.  Changes in federal or state 
laws, regulations or requirements or discovery of unknown conditions 
could require additional expenditures by the Company.



Item 2.	Properties

The Company's operations are located on approximately 122 acres of 
land near Ashland, Kentucky, next to an interstate highway and a rail 
line.  The  Company believes that its facilities are well maintained, in 
good condition and adequate and suitable for its operating needs.  The 
Company has completed certain capital expenditures with respect to its 
properties.  See Item 1 - 
Business - "Manufacturing Operations" and "Capital Improvements and 
Expansion."


Item 3.	Legal Proceedings

The Company is subject to various claims and lawsuits arising in 
the ordinary course of business with respect to commercial, product 
liability and other matters, which seek remedies or damages.  Based upon 
its evaluation of available information, management does not believe that 
any such matters are likely, individually or in the aggregate, to have a 
material adverse effect upon the Company's business, financial position, 
results of operations or cash flows.  See also Item 1 "Business - 
Environmental and Regulatory Matters."


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

There were no matters submitted to a vote of shareholders during 
the fourth quarter of the fiscal year ended September 26, 1998.


      Executive Officers of the Registrant

Pursuant to General Instruction G(3) of Form 10-K, the following 
list is included as an unnumbered Item in Part I of this report in lieu 
of being included in the Proxy Statement for the Annual Meeting of 
Stockholders scheduled to be held February 2, 1999.

The names, ages and positions of all of the executive officers of 
the Registrant as of September 26, 1998 are listed below with their 
business experience with the Registrant for the past five years.  
Officers are elected annually by the Board of Directors at the first 
meeting of directors following the annual meeting of stockholders.  There 
are no family relationships among these officers, nor any agreement or 
understanding between any officer and any other person pursuant to which 
the officer was selected.

Charles C. Hanebuth, 54, has been President and Chief Executive Officer 
of the Company since its formation in August 1993.  From November 1990 to 
October 1993, Mr. Hanebuth was President and Chief Operating Officer of 
Kentucky Electric Steel Corporation, a wholly-owned subsidiary of NS 
Group, Inc.  Mr. Hanebuth has 19 years management experience in the steel 
industry.  Mr. Hanebuth is a director of Ashland Bankshares, Inc., the 
holding company of the Bank of Ashland, and Ashland Hospital Corporation, 
which operates King's Daughters' Medical Center.

William J. Jessie, 48, a certified public accountant, has been Vice 
President, Secretary, Treasurer and Chief Financial Officer of the 
Company since its formation in August 1993.  Prior to August 1993, he was 
Controller of Kentucky Electric Steel Corporation since 1986.  Mr. Jessie 
has 21 years of public accounting experience with national and local 
accounting firms.  


Joseph E. Harrison, 54, has been Vice President of Sales and Marketing of 
the Company since its formation in August 1993.  From February 1991 to 
August 1993 he was General Sales Manager of Kentucky Electric Steel 
Corporation.  Mr. Harrison has over 28 years of sales experience in the 
steel industry.

William H. Gerak, 53, has been Vice President of Administration of the 
Company since January 1994.  From February 1988 to December 1993 he was 
the Director of Human Resources and Labor Relations for Heekin Can, Inc., 
a wholly-owned subsidiary of Ball Corporation, a producer of steel food 
and aerosol containers, head-quartered in Cincinnati, Ohio.  Mr. Gerak 
has over 24 years of human resource and administrative experience.



 	PART II


Item 5.	Market for Registrant's Common Equity and Related Shareholder 
Matters

The Company's common stock trades on the NASDAQ National Market 
under the symbol KESI.  The following table sets forth, for the fiscal 
periods indicated, the high and low closing prices of the stock on the 
NASDAQ National Market:

                              Fiscal 1997             Fiscal 1998    
                           High          Low       High          Low
      First Quarter     $ 7-1/4       $ 5-1/4   $ 8           $ 4-1/2 
Second Quarter      6-7/8         5-1/8     7-1/4         4-3/4
      Third Quarter       5-3/4         4-1/8     6-15/16       4-15/16
      Fourth Quarter      7-1/4         5-1/4     5-1/8         3-1/2    
            

On December 11, 1998 there were approximately 1,500 beneficial 
owners of the Company's common stock.

The Company currently intends to retain all earnings to support the 
development of its business, although the paying of dividends on its 
common stock is periodically reviewed.  Certain of the Company's debt 
instruments currently restrict the payment of dividends.  Specifically, 
the debt instruments restrict payment of dividends to the amount 
available in a "Restricted Payment Pool" as defined in the senior note 
agreement and amended bank credit facility.  See "Management's Discussion 
and Analysis of Financial Condition and Results of Operations" and Note 6 
of the Notes to Consolidated Financial Statements of the Company.

Item 6.	Selected Financial Data

The selected financial data shown below for the five years in the 
period ended September 26, 1998 are derived from the audited financial 
statements of the Company.  The information set forth below should be 
used in conjunction with "Management's Discussion and Analysis of 
Financial Condition and Results of Operations" and the Financial 
Statements and related notes thereto included elsewhere herein.  

<PAGE>


                                           Year Ended                    
 
                      Sept. 24, Sept. 30, Sept. 28,  Sept. 27,  Sept. 26,
                        1994       1995     1996       1997       1998   
 
                        (In thousands, except share and per share data)

Income Statement Data:
  Net sales ......... $102,629  $107,402  $ 98,320   $ 94,652   $109,456
  Cost of goods sold    86,892    91,642    89,783     89,992     97,720
                       -------   -------   -------     ------     ------
    Gross profit ....   15,737    15,760     8,537      4,660     11,736
  Selling and admini-
    strative expenses    6,963     7,696     7,391      6,800      7,011
                       -------   -------   -------     ------     ------
    Operating income 
     (loss)              8,774     8,064     1,146     (2,140)     4,725 
  Interest income from
    NS Group, Inc. - net    30       -         -          -          -  
  
  Interest expense .....  (586)     (658)   (1,453)    (2,125)    (2,395)
  Interest income and 
    other ..............   164        57        31         34         80
  Gain on involuntary con-
    version of equipment   -         -         369        -          -   
                       -------   -------   -------     ------     ------ 
    Income (loss) before
     income taxes ...... 8,382     7,463        93     (4,231)     2,410 
  Income taxes ......... 3,167     2,812        35     (1,599)       916 
                       -------   -------   -------     ------     ------
      Net income (loss)$ 5,215  $  4,651  $     58    $(2,632)  $  1,494

  Net income (loss)  
    per common share -  
    basic and diluted..$  1.06  $    .95  $    .01    $  (.57)   $   .32 

  Weighted average 
    shares outstanding
      - basic         4,908,158 4,905,456 4,806,161  4,633,315  4,624,671

  Weighted average 
    shares outstanding
- diluted       4,924,231 4,909,575 4,806,485  4,633,315  4,630,920 
   
Balance Sheet Data:
  Working capital ..   $ 21,553   $10,324   $14,963    $11,335    $14,153
  Total assets .....     56,870    72,625    78,433     78,770     80,251
  Long-term debt (1)      9,001     7,287    20,000     20,000     20,000
  Shareholders' equity   34,276    38,097    37,110     34,211     35,192

(1)	Net of current portion.


Item 7.	Management's Discussion and Analysis of Financial Condition 
and Results of Operations

The following analysis of results of operations and financial 
condition of the Company should be read in conjunction with "Selected 
Financial Data" and Financial Statements and Supplementary Data included 
elsewhere herein.

General 


 The Company manufactures special bar quality alloy and carbon 
steel bar flats to precise customer specification for sale in a variety 
of niche markets. As a result, while the Company's business is cyclical 
in nature, the Company has historically generated sufficient cash flow to 
meet its capital expenditure and debt service requirements.


Results of Operations 

The following table sets forth the percentages of the Company's net 
sales represented by certain income and expense items for the periods 
indicated.
                                                  Year Ended             
                                       September   September   September
                                        28, 1996    27, 1997    26, 1998

      Net sales ......................   100.0%      100.0%      100.0%
      Cost of goods sold .............    91.3        95.1        89.3
                                         -----       -----       -----
      Gross profit ...................     8.7         4.9        10.7
      Selling and administrative
        expenses .....................     7.5         7.2         6.4 
                                         -----       -----       -----
      Operating income (loss) ........     1.2        (2.3)        4.3 
      Interest expense ...............    (1.5)       (2.2)       (2.2)
      Interest income and other ......      -           -           .1 
      Gain on involuntary conversion 
        of equipment .................      .4          -           - 
                                         -----       -----       -----
      Income (loss) before income taxes     .1        (4.5)        2.2 
      Income taxes  ...................     -         (1.7)         .8 
                                         -----       -----       -----
      Net income (loss) ...............     .1%       (2.8%)       1.4% 
 

Year Ended September 26, 1998 Compared with Year Ended September 27, 1997

Net Sales.  Net sales for fiscal 1998 increased by $14.8 million, 
or 15.6%, to $109.5 million from $94.7 million in fiscal 1997.  The 
increase in sales is attributed to an increase in shipments and an 
increase in average selling price.  Shipments increased by 10.7% from 
217,000 tons in fiscal 1997 to 240,300 tons in fiscal 1998.  The increase 
in shipments resulted from the strong demand for the Company's products 
during the first three quarters of fiscal 1998, and from the increase in 
tons available for shipment due to improvements in productivity.  Also, 
shipments for fiscal 1997 were negatively impacted by the effect on 
production of the melt shop operations being shut down for twelve days in 
order to decontaminate the baghouse facility, after the detection of a 
radioactive substance in the baghouse dust.  The increase in average 
selling price is attributed to the price increases implemented on many 
products during the first half of fiscal 1998.

Cost of Goods Sold. Cost of goods sold for fiscal 1998 increased 
$7.7 million, or 8.6%, to $97.7 million from $90.0 million in fiscal 
1997.  As a percentage of net sales, cost of goods sold decreased from 
95.1% in fiscal 1997 to 89.3% in fiscal 1998.  The increase in cost of 
goods sold reflects the increase in shipments offset by a decrease in the 
per ton cost of tons shipped.  The decrease in the per ton cost of tons 
shipped during fiscal 1998 as compared to fiscal 1997 resulted from lower 
conversion costs due to improvements in productivity, offset partially by 
an increase in scrap costs. The cost of goods sold for fiscal 1997 
includes a $2.3 million reimbursement from business interruption 
insurance related to the decontamination of the baghouse.

Gross Profit.  As a result of the above, gross profit for fiscal 
1998 increased by $7.0 million from $4.7 million in fiscal 1997 to $11.7 
million in fiscal 1998.  As a percentage of net sales, gross profit 
increased from 4.9% in fiscal 1997 to 10.7% in fiscal 1998. 

Selling and Administrative Expenses.  Selling and administrative 
expenses include salaries and benefits, corporate overhead, insurance, 
sales commissions and other expenses incurred in the executive, sales and 
marketing, shipping, human resources, and other administrative 
departments.  Selling and administrative expenses for fiscal 1998 
increased $.2 million, or 3.1%, to $7.0 million from $6.8 million for 
fiscal 1997.  As a percentage of net sales, such expenses decreased from 
7.2% for fiscal 1997 to 6.4% for fiscal 1998.  The decrease as a 
percentage of sales is primarily the result of an increase in net sales 
(as discussed above) for fiscal 1998.  

Operating Income. Fiscal year 1998 reflected operating income of 
$4.7 million as compared to an operating loss of $2.1 million for fiscal 
1997. As a percentage of net sales, operating income increased from 
(2.3%)in fiscal 1997 to 4.3% for fiscal 1998.

Interest Expense.  Interest expense increased by $.3 million to 
$2.4 million in fiscal 1998 from $2.1 million in fiscal 1997, net of 
interest capitalized of $11,000 for fiscal 1997.  The increase is the 
result of additional borrowings on the Company's line of credit.
	
	Provision (Credit) for Income Taxes. The Company has recorded a tax 
provision of approximately $.9 million in fiscal 1998 as compared to a 
benefit of $1.6 million in fiscal 1997 at an effective tax rate of 38% 
for both years. As of September 26, 1998 the Company has net deferred tax 
assets of $6.6 million, which is net of a $2.7 million valuation 
allowance.  Included in the $9.3 million of gross deferred tax assets is 
$5.4 million of net operating tax loss carryforwards which expire 
beginning in 2011.  The realization of the deferred tax assets is 
dependent in part upon generation of sufficient future taxable income.  
Management has considered the levels of currently anticipated pre-tax 
income in assessing the required level of the deferred tax asset 
valuation allowance. Taking into consideration historical pre-tax income 
levels, the nature of certain events which adversely affected operations 
in fiscal 1996 and 1997, the results of operations for fiscal 1998 and 
other factors, management believes it is more likely than not that the 
net deferred tax asset, after consideration of the valuation allowance 
which has been established, will be realized.  The amount of the net 
deferred tax asset considered realizable, however, could be reduced if 
estimates of future taxable income during the carryforward period are 
reduced.

Net Income.  As a result of the above, fiscal 1998 reflected net 
income of $1.5 million as compared to a net loss of $2.6 million in 
fiscal 1997.  As a percentage of net sales, net income increased from 
(2.8%) in fiscal 1997 to 1.4% in fiscal 1998.

Year Ended September 27, 1997 Compared with Year Ended September 28, 1996


Net Sales. Net sales for fiscal 1997 decreased by $3.6 million 
(3.7%) to $94.7 million from $98.3 million for fiscal 1996 due to a 
decline in shipments.  Total shipments for fiscal 1997 were approximately 
217,000 tons, down 3.9% from fiscal 1996, while the average selling price 
per ton remained constant with the prior year.  The decline in shipments 
primarily resulted from the third quarter shutdown caused by a 
radioactive contamination of the baghouse, continued start-up of the 
ladle metallurgy facility during the first half of fiscal 1997, and a ten 
day Melt Shop outage in the second quarter which is discussed below.

Cost of Goods Sold.  Cost of goods sold for fiscal 1997 increased 
$.2 million, or .2%, to $90.0 million from $89.8 million for fiscal 1996. 
As a percentage of net sales, cost of goods sold increased from 91.3% for 
fiscal 1996 to 95.1% in fiscal 1997.  The increase in cost of goods sold 
is primarily due to higher conversion costs and additional depreciation, 
partially offset by a decrease in material costs.  Conversion costs for 
fiscal 1997 were adversely impacted by lower production during the third 
quarter due to the twelve day shutdown of the Melt Shop operations 
required to decontaminate the baghouse facilities following detection of 
a radioactive substance in the baghouse dust and by the shut down and 
restart of the caster during the second quarter.  The caster was also 
shut down for repairs for 10 days in late December and early January.  
During this 10 day shut down, the Company converted an additional caster 
strand to allow for increased production of thicker, wider products.  The 
resulting shortage of billets idled the rolling mill for several days and 
negatively impacted rolling mill production and productivity.  To a 
lesser degree, conversion costs were also adversely impacted by an 
increase in repair, maintenance and supply costs, health benefit costs 
and the continued start-up phase of the new ladle metallurgy facility in 
the first half of fiscal 1997.

The cost of goods sold for fiscal 1996 includes a $1.7 million 
reimbursement from business interruption insurance, related to a caster 
fire. The fiscal year 1997 includes a $2.3 million reimbursement from 
business interruption insurance related to the decontamination of the 
baghouse in the calculation of cost of goods sold.

Gross Profit. As a result of the above, gross profit for fiscal 
1997 decreased by $3.8 million (45.4%) from $8.5 million in fiscal 1996 
to $4.7 million in 1997. As a percentage of net sales, gross profit 
decreased from 8.7% in fiscal 1996 to 4.9% in fiscal 1997.

Selling and Administrative Expenses.  Selling and administrative 
expenses include salaries and benefits, corporate overhead, insurance, 
sales commissions and other expenses incurred in the executive, sales and 
marketing, shipping, human resources, and other administrative 
departments.  Selling and administrative expenses for fiscal 1997 
decreased $.6 million (8.0%) to $6.8 million from $7.4 million for fiscal 
1996.  As a percentage of net sales, such expenses decreased from 7.5% 
for fiscal 1996 to 7.2% for fiscal 1997.  The decrease is primarily the 
result of a reduction in the provision for uncollectible accounts (which 
was higher in the prior year due to problems with a few specific 
accounts). 

Operating Income.  Fiscal year 1997 reflected an operating loss of 
$2.1 million as compared to operating income of $1.1 million for fiscal 
1996.  As a percentage of net sales, operating income decreased from 1.2% 
in fiscal 1996 to (2.3%) for fiscal 1997.

Interest Expense.  Interest expense increased by $.6 million to 
$2.1 million in fiscal 1997 from $1.5 million in fiscal 1996, net of 
interest capitalized of $11,000 and $262,000, respectively.  The increase 
in interest expense is attributed to the additional debt incurred in 
financing the capital expansion projects and the reduction in capitalized 
interest due to the completion and start-up of the ladle metallurgy 
facility.
 
	Provision (Credit) for Income Taxes.  The Company has recorded a 
tax benefit of approximately $1.6 million in fiscal 1997 as compared to a 
provision of $35,000 in fiscal 1996 at an effective tax rate of 38% for 
both years.  The Company has recorded an increase in net deferred tax 
assets of $.7 million and has recorded refundable income taxes of $.9 
million resulting from the $1.6 million benefit recorded in fiscal 1997. 
As of September 27, 1997 the Company has net deferred tax assets of $7.6 
million, which is net of a $2.7 million valuation allowance.  Included in 
the $10.3 million of gross deferred tax assets is $4.7 million of net 
operating tax loss carryforwards which expire beginning in 2011.  The 
realization of the deferred tax assets is dependent in part upon 
generation of sufficient future taxable income.  Management has 
considered the levels of currently anticipated pre-tax income in 
assessing the required level of the deferred tax asset valuation 
allowance. Taking into consideration historical pre-tax income levels, 
the nature of certain events which adversely affected operations in 
fiscal 1996 and 1997, the Company's return to profitability during the 
third and fourth quarter of fiscal 1997, the continued improvement in 
productivity and other factors, management believes it is more likely 
than not that the net deferred tax asset, after consideration of the 
valuation allowance which has been established, will be realized.  The 
amount of the net deferred tax asset considered realizable, however, 
could be reduced if estimates of future taxable income during the 
carryforward period are reduced.

Net Income.  As a result of the above, fiscal 1997 reflected a net 
loss of $2.6 million as compared to net income of $58,000 in fiscal 1996. 
As a percentage of net sales, net income decreased from .1% in fiscal 
1996 to (2.8%) in fiscal 1997.


Liquidity and Capital Resources

Cash flows from operating activities amounted to $3.9 million, $2.5 
million, and $2.3 million in fiscal 1996, 1997 and 1998, respectively.  
Fiscal 1996 operating cash flows reflect lower earnings which have 
partially been offset by additional depreciation and a reduction in 
accounts receivable and inventories.  The additional depreciation is 
related to the equipment placed in service during the latter part of the 
third quarter of fiscal 1995.  The decrease in accounts receivable 
reflects the lower average net selling price for shipments during the 
fourth quarter of fiscal 1996 as compared to the fourth quarter of fiscal 
1995.  The decrease in inventories is primarily attributed to a decrease 
in finished goods inventory, which has partially been offset by the 
increase in carrying value from the increase in conversion costs.

	Fiscal 1997 operating cash flows reflect the net loss of $2.6 
million and the increase in the net deferred tax asset of $1.0 million, 
which has been partially offset by depreciation of $3.7 million, decrease 
in accounts receivable of $.5 million and inventories of $.8 million, and 
an increase in accounts payable of $.8 million.  The additional 
depreciation is related to the start-up of the ladle metallurgy facility. 
The decrease in inventories is primarily related to a reduction in scrap 
inventory.

	Fiscal 1998 operating cash flows reflect net income of $1.5 
million, depreciation and amortization of $3.7 million, and the decrease 
in net deferred tax asset of $1.2 million.  Operating cash flows were 
negatively impacted by a $3.8 million increase in inventories.  The 
increase in inventories is primarily attributed to an increase in 
finished goods inventory offset somewhat by a decrease in scrap 
inventory.  The increase in finished goods inventory is due to lower than 
anticipated fourth quarter shipments in fiscal 1998 and lower than normal 
inventories in fiscal 1997 due to production problems. 

Cash flows used by investing activities consist of capital 
expenditures, net of changes in capital expenditures payables, of $11.2 
million, $5.1 million, and $2.5 million in fiscal 1996, 1997, and 1998, 
respectively.  The decrease in capital expenditures in fiscal 1998 is 
primarily due to capital expenditures returning to a more routine 
maintenance level following the completion of the capital expenditure 
program which expanded the Company's casting, rolling and finishing 
capacity and increased the size range of products the Company can 
produce, and the completion of the ladle metallurgy facility.  Cash flows 
from investing activities for fiscal 1996 also include the proceeds from 
the involuntary conversion of equipment of $.9 million.

Cash flows provided from financing activities amounted to $6.1 
million, $2.6 million, and $.2 million in fiscal 1996, 1997, and 1998, 
respectively. The $6.1 million in fiscal 1996 reflects net repayments of 
$3.6 million on the Company's line of credit, $9.0 million repayment on 
long-term debt, and $1.3 million for purchases of treasury stock, offset 
by the proceeds of $20.0 million of unsecured senior notes.  The $2.6 
million in fiscal 1997 reflects $3.1 million in advances on the Company's 
line of credit facility offset by $.5  million used for the purchases of 
treasury stock.  The $.2 million in fiscal 1998 reflects $.8 million in 
advances on the Company's line of credit facility offset by $.6 used for 
the purchase of treasury stock.

Working capital at September 26, 1998, was $14.2 million as 
compared to $11.3 million at September 27, 1997.  The current ratio was 
1.6 to 1.0 at September 26, 1998 as compared to 1.5 to 1.0 at September 
27, 1997.  The increase in working capital and current ratio is primarily 
attributed to a decrease in capital expenditures as fiscal 1998 saw the 
Company return to a more routine maintenance capital expenditure level.


	The Company completed its 500,000 share buyback program during 
fiscal 1998 and the Board of Directors authorized the repurchase of an 
additional 500,000 shares of the Company's common stock.  Subsequent to 
the fiscal year ended September 26, 1998, the Company repurchased 403,785 
shares of common stock.
	
The Company's primary ongoing cash requirements are for current 
capital expenditures.  The two sources for the Company's liquidity are 
internally generated funds and its bank credit facility.  The Company has 
$11.4 million in borrowings outstanding on its line of credit as of 
September 26, 1998.  The Company believes that the bank credit facility 
and internally generated funds will be sufficient to fund its ongoing 
cash needs through the next twelve-month period.


Year 2000 Compliance

      The following Year 2000 discussion is provided in response to the 
Securities and Exchange Commission's recent interpretative statement 
expressing its view that public companies should include detailed 
discussion of Year 2000 issues in their MD&A.

 	The Company is currently assessing the issues confronting it 
related to the "Year 2000 problem", which is the result of the inability 
of many computer systems and electronic equipment to distinguish the Year 
2000 from the year 1900.  The Company is following an organized program 
to assure the Company's information technology systems and related 
infrastructure will be Year 2000 compliant.   The Company has divided its 
Year 2000 issues into three areas including:  computer hardware and 
software business systems,  manufacturing processing control devices and 
related systems, and facility support systems. The Company's Year 2000 
program includes three phases:  (1) an audit and assessment phase 
designed to identify Year 2000 issues; (2) a modification phase designed 
to correct Year 2000 issues (this phase includes testing of individual 
modifications as they are installed); and (3) a testing phase to test 
entire systems for Year 2000 compliance after individual modifications 
have been installed and tested.

	The Company has completed the audit and assessment phase for both 
the computer hardware and software business systems and the facility 
support systems.  The Company currently expects that the audit and 
assessment phase for the manufacturing process control devices and 
related systems will be completed by December 31, 1998.

	The Company is currently performing the second phase of its program 
including modification and testing of individual modifications on its 
computer hardware and software business systems.  The Company expects to 
complete the second phase of its program for these business systems by 
December 31, 1998.  The Company also expects to conduct final testing of 
its business systems in the first calendar quarter of 1999.

	The Company currently expects to complete modification and testing 
of its manufacturing control devices and related systems by the first 
calendar quarter of 1999.  After all modifications have been made, 
appropriate testing of the system will be performed prior to June 30, 
1999.

	Management has estimated that the cost for correction of Year 2000 
issues, including any software and hardware changes and the cost of 
personnel involved in working on the project, will be approximately 
$300,000.  The Company estimates that 25% of the total cost has been 
spent to date.  The Year 2000 updates are being funded out of funds 
generated from operations and account for less than 30% of the Company's 
information technology budget.

     The Company's Year 2000 program includes investigation of the Year 
2000 readiness status of our major vendors and customers.  The Company is 
using letters, questionnaires and protocols to determine its vendors' and 
customers' 2000 readiness.  The Company has contacted all major vendors 
including energy and scrap suppliers and external service providers 
including banks, insurance companies and phone service providers to 
determine their Year 2000 compliance status.  If any such vendor 
indicates that they will not be Year 2000 compliant, the Company will 
develop contingency plans to address the issue, which may include 
identifying and developing other vendors.  The Company has also contacted 
significant customers to determine their progress towards Year 2000 
compliance and to identify issues, if any, which might develop if a 
customer is unable to become year 2000 compliant on a timely basis.  If 
any issues are  identified,  the Company expects to develop procedures to 
permit the Company to continue to supply the customer despite Year 2000 
issues.
  
	The Company does not have a contingency plan to operate in the 
event that its business systems are not Year 2000 compliant.  As our work 
progresses, if testing scheduled for the first calendar quarter of 1999 
suggests that there is a significant risk that the business systems might 
not be Year 2000 compliant, a contingency plan will be developed.


Impact of Inflation and Changing Prices   

While the Company has not experienced any material long-term 
adverse effects on operations in recent years because of inflation, 
margins have been affected by inflationary conditions.  The Company's 
primary cost components are steel scrap, labor, and energy, all of which 
are susceptible to domestic inflationary pressures.  Scrap costs are 
frequently influenced by supply and demand factors as well as general 
economic conditions.  In contrast, finished product prices are influenced 
by nationwide economic trends and manufacturing capacity within the steel 
industry.  While the Company has generally been successful in passing on 
cost increases through price increases, the effect of steel imports, 
market price competition and under-utilized industry capacity has in the 
past, and could in the future, limit the Company's ability to increase 
prices.  See "Business - Employees," "Competition and Other Market 
Factors," "Raw Materials" and "Manufacturing Operation."


Forward Looking Statements

The matters discussed or incorporated by reference in this Report 
on Form 10-K that are forward-looking statements (as defined in the 
Private Securities Litigation Reform Act of 1995) involve risks and 
uncertainties.  These risks and uncertainties include, but are not 
limited to, the reliance on truck and utility vehicle industry; excess 
industry capacity; product demand and industry pricing; volatility of raw 
material costs, especially steel scrap; intense foreign and domestic 
competition; management's estimates of niche market data; the cyclical 
and capital intensive nature of the industry; and cost of compliance with 
environmental regulations.  These risks and uncertainties could cause 
actual results of the Company to differ materially from those projected 
or implied by such forward-looking statements.

Without limiting the foregoing, various statements in the previous 
discussion of Year 2000 are likewise forward-looking statements. These 
statements include statements of the Company's expectations, statements 
with regard to schedules and expected completion dates and statements 
regarding expected Year 2000 compliance.  These forward-looking 
statements are subject to various risk factors which may materially 
affect the Company's efforts to achieve Year 2000 compliance.  These risk 
factors include the inability of the Company to complete the plans and 
modifications that it has identified, the failure of software vendors to 
deliver the upgrades and repairs to which they have committed, the wide 
variety of information technology systems and components, both hardware 
and software, that must be evaluated and the large number of vendors and 
customers with which the Company interacts.  The Company's assessments of 
the effects of Year 2000 on the Company are based, in part, upon 
information received from third parties and the Company's reasonable 
reliance on that information.  Therefore, the risk that inaccurate 
information is supplied by third parties upon which the Company 
reasonably relied must be considered as a risk factor that might affect 
the Company's Year 2000 efforts.  The Company is attempting to reduce the 
risks by utilizing an organized approach, extensive testing, and 
allowance of ample contingency time to address issues identified by 
tests.


Impact of Recent Accounting Pronouncements

See Note 2 "Summary of Significant Accounting Policies" of the 
Notes to Consolidated Financial Statements of the Company.


Item 7A.	Qualitative and Quantitative Disclosure about Market Risk

	Management does not believe that there is any material market risk 
exposure with respect to derivative or other financial instruments that 
would require disclosure under this item.


Item 8.	Financial Statements and Supplementary Data

The financial statements and schedules referenced in Item 14(a)(1) 
and (a)(2) hereof are included herein and are filed as part of this 
report.


Item 9.	Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure

None.



<PAGE


	PART III

      
Item 10.	Directors and Executive Officers of the Registrant

The specified information required by this item is incorporated by 
reference to the information under the heading "Proposal I:  Election of 
Directors" in the Proxy Statement as filed with the Commission or is 
included under the heading "Executive Officers of the Registrant" in Part 
I of this 
10-K filing.  The disclosure required by Item 405 of Regulation S-K is 
incorporated by reference to the information under the heading 
"Compliance with Section 16(a)" of the Proxy Statement. 
	
Item 11.	Executive Compensation

The specified information required by this item is incorporated by 
reference to the information under the heading "Executive Compensation" 
in the Proxy Statement as filed with the Commission.

Item 12.	Security Ownership of Certain Beneficial Owners and 
Management

The specified information required by this item is incorporated by 
reference to the information in the table under the heading "Voting 
Securities and Principal Holders Thereof" in the Proxy Statement as filed 
with the Commission.

Item 13.	Certain Relationships and Related Transactions

	None.
<PAGE>


	PART IV


Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 
8-K

  (a)1.     See Index to Financial Statements and Schedule

  (a)2.	See Index to Financial Statements and Schedule 	

  (a)3.     Exhibits

     3.1	Certificate of Incorporation of Kentucky Electric Steel, 
Inc., filed as Exhibit 3.1 to Registrant's Registration 
Statement on Form S-1 (No. 33-67140), and incorporated by 
reference herein.

     3.2 	By-Laws of Kentucky Electric Steel, Inc., filed as Exhibit 
3.2 to Registrant's Registration Statement on Form S-1 (No. 
33-67140), and incorporated by reference herein.

     4.1	Senior Note Agreement between Registrant and a group of 
institutional investors.  Filed as Exhibit 4.1 to 
Registrant's Form 10-K for the fiscal year ended September 
30, 1995, File No. 0-22416, and incorporated by reference 
herein.

     4.2	Amended and Restated Loan Agreement between Registrant and 
National  City Bank, Kentucky, dated November 1, 1995.  Filed 
as Exhibit 4.2 to Registrant's Form 10-K for the fiscal year 
ended September 30, 1995, File No. 0-22416, and incorporated 
by reference herein.

     4.3	Amended and Restated Export Financing Agreement between 
Registrant and National City Bank, Kentucky, dated November 
1, 1995.  Filed as Exhibit 4.3 to Registrant's Form 10-K for 
the fiscal year ended September 30, 1995, File No. 0-22416, 
and incorporated by reference herein.

4.4	First Amendment Agreement to Senior Note Agreement between 
Registrant and a group of institutional investors.  Filed as 
Exhibit 4.4 to Registrant's Form 10-Q, No. 0-22416, filed on 
February 11, 1997, and incorporated by reference herein.

4.5	Amendment No. 1 to Amended and Restated Loan Agreement 
between Registrant and National City Bank, Kentucky.  Filed 
as Exhibit 4.5 to Registrant's Form 10-Q No. 0-22416, filed 
on February 11, 1997, and incorporated by reference herein.	

4.6	Amendment No. 2 to Amended and Restated Loan Agreement 
between Registrant and National City Bank, Kentucky.  Filed 
as Exhibit 4.6 to Registrant's Form 10-Q, No. 0-22416, filed 
on February 9, 1998, and incorporated by reference herein.
     
     4.7 	Amendment No. 1 to Amended and Restated Export Financing 
Agreement between Registrant and National City Bank, 
Kentucky.  Filed as Exhibit 4.7 to Registrant's Form 10-Q, 
No. 0-22416, filed on February 9, 1998, and incorporated by 
reference herein.
  	
    10.1	Transfer Agreement between NS Group, Inc., Kentucky Electric 
Steel Corporation, and Registrant, filed as Exhibit 10.2 to 
Registrant's Form 10-K for the fiscal year ended September 
25, 1993, File No. 0-22416, and incorporated by reference 
herein.

    10.2	Tax Agreement between NS Group, Inc., Kentucky Electric Steel 
Corporation and Registrant, filed as Exhibit 10.3 to 
Registrant's Form 10-K for the fiscal year ended September 
25, 1993, File No. 0-22416, and incorporated by reference 
herein.

    10.3	Form of Indemnification Agreement between Registrant and Its 
Executive Officers and Directors, filed as Exhibit 10.4 to 
Amendment No. 1 to Registrant's Registration Statement on 
Form S-1 (No. 33-67140), and incorporated by reference 
herein.*

    10.4	Registration Rights Agreement between Registrant and NS 
Group, Inc., filed as Exhibit 10.7 to Registrant's Form 10-K 
for the fiscal year ended September 25, 1993, File No. 0-
22416, and incorporated by reference herein.

10.5	Kentucky Electric Steel, Inc. 1993 Employee Stock Option/ 
Restricted Stock Plan, filed on Registrant's Form S-8 (No. 
33-77598), filed on April 12, 1994, and incorporated by 
reference herein.*
  
10.6	Kentucky Electric Steel, Inc. 1993 Transition Stock Option 
Plan, filed on Registrant's Form S-8 (No. 33-77598), filed on 
April 12, 1994, and incorporated by reference herein. 

    10.7	Contract with Morgan-Pomini Company for Rolling and 
Finishing End Modernization filed as Exhibit 10.8 to 
Registrant's Form 10-Q, No. 0-22416, filed on May 4, 
1994, and incorporated by reference herein.

    10.8	The Kenucky Electric Steel, Inc. Salary Continuation 
Plan, effective June 7, 1994, for the benefit of the 
Company's eligible salaried employees, filed as Exhibit 
10.10 to Registrant's Form 10-K for the fiscal year ended 
September 24, 1994, File No. 0-22416, and incorporated by 
reference herein.*

    10.9 	The Kentucky Electric Steel, Inc. Executive Severance Plan, 
effective June 7, 1994, for the benefit of the Company's 
eligible Executive Officers, filed as Exhibit 10.11 to 
Registrant's Form 10-K for the fiscal year ended September 
24, 1994, File No. 0-22416, and incorporated by reference 
herein.*

    10.10	Employment agreements dated June 7, 1994, between Kentucky 
Electric Steel, Inc. and its four Executive Officers, as 
amended, filed herewith.* 

    10.11	Salary Continuation Agreements entered into between Kentucky 
Electric Steel, Inc. and its four Executive Officers, filed 
		herewith.*

    10.12	The Kentucky Electric Steel, Inc. Key Employee Stock/Loan 
Plan, effective February 2, 1995 for the benefit of the 
Company's   Executive Officers, filed as Exhibit 10.14 to 
Registrant's Form 10-Q, No. 0-22416, filed on February 9, 
1995, and incorporated by reference herein.*

    10.13	Contract with EMC International, Inc. for Ladle Metallurgy 
Facility, filed as Exhibit 10.15 to Registrant's Form 10-Q, 
No. 0-22416, filed on May 16, 1995, and incorporated by 
reference herein.

    10.14	Kentucky Electric Steel, Inc. 1994 Employee Stock Option/
Restricted Stock Plan, filed on Registrant's Form S-8 (No. 
33-301218), filed on February 12, 1996, and incorporated by 
reference herein.*

    10.15	Rights Agreement between Kentucky Electric Steel, Inc. and 
Wachovia Bank of North Carolina, N.A., dated as of February 
27, 1996, filed  as Exhibit 4 to Registrant's Form 8-K, File 
No. 0-22416, filed on February 28, 1996 and incorporated by 
reference herein.

10.16	First Addendum to Agreement with Morgan-Pomini Company for 
Rolling and Finishing Fund Modernization, filed as Exhibit 
10.15 to Registrant's Form 10-Q, No. 0-22416, filed on 
February 11, 1997, and incorporated by reference herein.

10.17	Remediation and Waste Disposal Agreement - Zhagrus 
Environmental, Inc., filed as Exhibit 10.16 to Registrant's 
Form 10-Q, No. 0-22416 filed on May 12, 1997 and incorporated 
by reference herein.

10.18   The Kentucky Electric Steel, Inc. Share Plan for Non-Employee 
        Directors, filed as Exhibit 10.19 to Registrant's Form 10-K, 
        No. 0-22416 filed on December 19, 1997 and incorporated by   
        reference herein.*


10.19	Split Dollar Insurance Agreement dated September 1, 1998 
between Kentucky Electric Steel, Inc. and its four Executive 
Officers, filed herewith.*

    23	Consent of Arthur Andersen LLP

    27      Financial Data Schedule

     (b)    Reports on Form 8-K 

There were no reports on Form 8-K filed during the quarter 
ended September 26, 1998.










*  Indicates management contracts or compensatory plans or         
   arrangements in which one or more Directors or Executive        
   Officers of the Company participate or is a party. 



<PAGE>


	SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) 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.

         KENTUCKY ELECTRIC STEEL, INC.


December 11, 1998                      By:  \s\Charles C. Hanebuth       
 
                                            Charles C. Hanebuth
                                            President, Chief Executive
                                              Officer and Chairman


Pursuant to the requirements of the Securities Exchange Act of 
1934, this report has been signed below by the following persons on 
behalf of the Registrant and in the capacities and on the dates 
indicated.



Signatures                     Title                      Date


\s\Charles C. Hanebuth   President, Chief Executive     December 11, 1998 
Charles C. Hanebuth        Officer and Chairman

\s\William J. Jessie     Vice President, Secretary,     December 11, 1998
William J. Jessie          Treasurer and Chief 
         Financial Officer
                          (Principal Financial and
                           Accounting Officer)

\s\Clifford R. Borland   Director                       December 11, 1998
Clifford R. Borland

\s\Carl E. Edwards, Jr.  Director                       December 11, 1998
Carl E. Edwards, Jr.

\s\J. Marvin Quin, II    Director                       December 11, 1998
J. Marvin Quin, II

\s\David C. Struve       Director                       December 11, 1998
David C. Struve




<PAGE





KENTUCKY ELECTRIC STEEL, INC.

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



Financial Statements                                       Page(s)

Report of Independent Public Accountants .................   F-1

Consolidated Balance Sheets - September 27, 1997 and 
September 26, 1998 .......................................	 F-2

Consolidated Statements of Operations - Years ended
September 28, 1996, September 27, 1997 and 
September 26, 1998 .......................................	 F-3

Consolidated Statements of Changes in Shareholders' Equity -
Years ended September 28, 1996, September 27, 1997, and 
September 26, 1998 .......................................	 F-4



Consolidated Statements of Cash Flows - Years ended 
September 28, 1996, September 27, 1997 and 
September 26, 1998 .......................................	 F-5

Notes to Consolidated Financial Statements ...............	 F-6


Financial Statement Schedule

      Report of Independent Public Accountants .................   S-1
      
Schedule II  Valuation and Qualifying Accounts ...........	 S-2


<PAGE>









	REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To Kentucky Electric Steel, Inc.:

	We have audited the accompanying consolidated balance sheets of 
Kentucky Electric Steel, Inc. (a Delaware corporation) and subsidiary as of 
September 27, 1997 and September 26, 1998, and the related consolidated 
statements of operations, changes in shareholders' equity and cash flows for 
each of the three years in the period ended September 26, 1998.  These 
financial statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audits.

	We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.

	In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of Kentucky 
Electric Steel, Inc. and subsidiary as of September 27, 1997 and September 
26, 1998 and the results of their operations and their cash flows for each 
of the three years in the period ending September 26, 1998 in conformity 
with generally accepted accounting principles.





       Arthur Andersen LLP



Cincinnati, Ohio,
October 28, 1998 

<PAGE>















<TABLE>

KENTUCKY ELECTRIC STEEL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
                                                     
                                             September     September
                                              27, 1997      26, 1998
                       ASSETS
<S>                                          <C>           <C>      
   CURRENT ASSETS
     Cash and cash equivalents                $    127       $    150    
     Accounts receivable, less allowance for 
       doubtful accounts of $470 in 
       1997 and $460 in 1998                    11,577         12,037
     Insurance claim receivable                    900           -   
     Inventories                                16,538         20,363
     Operating supplies and other current 
       assets                                    4,802          5,206
     Refundable income taxes                       900           -    
     Deferred tax assets                           457            648 
                                               -------        -------    
               Total current assets             35,301         38,404
                                               -------        -------
   PROPERTY, PLANT AND EQUIPMENT
     Land and buildings                          4,448          4,532
     Machinery and equipment                    40,301         42,004
     Construction in progress                    2,012          3,031
     Less - accumulated depreciation           (11,229)       (14,772)
                                               -------        -------
          Net property, plant and equipment     35,532         34,795
                                               -------        -------
   DEFERRED TAX ASSETS                           7,159          5,990
                                               -------        -------
   OTHER ASSETS                                    778          1,062 
                                               -------        -------
          Total assets                        $ 78,770       $ 80,251 
  
        LIABILITIES AND SHAREHOLDERS' EQUITY
   CURRENT LIABILITIES
     Advances on line of credit               $ 10,635       $ 11,397
     Accounts payable                            7,977          7,056
     Capital expenditures payable                  547            857
     Accrued liabilities                         3,700          3,834
     Environmental liabilities                     982            982
     Current portion of long-term debt             125            125 
                                               -------        -------
          Total current liabilities             23,966         24,251
                                               -------        -------
   LONG-TERM DEBT                               20,000         20,000
                                               -------        -------
   OTHER LIABILITIES                               593            808 
                                               -------        -------
          Total liabilities                     44,559         45,059
                                               -------        -------
   SHAREHOLDERS' EQUITY
     Preferred stock, $.01 par value, 
       1,000,000  shares authorized, 
       no shares issued                           -              -
     Common stock, $.01 par value, 
       15,000,000 shares authorized, 
       4,977,988 and 4,985,937 shares
       issued, respectively                         50             50 
     Additional paid-in capital                 15,665         15,671
     Less treasury stock - 350,976 and 526,996 
       shares at cost, respectively             (2,638)        (3,254)
     Deferred compensation                        (170)           (73)
     Retained earnings                          21,304         22,798
                                               -------        -------
          Total shareholders' equity            34,211         35,192
                                               -------        -------    
        Total liabilities and shareholders' 
          equity                              $ 78,770       $ 80,251


<FN>

See notes to consolidated financial statements
</TABLE>
<TABLE>

KENTUCKY ELECTRIC STEEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)

<CAPTION>
                                                 Year Ended             
                                    September    September    September
                                     28, 1996     27, 1997     26, 1998
<S>                                 <C>          <C>          <C>     
NET SALES                            $ 98,320     $ 94,652     $109,456
COST OF GOODS SOLD                     89,783       89,992       97,720
                                      -------      -------      -------
       Gross profit                     8,537        4,660       11,736

SELLING AND ADMINISTRATIVE EXPENSES     7,391        6,800        7,011
                                      -------      -------      -------
       Operating income (loss)          1,146       (2,140)       4,725 

INTEREST EXPENSE                       (1,453)      (2,125)      (2,395)
INTEREST INCOME AND OTHER                  31           34           80
GAIN ON INVOLUNTARY CONVERSION
  OF EQUIPMENT                            369         -            -   
                                      -------      -------      -------
       Income (loss) before income taxes   93       (4,231)       2,410 

PROVISION (CREDIT) FOR INCOME TAXES        35       (1,599)         916 
                                      -------      -------      ------- 

       Net income (loss)             $     58     $ (2,632)    $  1,494 

NET INCOME (LOSS) PER COMMON SHARE -
  BASIC AND DILUTED                  $    .01     $   (.57)    $    .32

WEIGHTED AVERAGE SHARES OUTSTANDING -
  BASIC                             4,806,161    4,633,315    4,624,671


WEIGHTED AVERAGE SHARES OUTSTANDING -
  DILUTED                           4,806,485    4,633,315    4,630,920




<FN>

See notes to consolidated financial statements
</TABLE>
<TABLE>

KENTUCKY ELECTRIC STEEL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Years in the Period Ended
September 26, 1998


(Dollars in Thousands)
 <CAPTION>
                                         Addi-
                                         tional                     
Deferred
                          Common Stock   Paid-In    Treasury Stock   
Compen-  Retained
                         Shares  Amount  Capital   Shares    Amount  sation 
  Earnings  Total
<S>                      <C>     <C>     <C>       <C>       <C>     <C>   
   <C>      <C>   
BALANCE, Sept. 30, 1995 4,974,099  $50   $15,710  (100,000) $  (869) $(672) 
  $23,878  $38,097
  Stock loan grants          -       -      -         -         -      (32) 
     -         (32)
  Amortization of 
    deferred comp-
    ensation                 -       -      -         -         -      283 
      -         283
  Purchases of treasury
    stock                    -       -      -     (173,000)  (1,296)    -  
      -      (1,296)
  Net income                 -       -      -         -         -       -  
        58       58
                        ---------   --    ------   -------    -----    --- 
    ------   ------
BALANCE, Sept. 28, 1996 4,974,099   50    15,710  (273,000)  (2,165)  (421) 
   23,936   37,110
  Tax effect of 
    restricted stock
    recognized differ-
    ently for financial
    reporting and tax
    purposes                 -       -       (66)     -         -       -  
      -         (66)
  Amortization of
    deferred comp-
    ensation                 -       -      -         -         -      251 
      -         251
  Issuance of stock         3,889    -        21      -         -       -  
      -          21
  Purchases of treasury
    stock                    -       -      -      (77,976)    (473)    -  
      -        (473)
  Net (loss)                 -       -      -         -         -       -  
    (2,632)  (2,632)
                        ---------   --    ------   -------    -----    --- 
    ------   ------
BALANCE, Sept. 27, 1997 4,977,988   50    15,665  (350,976)  (2,638)  (170) 
   21,304   34,211 
Tax effect of 
    restricted stock
    recognized differ-
    ently for financial
    reporting and tax
    purposes                 -       -       (42)     -         -       -  
      -         (42)
  Amortization of
    deferred comp-
    ensation                 -       -      -         -         -       97 
      -          97
  Issuance of stock         7,949    -        48      -         -       -  
      -          48
  Purchases of treasury
    stock                    -       -      -     (176,020)    (616)    -  
      -        (616)
  Net income                 -       -      -         -         -       -  
     1,494    1,494 
                        ---------   --    ------   -------    -----    --- 
    ------   ------
BALANCE, Sept. 26, 1998  4,985,937  $50   $15,671  (526,996) $(3,254)  
$(73)  $22,798  $35,192 


<FN>





See notes to consolidated financial statements
</TABLE>
<TABLE>
KENTUCKY ELECTRIC STEEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<CAPTION>      
                                                 Year Ended              
                                    September    September    September
                                     28, 1996     27, 1997     26, 1998
<S>                                 <C>          <C>          <C>  
Cash Flows From Operating Activities:
  Net income (loss)                   $    58     $ (2,632)    $ 1,494
  Adjustments to reconcile net income 
    (loss) to net cash flows from 
    operating activities:
      Depreciation and amortization     2,769        3,737       3,683
      Gain on involuntary conversion 
        of equipment                     (369)         -            -  
      Change in deferred taxes            618        (896)       1,169
      Change in other                    (257)       (158)        (154)
      Changes in current assets and
        current liabilities:
          Accounts receivable             815         536         (460) 
          Insurance claim receivable       -         (900)         900
          Inventories                     838         829       (3,825)
          Operating supplies and other
            current assets                206         265         (404)
          Refundable income taxes         (88)       (360)         900
          Deferred tax assets            (487)        223         (191)
          Accounts payable                (81)        763         (921)
          Accrued liabilities             (74)         61          134 
          Environmental liabilities       -           982           -   
                                       ------      ------       ------
Net cash flows from operating 
 activities 		  3,948       2,450        2,325 
                                       ------      ------       ------
Cash Flows From Investing Activities:
  Proceeds from involuntary 
    conversion of equipment               912         -             -
  Capital expenditures                (10,509)     (3,226)      (2,806)
  Change in capital expenditures 
    payable      		   (672)     (1,858)         310 
                                       ------      ------       ------
Net cash flows from investing 
  activities   		(10,269)     (5,084)      (2,496)
                                       ------      ------       ------
Cash Flows From Financing Activities:
  Net advances (repayments) on 
    line of credit             	 (3,585)      3,089          762
  Repayments on long-term debt 	 (9,001)        -             -   
  Proceeds from long-term debt 
     borrowings   		 20,000         -             -
  Issuance of common stock               -             21           48   
  Purchases of treasury stock          (1,296)       (473)        (616)
                                       ------      ------       ------
Net cash flows from financing 
  activities                            6,118       2,637          194 
                                       ------      ------       ------
Net increase (decrease) in cash
  and cash equivalents                   (203)          3           23 
Cash and Cash Equivalents - 
  Beg. of Period                          327         124          127
                                       ------      ------       ------
Cash and Cash Equivalents - 
  End of Period                       $   124     $   127      $   150 

Interest Paid, net of amount 
  capitalized                         $   884     $ 2,142      $ 2,371 

Income Taxes Paid                     $   376     $   -        $   200 
<FN>
See notes to consolidated financial statements
</TABLE>


KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)	Nature of Operations 

	Kentucky Electric Steel, Inc. (KESI or the Company) owns and 
operates a steel mini-mill near Ashland, Kentucky.  The Company 
manufactures special bar quality alloy and carbon steel bar flats to 
precise customer specifications for sale in a variety of niche 
markets.  KESI was capitalized in an initial public offering of its 
common stock on October 6, 1993. 


(2)	Summary of Significant Accounting Policies

	Principles of Consolidation
	The consolidated financial statements include the accounts of 
Kentucky Electric Steel, Inc. and its wholly-owned subsidiary, KESI 
Finance Company, which was formed in October 1996 to finance the 
ladle metallurgy facility.  All significant intercompany accounts and 
transactions have been eliminated.  
	
	Accounting Estimates
	The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make 
estimates and assumptions that affect the reported amounts of assets 
and liabilities and disclosure of contingent assets and liabilities 
at the date of the financial statements and the reported amounts of 
revenue and expenses during the reporting period.  Actual results 
could differ from those estimates.    

 	Cash and Cash Equivalents 
	Cash includes currency on-hand and deposits with financial 
institutions.  Cash equivalents consist of investments with original 
maturities of three months or less.  Amounts are stated at cost, 
which approximates market value.

	Inventories 
	Inventory costs include material, labor and manufacturing overhead. 
 Inventories are valued at the lower of average cost or market.

	Property, Plant and Equipment and Depreciation 
	Property, plant and equipment is recorded at cost, less accumulated 
depreciation. For financial reporting purposes, depreciation is provided 
on the straight-line method over the estimated useful lives of the 
assets, generally 3 to 12 years for machinery and equipment and 15 to 30 
years for buildings and improvements.  Depreciation for income tax 
purposes is computed using accelerated methods.  Expenditures for 
maintenance and repairs are charged to expense as incurred.  Expenditures 
for equipment renewals, which extend the useful life of any asset, are 
capitalized.  The Company assesses its long-lived assets for impairment 
whenever events or changes in circumstances indicate that the carrying 
amounts may not be recoverable.

	The Company capitalizes interest costs as part of the historical cost 
of acquiring major capital assets.  Interest cost of $262,000 and $11,000 
was capitalized for the years ended September 28, 1996 and September 27, 
1997, respectively.  No interest was capitalized for the year ended 
September 26, 1998.

	Income Taxes
	The Company accounts for income taxes pursuant to the asset and 
liability method. Deferred tax assets and liabilities are recognized 
based upon the estimated increase or decrease in taxes payable or 
refundable in future years expected to result from reversal of temporary 
differences and utilization of carryforwards which exist at the end of 
the current year.  Temporary differences represent the differences 
between the financial statement carrying amount of assets and liabilities 
and their respective tax bases. Deferred tax assets and liabilities are 
measured using enacted tax rates scheduled to apply to taxable income in 
the years in which the temporary differences are expected to be settled, 
and are adjusted in the period of enactment for the effect of a change in 
tax law or rates.
 
	Recent Accounting Pronouncements 
	In June 1997, the Financial Accounting Standards Board issued 
Statement No. 130 (SFAS No. 130) "Reporting Comprehensive Income".  SFAS 
No. 130 establishes standards for reporting and displaying comprehensive 
income and its components in a full set of general-purpose financial 
statements.  The Company currently has no items of other comprehensive 
income; therefore, SFAS No. 130 does not currently apply.  The Company is 
required to adopt SFAS No. 130 effective with the fiscal year ending 
September 25, 1999.

	In June 1997, the Financial Accounting Standards Board issued 
Statement No. 131 (SFAS No. 131) "Disclosures about Segments of an 
Enterprise and Related Information." SFAS No. 131 establishes standards 
for reporting information about operating segments in annual financial 
statements and interim financial reports issued to shareholders.  It also 
establishes standards for related disclosures about products and 
services, geographic areas, and major customers.  Management is currently 
evaluating the provisions of this statement to determine its impact upon 
current reporting.  The Company is required to adopt SFAS No. 131 
effective with the fiscal year ending September 25, 1999.

	In June 1998, the Financial Accounting Standards Board issued 
Statement No. 133 (SFAS No. 133) "Accounting for Derivative Instruments 
and Hedging Activities".  SFAS No. 133 establishes accounting and 
reporting standards for derivative instruments, including certain 
derivative instruments embedded in other contracts, (collectively 
referred to as derivatives) and for hedging activities.  It requires that 
an entity recognize all derivatives as either assets or liabilities in 
the statement of financial position and measure those instruments at fair 
value.  The Company does not currently have any instruments that would 
qualify; therefore, SFAS No. 133 does not currently apply.  The Company 
is required to adopt SFAS No. 133 effective as of the beginning of the 
first fiscal quarter of 2000.
 
	Fiscal Year End 
	The Company's fiscal year ends on the last Saturday of September. 
	
(3)	Inventories

	Inventories at September 27, 1997 and September 26, 1998 consist of 
the following ($000's):

                                                      1997       1998   

              Raw materials                         $ 3,280    $ 1,984
              Semi-finished and finished goods       13,258     18,379 
                Total inventories                   $16,538    $20,363



(4)	Insurance Claim Receivable and Environmental Liabilities

	The Company's melt shop operations were shut down for twelve days 
during the third quarter of fiscal 1997 in order to decontaminate its 
baghouse facilities after detection of a radioactive substance in the 
baghouse dust, a by-product of the melting process.

	The $1.0 million in environmental liabilities recorded as a current 
liability on the balance sheet represents final payment due an 
environmental services company for treatment and disposal of the 
contaminated baghouse dust. Payment for the disposal will occur within 
the next twelve months.  Although it is possible that the ultimate 
disposal costs may change from current estimates, the effect of the 
change, if any, is not expected to be material to the financial 
statements due to the Company having applicable insurance coverage.

(5)	Accrued Liabilities

	Accrued liabilities at September 27, 1997 and September 26, 1998 
consist of the following ($000's):
                                                       1997      1998   
     Accrued payroll and related liabilities         $ 1,431   $ 1,431
     Accrued insurance and workers' compensation       1,085       820
     Accrued interest payable                            679       702 
     Other                                               505       881  
                                                     $ 3,700   $ 3,834 

 (6)	Long-Term Debt

	Long-term debt of the Company at September 27, 1997 and September 26, 
1998 consists of the following ($000's):
  
                                                      1997        1998  
         Unsecured senior notes, due in equal       
           annual installments from November   
           2000 through 2005, interest at 7.66%     $ 20,000    $20,000
         Other                                           125        125 
                                                      20,125     20,125
         Less - Current portion                         (125)      (125)
                                                    $ 20,000    $20,000

	The unsecured senior notes require no principal payments for the 
first five years.  Principal payments commence on November 1, 2000 and 
are due in equal annual installments over six years.  These notes bear 
interest at the rate of 7.66% per annum, with interest paid semi-
annually.

	The Company has a $24.5 million unsecured bank credit facility.  
Borrowings are limited to defined percentages of eligible inventory and 
accounts receivable.  Interests on borrowings accrue at the rate of LIBOR 
plus 1.35% or the prime rate minus 1/2%. 

	The notes and bank credit facility contain restrictive covenants, 
which include, among other restrictions, a maximum ratio of total funded 
debt to total capitalization, a minimum fixed charge coverage ratio, a 
minimum net worth requirement and restrictions on the payment of 
dividends. 

	As of September 26, 1998, approximately $11.4 million was 
outstanding under the bank credit facility, approximately $1.5 million 
was utilized to collateralize various letters of credit and $8.0 million 
was available for additional borrowings.  The weighted average interest 
rate on short-term borrowings as of September 27, 1997 and September 26, 
1998 were 7.3% for both years.

	The estimated fair value of the Company's unsecured senior notes is 
estimated using discounted cash flow analysis, based upon the estimated 
market rate as of September 26, 1998.  The fair value of the unsecured 
senior notes was approximately $19.7 million as of September 26, 1998 and 
as of September 27, 1997.


(7)	Significant Customers and Foreign Sales

	The Company grants trade credit to customers within the markets it 
serves. Sales to the leaf-springs suspension market represented 25.3%, 
18.6%, and 14.2% of total sales for 1996, 1997 and 1998, respectively.
	
	One company, through several wholly-owned subsidiaries which are 
customers of the Company, represented 11.7%, 9.6% and 9.2% of net sales 
in fiscal 1996, 1997 and 1998, respectively.  Another customer, through 
two wholly-owned subsidiaries, which are customers of the Company, 
accounted for 14.0% and 10.4% of net sales in fiscal 1997 and 1998, 
respectively. No other customer accounted for more than 10% of net sales.

	The Company's foreign sales represented 8.8%, 8.5%, and 7.5% of 
total sales for 1996, 1997 and 1998, respectively.  


(8)	Income Taxes

 	The provision (credit) for income taxes consists of the following 
($000's):

                                      1996         1997        1998  

          Current:
            Federal                 $(2,510)    $  (900)      $ 200 
            State                      (379)         -           -  
                                     (2,889)       (900)        200 
          Deferred:
            Federal                   2,541        (498)        596  
            State                       383        (201)        120 
                                      2,924        (699)        716 
          Total provision (credit)
            for income taxes        $    35     $(1,599)      $ 916 


	The provision (credit) for income taxes differs from the amount 
computed by applying the statutory federal income tax rate to income before 
income taxes for the following reasons ($000's):

                                          1996       1997        1998 

      Income tax provision (credit) 
        at statutory tax rate of 34%      $ 32     $(1,438)     $ 819
      State income taxes, net of 
        federal effect                       1        (103)        64  
      Other, net                             2         (58)        33 

                                          $ 35     $(1,599)     $ 916    


	The components of the net deferred tax asset at September 27, 1997 
and September 26, 1998 are as follows ($000's):

                                             Sept. 27,     Sept. 26, 
                                                1997         1998  

      Deferred tax components:
        Property, plant and equipment        $ 1,126       $  (307)
        Intangibles                            2,737         2,526
        AMT credit carryforwards               1,197         1,177
        NOL carryforward                       4,682         5,429
        Other                                    555           494
                                              10,297         9,319
        Valuation allowance                   (2,681)       (2,681)

           Net deferred tax assets           $ 7,616       $ 6,638


	For Federal income tax purposes the Company has alternative minimum 
tax carryforwards of approximately $1.2 million, which are not limited by 
expiration dates.  The Company also has gross operating tax loss 
carryforwards 
of approximately $16.0 million, which expire beginning in 2011.  The 
Company has recorded deferred tax assets related to these carryforwards. 
 

	The realization of deferred tax assets is dependent in part upon 
generation of sufficient future taxable income.  Management has 
considered the levels of currently anticipated pre-tax income in 
assessing the required level of the deferred tax asset valuation 
allowance.  Taking into consideration historical pre-tax income levels, 
the nature of certain events which adversely affected operations in 
fiscal 1996 and 1997, the results of operations for fiscal 1998, and 
other factors, management believes it is more likely than not that the 
net deferred tax asset, after consideration of the valuation allowance 
which has been established, will be realized.  The amount of the net 
deferred tax asset considered realizable, however, could be reduced if 
estimates of future taxable income during the carryforward period are 
reduced.


(9)	Profit Sharing Plans

	The Company has established profit sharing plans for its bargaining 
unit (hourly) and salaried employees.  Generally, the plans require 
mandatory contributions of five percent of pretax profits (with a 
guaranteed minimum based on hours worked) for the hourly employees, and 
an additional discretionary contribution set by the Board of Directors 
for salaried employees.  Expense for contributions was approximately 
$213,000, $219,000, and $226,000 in 1996, 1997 and 1998, respectively.


(10)  Earnings Per Share

	Statement of Financial Accounting Standards No. 128 (SFAS No. 128) 
related to earnings per share requires dual presentation of basic and 
diluted earnings per share on the face of the income statement for all 
entities with complex capital structures.  The Company adopted SFAS No. 
128 during the first quarter of fiscal 1998.  The following is the 
reconciliation of the numerators and denominators of the basic and 
diluted earnings per share computations.

                     For the Year Ended          For the Year Ended 
                     September 28, 1996          September 27, 1997      
                   Per                         Per 
                  Share                       Share 
                  Income    Shares   Amount   (Loss)     Shares   Amount 
Amounts for Basic    
  Earnings (Loss)
  Per Share        $58    4,806,161   $.01   $(2,632)  4,633,315  $(.57)

Effect of Dilutive 
  Securities 
  Options           -           324     -       -          -         -   
Amounts for Diluted
  Earnings (Loss)   
  Per Share        $58    4,806,485   $.01   $(2,632)  4,633,315  $(.57) 
  



	                        For the Year Ended 
                              September 26, 1998       
                                                  Per 
                                                 Share 
                         Income      Shares     Amount 
Amounts for Basic    
  Earnings Per Share     $1,494     4,624,671    $.32

Effect of Dilutive 
  Securities Options       -            6,249      -  

Amounts for Diluted
  Earnings Per Share     $1,494     4,630,920    $.32

The following options were not included in the computation of diluted 
earnings per share because to do so would have been antidilutive for the 
applicable period:

					        1996        1997        1998  
	Transition stock options	169,430	158,702	 92,335
	Employee stock options		236,784	405,168	301,976
						406,214	563,870	394,311

See Note 11 for further information regarding options outstanding.

(11)	Stock Option/Restricted Stock Plan

	The Company has Employee Stock Option/Restricted Stock Plans which 
provide shares of common stock for awards to eligible employees in the 
form of stock options and restricted stock.  Awards under the plans may 
be made to any officer or other key employees of the Company.  The 
options become exercisable on a pro rata basis over a period of four 
years beginning one year after the grant date, except for options issued 
in conjunction with the initial public offering, which become exercisable 
over a three-year period, which began on approval by the stockholders of 
the 1993 Employee Stock Option/Restricted Stock Plan in February 1994.  
All unexercised options expire ten years after the date of grant.  Option 
and restricted stock prices range from $5.56 to $12.31 per share.

	The plans also provide for the issuance of restricted stock.  The 
restricted shares vest three years after the grant date.  During 1994 in 
connection with the initial public offering, 18,000 restricted shares 
were granted and issued, and vest on a pro rata basis over a period of 
four years beginning one year after the grant date. Compensation expense 
of $208,000 and $53,000 was recognized in fiscal 1997 and 1998, 
respectively, as a result of amortization of restricted stock grants over 
the vesting periods.  The unamortized portion of the restricted stock is 
reflected in deferred compensation and was $53,000 as of September 27, 
1997.  The restricted stock was fully amortized as of September 26, 1998.

	A summary of transactions in the above plans for fiscal 1997 and 
1998 are as follows:

                                     1997                 1998
                                         Weighted-            Weighted-  
                                          Average              Average 
                                 Stock    Exercise    Stock    Exercise 
                                Options    Price     Options    Price   
  Options outstanding, 
    beginning of year           327,976   $10.11     405,168   $ 9.12 
  Options granted                89,192     5.56        -         -   
  Options forfeited             (12,000)    9.69     (18,500)    8.46
  Options outstanding, 
    end of year                 405,168   $ 9.12     386,668   $ 9.15
  Options exercisable, 
    end of year                 186,505   $10.96     263,877   $10.24    
      Restricted shares granted    -                    -    
  Options and restricted shares 
    available for grant          10,733               29,233 


	The 1993 Transition Stock Option Plan (the "Transition Plan") was 
approved by the stockholders in 1994.  The Transition Plan was designed 
to substitute KESI stock options for previously issued NS Group stock 
options. KESI incentive stock options for 186,539 shares of Common Stock 
were issued in 1994, with exercise prices varying from $8.76 per share to 
$20.86 per share.  A summary of transactions in the plan for fiscal 1997 
and 1998 are as follows:

                                     1997                 1998        
                                          Weighted-           Weighted-  
                                           Average              Average 
                                 Stock     Exercise    Stock   Exercise 
                                Options     Price     Options    Price   

  Options outstanding, 
    beginning of year           169,430    $14.00     158,702   $14.06 
  Options granted                  -          -          -         -   
  Options forfeited             (10,728)    13.06     (24,892)   14.69
  Options expired                  -          -       (41,475)   20.86   
  Options outstanding, 
    end of year                 158,702    $14.06      92,335   $10.84
  Options exercisable, 
    end of year                 149,720    $14.38      92,335   $10.84


	The Company accounts for its stock-based compensation plans using the 
intrinsic value method in accordance with APB Opinion No. 25 and related 
interpretations. Under this method, no compensation cost has been recognized 
for the Company's Employee Stock Option Plan for fiscal years 1996, 1997, 
and 1998.  Had compensation cost for the stock options granted in fiscal 
1996 and 1997 been determined based on the fair value of the options at the 
grant dates for awards under those plans consistent with the fair value 
method pro forma net income and basic and diluted earnings per share would 
have been a net loss of $4,000 and $.00 per share for fiscal 1996, a net 
loss of $2.7 million and $.59 per share for fiscal 1997, and net income of 
$1.4 million or $.30 per share for fiscal 1998. These pro forma disclosures 
are not likely to be representative of the effect on reported net income and 
basic and diluted earnings per share for future years since current options 
vest over a three to four year period and additional options are generally 
granted each year.  The weighted-average fair value of options granted in 
fiscal 1996 and fiscal 1997 was $4.38 and $3.15 per share, respectively. The 
fair value of each option is estimated on the date of grant using the Black-
Scholes options pricing model with the following assumptions: weighted 
average risk free interest rate of 6.96% for fiscal 1996 and 6.59% for 
fiscal 1997, weighted average volatility of 38.4%, expected life of eight 
years and zero dividends.  The Company did not grant any options in fiscal 
1998.
 
	The following table summarizes information about stock options 
outstanding at September 26, 1998 under the Employee Stock Option/Restricted 
Stock Plans and the Transition Plan:


                     Options Outstanding       Options Exercisable       
                             Weighted-
                              Average    Weighted-              Weighted-
                   Number     Remaining   Average     Number     Average
    Range of    Outstanding  Contractual  Exercise  Exercisable Exercise
Exercise Prices  at 9/26/98    Life        Price    at 9/26/98    Price  
 

Employee Stock Option/Restricted Stock Plans:
$ 5.56 -  7.63    165,884    8.12 Years   $ 6.57      62,642     $ 6.92
  9.13 - 12.31    220,784    6.00 Years    11.09     201,235      ll.28 
  5.56 - 12.31    386,668    6.91 Years     9.15     263,877      10.24 

Transition Plan:
$ 8.76 -  9.05     60,405    3.88 Years   $ 8.86      60,405     $ 8.96
 14.40 - 19.57     31,930     .71 Years    14.60      31,930      l4.60 
  8.76 - 19.57     92,335    2.78 Years    10.84      92,335      10.84


	The Company has a key employees' stock loan plan which provides for 
the granting of loans to eligible employees for the purchase of the 
Company's common stock in the open market.  Under the terms of the plan, 
the loans are forgiven, and the related amounts expensed, on a pro-rata 
basis over a five-year period of service beginning at the date of grant. 
The unamortized balance due from eligible employees under the plan is 
reflected as deferred compensation and shown as a reduction of 
shareholders' equity and was $117,000 and $73,000 as of September 27, 
1997 and September 26, 1998, respectively.  In fiscal 1997 and fiscal 
1998, the Company recognized $43,000 and $44,000 of compensation expense 
related to the plan.

	During 1997, the Board of Directors established the Kentucky 
Electric Steel, Inc. Share Plan for Non-Employee Directors (the "Plan"), 
which provides for the issuance of stock in lieu of cash for director 
services.  Under the Plan, 25,000 shares were authorized for issuance.  
The Plan provides for issuance of common stock for at least 60% of the 
fees payable with respect to the applicable meeting for each Non-Employee 
Director.  During fiscal 1997, 3,889 shares were issued at stock prices 
ranging from $5.13 to $5.50 per share.  During fiscal 1998, 7,949 shares 
were issued at stock prices ranging from $3.50 to $6.94 per share.


(12)	Shareholders' Equity

	Each share of common stock outstanding (and each share of common 
stock issued prior to the occurrence of certain events) carries with it 
one Preferred Stock Purchase Right (a Right) to purchase at a price of 
$40, one-hundredth of a share of Series A Junior Participating Preferred 
Stock.  The Rights are exercisable only if a person or group acquires or 
announces a tender offer which would result in ownership of 20% or more 
of the common stock.  The Company can redeem the Rights for $.01 per 
Right at any time prior to the time a person or group acquires 20% or 
more of the Company's shares.

	Following the acquisition of 20% or more of the Company's common 
stock by a person or group, the holders of the Rights will be entitled to 
purchase additional shares of Company common stock at one-half the then 
current market price, and, in the event of a subsequent merger or other 
acquisition of the Company, to buy shares of common stock of the 
acquiring entity at one-half of the market price of those shares. In 
neither event, however, would the acquiring person or group be entitled 
to purchase shares at the reduced price.

	In connection with the shareholder rights plan, which was adopted 
by the Board of Directors on February 27, 1996, 150,000 shares of the 
Company's 1,000,000 authorized shares of preferred stock have been 
designated as Series A Junior Participating Preferred Stock.  No shares 
of the Series A Junior Participating Preferred Stock have been issued.


(13)  Commitments and Contingencies

	The Company has various commitments for the purchase of materials, 
supplies and energy arising in the ordinary course of business.

	The Company is subject to various claims, lawsuits and 
administrative proceedings arising in the ordinary course of business 
with respect to commercial, product liability and other matters, which 
seek remedies or damages.  The Company believes that any liability that 
may ultimately be determined will not have a material effect on its 
financial position or results of operations.

	The Company generates both hazardous wastes and non-hazardous 
wastes, which are subject to various governmental regulations.  Estimated 
costs to be incurred in connection with environmental matters are accrued 
when the prospect of incurring costs for testing or remedial action is 
deemed probable. The Company is not aware of any asserted or unasserted 
environmental claims against the Company and no accruals for such matters 
have been recorded in the accompanying balance sheets except as disclosed 
in Note 4.  However, discovery of unknown conditions could result in the 
recording of accruals in the periods in which they become known.


(14)  Quarterly Financial Data (Unaudited)

	Quarterly results of operations (in thousands, except share and per 
share amounts) for fiscal 1997 and fiscal 1998 are as follows:

                              First      Second       Third      Fourth
                             Quarter     Quarter     Quarter     Quarter 
  

1997
Net sales                  $  23,382    $  23,159   $  22,724   $  25,387
Gross profit               $     (14)   $    (456)  $   2,370   $   2,760
Net income (loss)          $  (1,384)   $  (1,659)  $      45   $     366 
Net income (loss) per 
  common share -  
  basic and diluted        $    (.30)   $    (.36)  $     .01   $     .08 
Weighted average shares 
  outstanding - basic      4,658,691    4,626,639   4,622,062   4,626,414
Weighted average shares
  outstanding - diluted    4,658,691    4,626,639   4,622,062   4,626,414 
   
1998
Net sales                  $  26,020    $  29,610   $  27,751   $  26,075
Gross profit               $   2,340    $   3,423   $   3,457   $   2,516
Net income                 $      41    $     563   $     652   $     238
Net income per 
  common share -
  basic and diluted        $     .01    $     .12   $     .14   $     .05
Weighted average shares 
  outstanding - basic      4,626,383    4,626,033   4,626,375   4,619,893
Weighted average shares
  outstanding - diluted    4,643,073    4,630,520   4,630,192   4,619,893 

<PAGE>





	REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

    



To Kentucky Electric Steel, Inc.:

We have audited, in accordance with generally accepted auditing 
standards, the consolidated financial statements included in Kentucky 
Electric Steel, Inc.'s annual report on Form 10-K, and have issued our 
report thereon dated October 28, 1998.  Our audit was made for the 
purpose of forming an opinion on those statements taken as a whole.  The 
schedule listed in item 14(a)2 is the responsibility of the Company's 
management and is presented for purposes of complying with the Securities 
and Exchange Commission's rules and regulations and is not part of the 
basic financial statements.  This schedule has been subjected to the 
auditing procedures applied in the audit of the basic financial 
statements and, in our opinion, fairly states in all material respects 
the financial data required to be set forth therein in relation to the 
basic financial statements taken as a whole.



      Arthur Andersen LLP


Cincinnati, Ohio,
October 28, 1998

<PAGE>



                                                                         
                                                            SCHEDULE II



	KENTUCKY ELECTRIC STEEL, INC.

	VALUATION AND QUALIFYING ACCOUNTS
	
	(Dollars in Thousands)


                                           Reserves Deducted
                                                        from Assets in
                                                         Balance Sheets 
                                                         Allowance for
                                                           Doubtful
                                                          Accounts (1)


       
 BALANCE, September 30, 1995 .....................     $  625
         Additions:
           Charged to costs and expenses ...............        651
         Deductions:
           Net charge-off of accounts deemed 
             uncollectible     .........................        470      
                                                                ---
       BALANCE, September 28, 1996 .....................        390
         Additions:
           Charged to costs and expenses ...............        120
         Deductions:
           Net charge-off of accounts deemed
             uncollectible     .........................        (40)
                                                                ---
       BALANCE, September 27, 1997 .....................        470
   
         Additions:
           Charged to costs and expenses ...............        (10)
         Deductions:
           Net charge-off of accounts deemed
             uncollectible     .........................         -       
                                                                ---
       BALANCE, September 26, 1998 .....................     $  460
                                                                 
 

(1)  Deducted from accounts receivable.


<PAGE>