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 27, 1997

	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 12, 1997:  $25,142,000. 

Indicate the number of shares outstanding of each of the Registrant's classes 
of common stock as of December 12, 1997:

4,625,361 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 8.  Financial Statements and Supplementary Data ...............  18
     Item 9.  Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure .......................  18

PART III ................................................................  19
                                                                       
     Item 10. Directors and Executive Officers of the Registrant ........  19
     Item 11. Executive Compensation ....................................  19
     Item 12. Security Ownership of Certain Beneficial 
              Owners and Management .....................................  19
     Item 13. Certain Relationships and Related Transactions ............  19

PART IV .................................................................  20
                                                                          
     Item 14. Exhibits, Financial Statement Schedules and
              Reports on Form 8-K .......................................  20

SIGNATURES ..............................................................  23

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES .............................  24

<PAGE>	



	KENTUCKY ELECTRIC STEEL, INC.

	PART I


Item 1.	Business

General

Kentucky Electric Steel, Inc. was incorporated in Delaware in August, 
1993.  On October 6, 1993, Kentucky Electric Steel, Inc. purchased the assets 
of Kentucky Electric Steel Corporation, a wholly owned subsidiary of NS Group, 
Inc. The operating results included in this report represent the operations of 
Kentucky Electric Steel, Inc. (the "Company").  The Company's operations use 
the same facilities and market to the same customers as its predecessor.

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, removes 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 that are required by these markets.  Completion of the 
capital expenditure program increased the size range of products offered from 
two inches in thickness and eight inches in width to three inches in thickness 
and twelve inches in width.  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, to a lesser degree, the development of new customers. 
The Company has increased its shipments of the thicker, wider products from 
fiscal 1996 to fiscal 1997 and has continued to increase its sales to the cold 
drawn bar converter market while decreasing 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 that 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.  Due in 
part to problems with the ramp-up of the new facilities, the ten day shutdown 
in the melt shop in the second quarter to repair the caster superstructure and 
to convert an additional strand to produce the thicker, wider products, and 
the third quarter shutdown of the melt shop for twelve days in order to 
decontaminate the baghouse facilities, after detection of a radioactive 
substance, the Company sold 217,000 tons of finished goods in 1997 which 
constitutes 72% 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 $7.7 million, which includes $3.2 million expended in fiscal year 
1997.

The Company completed the ladle metallurgy facility and began start-up 
operations in the fourth quarter of fiscal 1996 and continued during the first 
half of fiscal 1997.  The ladle metallurgy facility removes the refining cycle 
from the electric arc furnace, thus increasing total melting capacity toward 
the Company's ultimate goal of approximately 400,000 tons per year.

The Board of Directors has approved the fiscal 1998 capital expenditure 
plan for approximately $4.3 million, which includes completion of projects 
begun in fiscal 1997, environmental compliance projects,  and various 
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


In general, the size of markets served by the Company is such that 
comprehensive published industry data is not available.  Therefore, much of 
the information relating to the size of steel bar markets has been estimated 
by the Company based upon its knowledge of the industry.  During the year 
ended September 27, 1997, the Company's sales to leaf-spring suspension 
customers decreased, while sales to cold drawn bar converters increased.  The 
following table presents, for fiscal 1996 and 1997, the percentage of the 
Company's net sales by market:
                     
                                               1996         1997  
Leaf-spring suspension             25.3%        18.6%
      	Cold drawn bar converters          19.3%        29.2%
      	Steel service centers              18.0%        15.5%
      	Truck trailers                     11.3%        11.4%
      	Miscellaneous                      26.1%        25.3%
            	Totals                      100.0%       100.0% 


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.  The 
Company believes the total leaf-spring domestic market is approximately 
475,000 tons annually, and that the Company's share of this market is 
approximately 10%.

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" thickness and 2" through 12" 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.  The Company estimates 
that the domestic cold drawn bar market for bar flats is approximately 225,000 
tons annually, and that the Company's share of this market is approximately 
28%.  

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 these markets match 
the Company's production facility described in "Business - General."

Customers

The Company sells to over 350 customers.  Two wholly-owned subsidiaries 
of one customer represented approximately 14% of sales for fiscal 1997.  No 
other customer accounted for more than 10% of sales in fiscal 1997.  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 8.5% in 
fiscal 1997.  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.  The Company believes that the 
principal competitive factors affecting its business are quality, service, 
price and geographic location.

Backlog and Seasonality

As of September 27, 1997, the Company had firm orders for approximately 
58,000 tons representing approximately $27.7 million in sales, as compared 
with approximately 48,000 tons representing approximately $21.4 million in 
sales, at September 28, 1996.  

The Company operates on a continuous basis with only occasional 
scheduled shutdowns for heavy maintenance work.  The Company's operations are 
not otherwise 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 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 33% of the 
Company's scrap in fiscal 1997.  In an attempt to insure an adequate source of 
raw materials, however, the Company has identified, inspected, and purchased 
scrap from over 20 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 limits AEP's right to interrupt service 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).  The 1997 Contract, however, limits 
the periods of any such interruption to no more than 30 minutes.  As with the 
Prior Contract, AEP is required to provide a certain amount of firm contract 
capacity to prevent equipment damage during interrupted periods.  Likewise, as 
with the Prior Contract, AEP may impose a surcharge on the Company if the 
Company fails to interrupt load as required by the 1997 Contract or if the 
Company exceeds certain specified levels of use.  The initial term of the 1997 
Contract expires November 12, 1998.  Thereafter, the 1997 Contract will remain 
in effect until the Company gives at least one  year notice to AEP of its 
intention to discontinue service under the 1997 Contract.  The 1997 Contract 
additionally provides for termination upon the later of the fifth anniversary 
of the effective date or any date on which it becomes possible for retail 
customers of AEP to purchase electrical energy from other providers and AEP is 
required to use its transmission and distribution lines to deliver such energy 
to those customers. 

Employees

As of September 27, 1997, the Company employed 448 people, approximately 
77% of whom are members of the United Steelworkers of America.  The Company's 
current five-year collective bargaining agreement expires in September 1998.  
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 has been 
the subject of an enforcement action brought by the United States Department 
of Justice and the Pennsylvania Department for Environmental Resources.  
Although on August 24, 1995 HRD, the Department of Justice, and USEPA issued a 
joint press release announcing a settlement of the enforcement action, HRD may 
incur substantial costs in connection with the remediation of the Palmerton 
Site and compliance with the settlement agreement and environmental laws and 
regulations.  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.


Prior to 1985, Furnace Dust was stored by a prior owner at the Company's 
mini-mill facility.  Although this storage area was closed in 1985 and the 
stored Furnace Dust was removed, amendments to the Resource Conservation and 
Recovery Act ("RCRA") and federal regulations currently require that storage 
units, such as the Furnace Dust storage area, which were closed by removal 
("clean closure") either obtain post-closure permits or demonstrate that the 
closure is equivalent to current standards.  The U.S. Environmental Protection 
Agency and the Kentucky Division of Waste Management (the "Division") is 
requiring the Company to demonstrate that the prior closure meets RCRA current 
standards or, alternatively, to obtain a post closure permit.  In July of 
1995, the Company submitted a closure equivalency demonstration to the 
Kentucky Division of Waste Management (the "Division") seeking a regulatory 
determination that the clean closure meets the requirements for closure 
equivalency as established by applicable regulations and that a post-closure 
permit is not required.  In November of 1995, the Division advised that it 
intends to conduct an investigation of the Company's compliance with RCRA 
before making a determination on the Company's request.  Due to personnel 
changes at the Division, the investigation has not been completed and the 
Division has not made a determination on the Company's application.  The 
Company believes the costs associated with demonstrating clean closure 
equivalency are the responsibility of a prior operator of the mini-mill (the 
"Prior Operator") and it has notified the Prior Operator of its claim. 
Nevertheless, there can be no assurance that the Company will be successful in 
seeking reimbursement from the Prior Operator or will not otherwise incur 
expenses in connection with the closure of the Furnace Dust storage site.

Between 1981 and 1983, 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 
Division, 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.  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.  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.  The Company does not 
anticipate receiving a draft of its Title V permit until late February or 
March of 1998.  The Company, therefore, does not know whether it will be able 
to comply with its Title V permit without additional capital and operating 
expense or whether the Company will be the subject of an enforcement action 
for failure to comply with the requirements of its existing permit or its 
Title V permit.  Additionally, there can be no assurance that evolving federal 
and state environmental requirements for 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 company 
under common control 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 and is required by its contract 
with the Company to secure treatment and disposal of the Mixed Waste by 
September 1, 1998. 

 The Company also has been experiencing problems with the new bags in 
its baghouse which were installed in May of 1997, as a result of melting a 
radioactive source.  The Company is currently working with the vendor, 
consultants, and the insurance company to determine the appropriate necessary 
corrective action.

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 27, 1997.

      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 4, 1998.

The names, ages and positions of all of the executive officers of the 
Registrant as of September 27, 1997 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 shareholders.  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, 53, 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.  Prior 
to November 1990, Mr. Hanebuth was a Vice President of ELCOR Corporation, a 
manufacturer of roofing and industrial products, and President of its wholly-
owned subsidiary, Chromium Corporation, a remanufacturer of diesel engine 
components.  Mr. Hanebuth has 18 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, 47, 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, 53, 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.  From 
July 1988 to November 1990, Mr. Harrison was general sales manager with Lorin 
Industries, an aluminum coil anodizer.  Mr. Harrison has over 27 years of 
sales experience in the steel industry.

William H. Gerak, 52, 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 23 years 
of human resource and administrative experience.
<PAGE


 	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 1996                Fiscal 1997    
                             High          Low          High          Low
      First Quarter      $ 10           $ 7-3/4      $ 7-1/4       $ 5-1/4 
Second Quarter        8-11/16       6-5/8        6-7/8         5-1/8
      Third Quarter         8-1/2         6-7/8        5-3/4         4-1/8
      Fourth Quarter        8-1/2         6-1/2        7-1/4         5-1/4    
             

On December 12, 1997 there were approximately 1,600 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 by Kentucky Electric Steel, Inc.  
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 27, 1997 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. 25, Sept. 24, Sept. 30,  Sept. 28,  Sept. 27,
                            1993       1994     1995       1996       1997    
                                     (In thousands, except share data)

Income Statement Data:
  Net sales ............  $90,547   $102,629  $107,402   $ 98,320   $ 94,652
  Cost of goods sold ...   75,884     86,892    91,642     89,783     89,992
                           ------    -------   -------     ------     ------
    Gross profit .......   14,663     15,737    15,760      8,537      4,660
  Selling and admini-
    strative expenses ..    6,069      6,963     7,696      7,391      6,800
                           ------    -------   -------     ------     ------
    Operating income (loss) 8,594      8,774     8,064      1,146     (2,140)
  Interest income from
    NS Group, Inc. - net      686         30       -          -          -    
  Interest expense .....     (402)      (586)     (658)    (1,453)    (2,125)
  Interest income and 
    other ..............       12        164        57         31         34
  Gain on involuntary con-
    version of equipment      -          -         -          369        -   
                           ------    -------   -------     ------     ------ 
    Income (loss) before
     income taxes ......    8,890      8,382     7,463         93     (4,231)
  Income taxes .........    3,374      3,167     2,812         35     (1,599)
                           ------    -------   -------     ------     ------
      Net income (loss)   $ 5,516   $  5,215  $  4,651    $    58    $(2,632)
  Net income (loss)
    per common share ...  $  1.23   $   1.06  $    .95    $   .01    $  (.57)

  Weighted average shares
    outstanding ......  4,500,000  4,908,158 4,905,456  4,806,161  4,633,315

Balance Sheet Data:
  Working capital .....   $13,145    $21,553   $10,324    $14,963   $11,335
  Total assets ........    46,259     56,870    72,625     78,433    78,770
  Long-term debt (1) ..     2,748      9,001     7,287     20,000    20,000
  Shareholders' equity     15,134     34,276    38,097     37,110    34,211

(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 

 Kentucky Electric Steel, Inc. (KESI) was formed to acquire the assets 
and assume the liabilities of Kentucky Electric Steel Corporation (KESC), a 
wholly owned subsidiary of NS Group, Inc. (NS Group).  KESI was capitalized in 
an initial public offering of its common stock on October 6, 1993 in which 
4,500,000 shares were issued.  As used herein, "the Company" refers to 
Kentucky Electric Steel, Inc. and its predecessor, Kentucky Electric Steel 
Corporation, with respect to the applicable periods.


 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, its 
financial results have been less volatile than those of the domestic steel 
industry in general.  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
                                            30, 1995    28, 1996    27, 1997

      Net sales .......................      100.0%      100.0%      100.0%
      Cost of goods sold ..............       85.3        91.3        95.1
                                             -----       -----       -----
      Gross profit ....................       14.7         8.7         4.9
      Selling and administrative
        expenses ......................        7.2         7.5         7.2
                                             -----       -----       -----
      Operating income (loss) .........        7.5         1.2        (2.3)
      Interest expense ................        (.6)       (1.5)       (2.2)
      Gain on involuntary conversion 
        of equipment ..................         -           .4          - 
                                             -----       -----       -----
      Income (loss) before income taxes .      6.9          .1        (4.5)
      Income taxes  ...................        2.6          -         (1.7)
                                             -----       -----       -----
      Net income (loss) ...............        4.3%         .1%       (2.8%)


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 the ten day Melt Shop outage in the second quarter.

Cost of Goods Sold.  Cost of goods sold for fiscal 1997 increased $.2 
million (.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% for 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 12 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 shutdown 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 the 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 fiscal 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.

Year Ended September 28, 1996 Compared with Year Ended September 30, 1995


Net Sales. Net sales for fiscal 1996 decreased by $9.1 million (8.5%) to 
$98.3 million from $107.4 million for fiscal 1995 due to a decline in 
shipments and decrease in average selling price.  Total shipments for fiscal 
1996 were approximately 225,800 tons, down 7.4% from fiscal 1995.  The average 
selling price per ton decreased by 1.1% in 1996.  The decline in shipments has 
resulted from the continued production problems encountered with the start-up 

of the new finishing facilities during the first half of fiscal 1996, a caster 
fire during the second quarter, and the start-up of the ladle metallurgy 
facility during the fourth quarter of fiscal 1996, combined with softening 
demands in certain markets.

Cost of Goods Sold.  Cost of goods sold for fiscal 1996 decreased $1.8 
million (1.9%) to $89.8 million from $91.6 million for fiscal 1995.  As a 
percentage of net sales, cost of goods sold increased from 85.3% for fiscal 
1995 to 91.3% in fiscal 1996.  The increase in cost of goods sold as a 
percentage of net sales is primarily attributed to an increase in per ton 
conversion costs and additional depreciation expense.  The problems associated 
with the start-up of the new finishing equipment during the first half of 
fiscal 1996, the ladle metallurgy facility during the fourth quarter of fiscal 
1996 and, to a lesser extent, the effect of February's caster fire negatively 
impacted productivity and increased per ton conversion cost.  In addition, 
conversion costs were higher due to additional depreciation related to the 
completion of the capital projects. 

Gross Profit. As a result of the above, gross profit for fiscal 1996 
decreased by $7.3 million (45.8%) from $15.8 million in fiscal 1995 to $8.5 
million in fiscal 1996.  As a percentage of net sales, gross profit decreased 
from 14.7% in fiscal 1995 to 8.7% in fiscal 1996.

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 1996 decreased $.3 million (4.0%) to $7.4 
million from $7.7 million for fiscal 1995.  As a percentage of net sales, such 
expenses increased from 7.2% for fiscal 1995 to 7.5% for fiscal 1996.  The 
selling and administrative expenses reflect a decrease in incentive 
compensation (due to the decrease in pre-tax income) and a decrease in 
shipping wages (due to reorganization of the Shipping Department, in 
connection with the completion of the capital expansion plan).  These 
decreases have been partially offset by an increase in the provision for 
uncollectible accounts.  The increase in selling and administrative expenses 
as a percentage of net sales was primarily attributed to the decrease in 
shipments, resulting in lower net sales for fiscal 1996.

Operating Income.  For the reasons described above, operating income 
decreased by $7.0 million (85.8%) from $8.1 million in fiscal 1995 to $1.1 
million in fiscal 1996.  As a percentage of net sales, operating income 
decreased from 7.5% in fiscal 1995 to 1.2% in fiscal 1996. 

Interest Expense.  Interest expense increased by $.8 million to $1.5 
million in fiscal 1996 from $.7 million in fiscal 1995, net of interest 
capitalized of $262,000 and $523,000, 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 capital expenditure program which expanded the 
Company's casting, rolling and finishing capacity and increased the size range 
of products the Company can produce.

	Gain on Involuntary Conversion of Equipment.  As a result of the caster 
fire, the Company received insurance proceeds of $912,000 for the replacement 
cost of the equipment destroyed which had a net book value of $543,000.  The 
excess of the replacement cost over the net book value of the equipment 
destroyed resulted in a gain of approximately $369,000.

Net Income.  As a result of the above, net income decreased by $4.6 
million from $4.7 million in fiscal 1995 to $58,000 in fiscal 1996.  As a 
percentage of net sales, net income decreased from 4.3% in fiscal 1995 to .1% 
in fiscal 1996.

Liquidity and Capital Resources

Cash flows from operating activities amounted to $5.3 million, $3.9 
million, and $2.5 million in fiscal 1995, 1996 and 1997, respectively.  Fiscal

1995 operating cash flows were negatively impacted by $3.1 million increase in 
inventories.  The increase in inventories reflected the Company's build-up of 
billet inventory in anticipation of the new equipment being ramped-up to 
projected production levels.  The increase in inventories also reflected the 
increase in conversion costs associated with the start-up of the new 
equipment.  Partially offsetting this was a $1.6 million increase in cash 
flows from operating activities resulting from the combined reduction in 
accounts receivable and increase in accounts payable, which resulted from 
efforts to minimize working capital requirements.

Fiscal 1996 operating cash flows reflect the 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.

Cash flows used by investing activities consist of capital expenditures, 
net of capital expenditures payables, of $14.9 million, $11.2 million, and 
$5.1 million in fiscal 1995, 1996, and 1997, respectively.  The decrease in 
capital expenditures in fiscal 1997 is primarily due to the completion, in 
fiscal 1995, 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 in fiscal 1996.  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 $8.4 million, 
$6.1 million, and $2.6 million in fiscal 1995, 1996, and 1997, respectively.  
The $8.4 million, in fiscal 1995, represents $11.1 million in advances on the 
Company bank credit facility offset by $1.8 million principal payments on 
long-term debt and $.9 million used for purchases of treasury stock.  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 bank credit facility offset by $.5 
million used for the purchases of treasury stock.

Working capital at September 27, 1997, was $11.3 million as compared to 
$15.0 million at September 28, 1996.  The current ratio was 1.5 to 1.0 at 
September 27, 1997 as compared to 1.7 to 1.0 at September 28, 1996.  The 
decrease in working capital and current ratio is primarily attributed to the 
increase in the Company's advances on line of credit, from financing the 
current year's capital expenditures.


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 $10.6 million 
in borrowings outstanding on its line of credit as of September 27, 1997.  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.

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 prices 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.

Impact of Recent Accounting Pronouncements

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

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.	

    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 
Amend- ment No. 1 to Registrant's Registration Statement on 
Form S-1 (No. 33-67140), and incorporated by reference herein.

    10.4	Form of Salary Continuation Agreement entered into with Charles 
C. Hanebuth, filed as Exhibit 10.6 to Amendment No. 1 to 
Registrant's 
            Registration Statement on Form S-1 (No. 33-67140), and 
incorporated by reference herein.

    10.5	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.

10.6	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.
  
10.7	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.

    10.8	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.

    10.9	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.

    10.10	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.

    10.11	Employment agreements dated June 7, 1994, between Kentucky 
Electric Steel, Inc. and its four Executive Officers, filed as 
Exhibit 10.12 to Registrant's Form 10-K for the fiscal year 
ended September 24, 1994, File No. 0-22416, and incorporated by 
reference herein.

    10.12	Salary Continuation Agreements entered into between Kentucky 
Electric Steel, Inc. and its four Executive Officers, filed as 
Exhibit 10.13 to Registrant's Form 10-K for the fiscal year 
ended September 24, 1994, File No. 0-24416, and incorporated by 
reference herein.

    10.13	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.

    10.14	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.

    10.15	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.

    10.16	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.

    10.17	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.

10.18	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.

10.19   The Kentucky Electric Steel, Inc. Share Plan for Non-Employee  
               	Directors. 

    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 27, 1997.

<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 12, 1997                        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 Officer December 12, 1997 
Charles C. Hanebuth       and Chairman


\s\William J. Jessie    Vice President, Secretary,         December 12, 1997
William J. Jessie         Treasurer and Chief Financial
                          Officer
                         (Principal Financial and
                          Accounting Officer)

\s\Clifford R. Borland  Director                           December 12, 1997
Clifford R. Borland


\s\Carl E. Edwards, Jr. Director                           December 12, 1997
Carl E. Edwards, Jr.


\s\J. Marvin Quin, II   Director                           December 12, 1997
J. Marvin Quin, II

\s\David C. Struve      Director                           December 12, 1997
David C. Struve

<PAGE>



	INDEX TO FINANCIAL STATEMENTS AND SCHEDULE


Financial Statements                                              Page

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

Consolidated Balance Sheets - September 28, 1996 and 
September 27, 1997 ............................................	F-2

Consolidated Statements of Operations - Years ended
September 30, 1995, September 28, 1996 and September 27, 1997 .   F-3

Consolidated Statements of Changes in Shareholders' Equity -
Years ended September 30, 1995, September 28, 1996, and 
September 27, 1997 ............................................	F-4

Consolidated Statements of Cash Flows - Years ended 
September 30, 1995, September 28, 1996 and September 27, 1997 .	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 
28, 1996 and September 27, 1997, 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 27, 1997.  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 28, 1996 and September 27, 1997 and 
the results of its operations and their cash flows for each of the three years 
in the period ending September 27, 1997 in conformity with generally accepted 
accounting principles.





       Arthur Andersen LLP



Cincinnati, Ohio,
October 24, 1997 
<PAGE>

 

<TABLE>
	KENTUCKY ELECTRIC STEEL, INC.
	CONSOLIDATED BALANCE SHEETS
	(Dollars in Thousands)
<CAPTION>                       
                                                             September       September
                                                              28, 1996        27, 1997
                       ASSETS
<S>                                                          <C>             <C>   
   CURRENT ASSETS
     Cash and cash equivalents                                $    124        $    127   
     Accounts receivable, less allowance for doubtful
       accounts and claims of $390 in 1996, and $470 in 1997    12,113          11,577  
     Insurance claim receivable                                   -                900
     Inventories                                                17,367          16,538
     Operating supplies and other current assets                 5,067           4,802  
     Refundable income taxes                                       540             900
     Deferred tax assets                                           680             457
                                                               -------         ------- 
       Total current assets                                     35,891          35,301
                                                               -------         -------
   PROPERTY, PLANT AND EQUIPMENT
     Land and buildings                                          4,353           4,448
     Machinery and equipment                                    37,774          40,301
     Construction in progress                                    1,412           2,012
     Less - accumulated depreciation                            (7,852)        (11,229)
                                                               -------         -------
          Net property, plant and equipment                     35,687          35,532
                                                               -------         -------
   DEFERRED TAX ASSETS                                           6,263           7,159
                                                               -------         -------
   OTHER ASSETS                                                    592             778
                                                               -------         -------
          Total assets                                        $ 78,433        $ 78,770 

        LIABILITIES AND SHAREHOLDERS' EQUITY

   CURRENT LIABILITIES
     Advances on line of credit                               $  7,546        $ 10,635
     Accounts payable                                            7,214           7,977
     Capital expenditures payable                                2,404             547
     Accrued liabilities                                         3,639           3,700
     Environmental liabilities                                    -                982
     Current portion of long-term debt                             125             125
                                                               -------         -------
          Total current liabilities                             20,928          23,966 
                                                               -------         -------
   LONG-TERM DEBT                                               20,000          20,000
                                                               -------         -------
   OTHER LIABILITIES                                               395             593
                                                               -------         -------
          Total liabilities                                     41,323          44,559
                                                               -------         -------
   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, 4,974,099 and 4,977,988 shares
       issued, respectively                                         50              50
     Additional paid-in capital                                 15,710          15,665
     Less treasury stock - 273,000 and 350,976 shares
       at cost, respectively                                    (2,165)         (2,638)
     Deferred compensation                                        (421)           (170)
     Retained earnings                                          23,936          21,304
                                                               -------         -------
          Total shareholders' equity                            37,110          34,211
                                                               -------         -------   
     Total liabilities and shareholders' equity               $ 78,433        $ 78,770

<FN>

See notes to consolidated financial statements
</TABLE>

<TABLE>

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

                                                            Year Ended             
                                               September    September    September
                                                30, 1995     28, 1996     27, 1997
 
<S>                                            <C>          <C>          <C>
     NET SALES                                  $107,402     $ 98,320     $ 94,652
     COST OF GOODS SOLD                           91,642       89,783       89,992
                                                 -------      -------      -------
            Gross profit                          15,760        8,537        4,660

     SELLING AND ADMINISTRATIVE EXPENSES           7,696        7,391        6,800
                                                 -------      -------      -------
            Operating income (loss)                8,064        1,146       (2,140)

     INTEREST EXPENSE                               (658)      (1,453)      (2,125)
     INTEREST INCOME AND OTHER                        57           31           34
     GAIN ON INVOLUNTARY CONVERSION
       OF EQUIPMENT                                 -             369         -   
                                                 -------      -------      -------
            Income (loss) before income taxes      7,463           93       (4,231)

     PROVISION (CREDIT) FOR INCOME TAXES           2,812           35       (1,599)
                                                 -------      -------      ------- 

            Net income (loss)                   $  4,651     $     58     $ (2,632) 

     NET INCOME (LOSS) PER COMMON SHARE         $    .95     $    .01     $   (.57)

     WEIGHTED AVERAGE SHARES OUTSTANDING       4,905,456    4,806,161    4,633,315 

<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 27, 1997 
	
	(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. 24, 1994 4,918,000  $49   $15,425     -         -    $(425)   $19,227  $34,276
  Restricted stock
    grants                 56,099    1       285     -         -     (286)      -        -
  Stock loan grants          -       -      - 	      -         -     (185)      -        (185)
  Amortization of
    deferred comp-
    ensation                 -       -      -        -         -      224       -         224
  Purchases of treasury
    stock                    -       -      -    (100,000)    (869)    -        -        (869)
  Net income                 -       -      -        -         -       -       4,651    4,651
                        ---------   --    ------  -------    -----    ---     ------   ------
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 income (loss)          -       -      -        -         -       -      (2,632)  (2,632)
                        ---------   --    ------  -------    -----    ---     ------   ------
BALANCE, Sept. 27, 1997 4,977,988  $50   $15,665 (350,976) $(2,638) $(170)   $21,304  $34,211 

<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
                                                        30, 1995     28, 1996     27, 1997
<S>                                                    <C>          <C>          <C>
Cash Flows From Operating Activities:
  Net income (loss)                                     $ 4,651      $   58       $(2,632)
  Adjustments to reconcile net income to net
    cash flows from operating activities:
      Depreciation and amortization                       1,564        2,769        3,737 
      Gain on involuntary conversion of equipment          -            (369)        -    
      Change in deferred taxes                            1,927          618         (896)
      Change in other                                      (141)        (257)        (158)
      Changes in current assets and
        current liabilities:
          Accounts receivable                               445          815          536 
          Insurance claim receivable                       -            -            (900)
          Inventories                                    (3,055)         838          829
          Operating supplies and other
            current assets                                 (830)         206          265
          Refundable income taxes                           114          (88)        (360)
          Deferred tax assets                               (79)        (487)         223 
          Accounts payable                                1,138          (81)         763 
          Accrued liabilities                              (455)         (74)          61 
          Environmental liabilities                        -            -             982
                                                         ------       ------        -----
          Net cash flows from operating activities        5,279        3,948        2,450
                                                         ------       ------        -----
Cash Flows From Investing Activities:
  Proceeds from involuntary conversion of equipment        -             912         -   
  Capital expenditures                                  (16,647)     (10,509)      (3,226)
  Change in capital expenditures payable                  1,772         (672)      (1,858)
                                                         ------       ------       ------
          Net cash flows from investing activities      (14,875)     (10,269)      (5,084)
                                                         ------       ------       ------
Cash Flows From Financing Activities:
  Net advances (repayments) on line of credit            11,131       (3,585)       3,089 
  Repayments on long-term debt                           (1,839)      (9,001)        -    
  Proceeds from long-term debt borrowings                  -          20,000         -   
  Issuance of common stock                                 -            -              21  
  Purchases of treasury stock                              (869)      (1,296)        (473)
                                                         ------       ------       ------
          Net cash flows from financing activities        8,423        6,118        2,637 
                                                         ------       ------       ------
          Net increase (decrease) in cash
            and cash equivalents                         (1,173)        (203)           3 
Cash and Cash Equivalents at Beginning of Period          1,500          327          124
                                                         ------       ------       ------
Cash and Cash Equivalents at End of Period              $   327      $   124      $   127 

Interest Paid, net of amount capitalized                $   566      $   884      $ 2,142 

Income Taxes Paid                                       $ 1,326      $   376      $  -    

<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 
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 costs of $262,000 and $11,000 were 
capitalized for the year ended September 28, 1996 and September 27, 1997, 
respectively.

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 February 1997, the Financial Accounting Standards Board issued 
Statement No. 128 (SFAS No. 128) Earnings Per Share.  This Statement replaces 
the presentation of primary E.P.S. with a presentation of basic E.P.S. and 
requires dual presentation of basic and diluted E.P.S. on the face of the 
income statement for all entities with complex capital structures.  The 
Company will adopt SFAS No. 128 during the first quarter of fiscal 1998.  
Applying the provisions of SFAS No. 128, basic and diluted earnings per share 
for the fiscal years 1995, 1996, and 1997 would have been the same as 
previously reported.

	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.
 
Fiscal Year End 
The Company's fiscal year ends on the last Saturday of September.  The 
fiscal year normally consists of fifty-two weeks, however, the fiscal year 
ending September 30, 1995 consists of fifty-three weeks.  

Net Income per Common Share 
Net income per share is calculated using the weighted average number of 
shares of common stock equivalents outstanding during the period.  The effect 
of stock options outstanding is not material and therefore is not included in 
the computation of net income per share. 

 (3)  Inventories

Inventories at September 28, 1996 and September 27, 1997 consist of the 
following ($000's):

                                                      1996         1997   
              Raw materials                         $  4,069     $  3,280
              Semi-finished and finished goods        13,298       13,258 
                Total inventories                   $ 17,367     $ 16,538 


(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 financial statements include a 
receivable of $.9 million which represents the estimated balance due from the 
insurance carrier on the total projected reimbursement of $6.7 million, which 
reimburses the costs incurred in the radiation contamination clean-up, the 
disposal cost, and business interruption.  To date, the Company has received 
$5.8 million from the insurance carrier for payment of costs incurred.

	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 appplicable insurance 
coverage.

(5)  Accrued Liabilities

     Accrued liabilities at September 28, 1996 and September 27, 1997 consist 
of the following ($000's):

                                                      1996         1997   
     Accrued payroll and related liabilities        $  1,442     $  1,431
     Accrued insurance and workers' compensation         950        1,085
     Accrued interest payable                            697          679
     Other                                               550          505 
                                                    $  3,639     $  3,700 


(6)  Long-Term Debt

Long-term debt of the Company at September 28, 1996 and September 27, 
1997 consists of the following ($000's):

                                                      1996          1997  
         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 $17.5 million unsecured bank credit facility.  
Borrowings are limited to defined percentages of eligible inventory and 
accounts receivable.  Interest on borrowings accrue at the rate of LIBOR plus 
1.35% or the higher of 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 27, 1997, approximately $10.6 million was outstanding 
under the bank credit facility, approximately $1.6 million was utilized to 
collateralize various letters of credit and $3.8 million was available for 
additional borrowings.  The weighted average interest rate on short term 
borrowings as of September 28, 1996 and September 27, 1997 were 7.5% and 7.3%, 
respectively.

	The Company's unsecured senior notes and bank credit facility agreements 
were amended, effective December 28, 1996, to reduce the required fixed charge 
coverage ratio, increase the minimum net worth requirement and revise other 
miscellaneous provisions of the agreements.  In connection with the amendment, 
the amount of the Company's unsecured bank credit facility was reduced from 
$24.5 million to $17.5 million.  With this amendment, the Company continues to 
be in compliance with the financial covenants and management believes it is 
probable that the Company will continue to be in compliance with the amended 
covenants.

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 27, 1997.  The fair value of the unsecured senior notes 
was approximately $19.7 million as of September 27, 1997.

(7)  Significant Customers and Foreign Sales

The Company grants trade credit to customers within the markets it 
serves, the most significant of these are the leaf-spring suspension and cold 
drawn bar converter markets.  Sales to the leaf-springs suspension market 
represented  32.0%, 25.3%, and 18.6% of total sales for 1995, 1996 and 1997, 
respectively.  Sales to the cold drawn bar converter market represented 15.7%, 
19.3%, and 29.2% of total sales for 1995, 1996, and 1997, respectively.
	
One company, through several wholly-owned subsidiaries which are 
customers of the Company, represented 16.2%, 11.7% and 9.6% of net sales in 
fiscal 1995, 1996 and 1997, respectively.  Another customer, through two 
wholly-owned subsidiaries which are customers of the Company, accounted for 
14.0% of net sales in fiscal 1997. No other customer accounted for more than 
10% of net sales.

The Company's foreign sales represented 6.3%, 8.8%, and 8.5% of total 
sales for 1995, 1996 and 1997, respectively.  


(8)	Income Taxes

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

                                          1995         1996         1997  
          Current:
            Federal                     $   916      $(2,510)     $  (900)
            State                          -            (379)        -    
                                            916       (2,889)        (900)
          Deferred:
            Federal                       1,616        2,541         (498) 
            State                           280          383         (201)
                                          1,896        2,924         (699)
          Total provision (credit)
            for income taxes            $ 2,812      $    35      $(1,599)
 

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):

                                           1995         1996        1997  

       Income tax provision (credit) at 
         Statutory tax rate of 34%      $ 2,537      $    32      $(1,438) 
       State income taxes, net of 
         federal effect                     185            1         (103)
       Other, net                            90            2          (58)
                                   $ 2,812      $    35      $(1,599)


The components of the net deferred tax asset at September 28, 1996 and 
September 27, 1997 are as follows ($000's):

                                                Sept. 28,     Sept. 27, 
                                                   1996          1997  

          Deferred tax components:
            Property, plant and equipment        $ 3,323       $ 1,126
            Intangibles                            2,949         2,737
            AMT credit carryforwards               2,023         1,197
            NOL carryforward                       1,604         4,682
            Other                                   (275)          555 
                                                   9,624        10,297
            Valuation allowance                   (2,681)       (2,681)

               Net deferred tax assets           $ 6,943       $ 7,616 



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 $13.8 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 in the 
third and fourth quarters of fiscal 1997, 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 $751,000, $213,000, 
and $219,000 in 1995, 1996 and 1997, respectively.

(10)  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 became 
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 shareholders 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 $240,000 and 
$208,000 was recognized in fiscal 1996 and 1997, 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 $261,000 and $53,000 as of September 28, 1996 and 
September 27, 1997, respectively.


A summary of transactions in the plans for fiscal 1996 and 1997 are as 
follows:

                                        1996                 1997       
                                           Weighted-            Weighted-
                                                 Average              Average 
                                       Stock     Exercise    Stock    Exercise 
                                       Options    Price      Options    Price 
  

	Options outstanding, 
       beginning of year               240,284    $11.06     327,976   $10.11 
     Options granted                    91,192      7.63      89,192     5.56 
     Options forfeited                  (3,500)    10.49     (12,000)    9.69
                                       -------     -----     -------    ----- 	
     Options outstanding, end of year  327,976    $10.11     405,168   $ 9.12

     Options exercisable, end of year  102,009    $11.50     186,505   $10.96
	                                                  		
Restricted shares granted            -                     -    

     Options and restricted shares 
       available for grant              87,925                10,733 


The 1993 Transition Stock Option Plan (the "Transition Plan") was 
approved by the shareholders 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 1996 and 1997 are as follows:

                                             1996                 1997        
 
                                                Weighted-            Weighted-
                                                 Average              Average 
                                      Stock     Exercise    Stock    Exercise 
                                      Options     Price     Options    Price  
 

     Options outstanding, 
       beginning of year               177,422    $14.02    169,430   $14.00
     Options granted                      -          -         -         - 
     Options forfeited                  (7,992)    14.35    (10,728)   13.06
                                       -------     -----    -------    -----
     Options outstanding, end of year  169,430    $14.00    158,702   $14.06

     Options exercisable, end of year  149,814    $14.69    149,720   $14.38  


	The Financial Accounting Standard Board issued Statement No. 123 (SFAS 
No. 123) related to accounting for stock based compensation.  The statement 
encourages the use of the fair value based method to measure compensation cost 
for stock-based employee compensation plans.  As permitted, the Company 
continues to account for its stock-based compensation plans using the 
intrinsic value method  in accordance with APB Opinion No. 25 and related 
Interpretations.  Accordingly, no compensation cost has been recognized for 
the Company's Employee Stock Option Plan for fiscal years 1996 and 1997.  Had 
compensation cost for the stock options granted in fiscal 1996 and 1997 been 
determined based on the fair value at the grant dates for awards under those 
plans consistent with the fair value method of SFAS No. 123, pro forma net 
income and earnings per share would have been a net loss of $192,000 and loss 
per share of $.04 for fiscal 1996 and a net loss of $2.8 million and $.61 per 
share for fiscal 1997.  These pro forma disclosures are not likely to be 
representative of the effect on reported net income and 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 following table summarizes information about stock options 
outstanding at September 27, 1997 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 9/27/97      Life       Price     at 9/27/97     Price   

Employee Stock Option/Restricted Stock Plans:

$ 5.56 -  7.63     176,384    9.12 Years    $ 6.58      21,797      $ 7.63  
  9.13 - 12.31     228,784    7.01 Years     11.08     164,708       11.40 
  ------------     -------    ----------     -----     -------       -----	
  5.56 - 12.31     405,168    7.92 Years      9.12     186,505       10.96

Transition Plan:

  8.76 -  9.05      69,810    4.86 Years      8.86      60,828        8.88  
 14.40 - 20.86      88,892    1.18 Years     18.15      88,892       18.15   
 -------------     -------    ----------     -----     -------       -----
$ 8.76 - 20.86     158,702    2.80 Years    $14.06     149,720      $14.38 
 
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 deduction of shareholders' equity and was $160,000 
and $117,000 as of September 28, 1996 and September 27, 1997, respectively.  
In fiscal 1996 and fiscal 1997, the Company recognized $43,000 each year 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.



(11)  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.

(12)  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.


(13)  Quarterly Financial Data (Unaudited)

Quarterly results of operations (in thousands, except per share amounts) 
for fiscal 1996 and fiscal 1997 are as follows:

                                    First      Second      Third      Fourth  
                                  Quarter    Quarter     Quarter     Quarter  
  
1996
Net sales                        $  23,688   $  24,625   $  26,483  $  23,524
Gross profit                     $   2,576   $   2,447   $   2,669  $     845
Net income (loss)                $     162   $     243   $     319  $    (666)
Net income (loss) 
  per common share               $     .03   $     .05   $     .07  $    (.14)
Weighted average shares 
  outstanding                    4,871,140   4,828,055   4,790,885  4,729,566

1997
Net sales                        $  23,382   $  23,159   $  22,724  $  25,387
Gross profit (loss)              $     (14)  $    (456)  $   2,370  $   2,760
Net income (loss)                $  (1,384)  $  (1,659)  $      45  $     366
Net income (loss) 
  per common share               $    (.30)  $    (.36)  $     .01  $     .08
Weighted average shares 
  outstanding                    4,658,691   4,626,639   4,622,062  4,626,414

<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 24, 1997.  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 
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 24, 1997

<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 24, 1994 ..........................     $  355
        Additions:
           Charged to costs and expenses ....................        507
        Deductions:
           Net charge-off of accounts deemed uncollectible ..       (237)
                                                                     ---
       BALANCE, September 30, 1995 ..........................     $  625
         Additions:
           Charged to costs and expenses ....................        651
        Deductions:
           Net charge-off of accounts deemed uncollectible ..       (886)
                                                                     ---
       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 


(1)  Deducted from accounts receivable.
<PAGE>
</DOCUMENT