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                         October 10, 1996


Dear Lukens Shareholder:

  Since the beginning of the year, we all have witnessed the disappointing drop
in Lukens' stock price.  This downturn has been driven by several key market and
operating issues:
 . Devastating price declines in the North American stainless steel market that
  virtually eliminated stainless operating margins
 . The financial impact of commissioning our Steckel Mill Advanced Rolling
  Technology (SMART/k/) system
 . And the poor performance of cyclical stocks, particularly in the steel sector.

               Lower Stainless Steel Prices Cut Operating Margins
  Unquestionably, the biggest factor affecting our stock price has been the
dramatic declines in selling prices of stainless products delivered into the
North American market over the last nine months. The decline was caused
primarily by sharply higher levels of low priced, imported stainless steel that
have poured into the country.  During the first half of the year, imports
climbed to a 21 percent share of the U.S. cold-rolled sheet market, up 12
percent from the same period a year ago.  In the stainless plate market, imports
captured a 19 percent market share, up 41 percent over 1995.

  This flood of imports severely pressured domestic selling prices.  Cold rolled
sheet prices averaged about 25 percent lower than one year ago.  Even with some
reduction in raw materials costs, our cold rolled stainless operating margins
dropped by more than $500 per ton in the third quarter versus 1995.  As a
result, the corporation announced on October 7 it would report a net loss for
the third quarter of between $0.26 and $0.32 per share.  The falling selling
prices also were evident in the Stainless Group's year-to-date operating
results.  For the first nine months of 1996, the group recorded operating
earnings of less than $1 million, almost $60 million less than the same period
last year.

  While stainless demand and pricing appear to be strengthening somewhat in
Europe, we do not see any immediate improvement in North American market
fundamentals. Should the situation continue, we anticipate the corporation will
post a loss again in the fourth quarter.

  In the face of rising imports, Lukens joined with other domestic specialty
steel producers in calling for its trade association, the Specialty Steel
Institute of North America (SSINA), to investigate possible violations of
Federal trade laws.  The SSINA is conducting an investigation that is
aggressively looking for instances of illegal dumping and foreign subsidies.

          SMART Start-Up Costs Decline, Production Capacity Increases
  While significant progress has been made commissioning our new SMART system at
Conshohocken, Pa., costs associated with start-up activities have affected
earnings and share value.  We estimate this impact at about $.50 per share for
the first nine months of 1996.  These costs have declined steadily since the
beginning of the year and should diminish when the system is commissioned by
year-end.
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  We continue to make excellent progress commercializing new SMART products.
Orders are being accepted for 10 carbon, alloy and stainless plate grades in
sizes that represent the core of our wide, light gauge product mix.  Our
challenge now is to accelerate order rates for SMART plate products to levels
that will match the increased production capabilities of the system.  The fourth
quarter will be a transition period as we work to balance orders with steadily
increasing capacity.

                Management Pursues Five-Part Improvement Effort
  Your management team is responding to Lukens' present market valuation with a
five-part effort to improve the elements of performance under our control:
 . Finish the commissioning of Lukens' key capital projects -- including the
  SMART system and our new wide annealing and pickling system.
 . Introduce new SMART plate products to the market
 . Continue reducing costs -- Saving more than $10 million a year, beginning in
  1997.
 . Complete an aggressive inventory reduction program -- eliminating about $50
  million in inventory from the beginning of the year.
 . And improve customer satisfaction and productivity -- we achieved record
  shipped-on-time rates in the 90 to 100 percent range at our stainless
  operations in September; quality ratings climbed to record highs; and both the
  Coatesville and Houston, Pa., melt shops achieved record tons-per-hour
  productivity rates.

                         Steel Stocks Fall Out Of Favor
  Our share price also has fallen victim to Wall Street's apparent present
dislike of cyclical stocks, particularly in the steel sector.  Since the
beginning of the year, the S&P Steel Group is down more than 10 percent while
the S&P 500 is up almost 12 percent.  Almost all steel stocks have suffered in
the sell-off of cyclical issues, making it a difficult environment in which to
improve shareholder value.

                               Dividend Continues
  We deeply appreciate your patience and understanding during a very difficult
period.  We've stayed the course in the face of adversity -- confident our
strategies are sound, and that the fundamentals are in place for long-term
growth.  Cash flow remains good, there are no plans for a reduction in the
dividend and our capital projects are only beginning to demonstrate their great
potential.  We ask for your continued support as we surmount the challenges that
lie ahead.


                         Sincerely,



                         /s/ R.W. Van Sant


RWV/rdw