KENTUCKY EL                   ECTRIC STEEL, INC.


___________             ______________________________

                                 FIRST AMEND                     MENT AGREEMENT
___________             ______________________________


January 30,                                                               1997

                                                                              

To the Noteholders
Whose Names are set forth on 
the Signature Pages hereto:

Ladies and Gentlemen:

                 Reference is made to those certain Note Agreements dated
as of November 1, 1995 (the  Note Agreement ) between the undersigned
Kentucky Electric Steel, Inc. (the  Company ) and the respective purchasers
of $20,000,000 in the aggregate principal amount of the Company s 7.66%
Senior Notes due November 1, 2005 (the  Notes ).  The Company has requested
the Noteholders named on the signature pages attached hereto (the
 Noteholders ) to agree to an amendment to the Note Agreement; and the
Noteholders have agreed to such amendment on the terms and conditions
hereinafter set forth.  (Unless otherwise expressly provided herein,
capitalized terms used herein shall have the same respective meanings as
were assigned to each under the Note Agreement).  

                 In consideration of the foregoing and of the mutual
covenants hereinafter set forth, the Company and the Noteholders agree as
follows:

    1.           Section 5.7 of the Note Agreement is amended to read in
                 its entirety as follows:

                 5.7 Consolidated Adjusted Net Worth.  (i) At all times
    prior to the earlier of December 26, 1998 and the date on which the
    ratio of Consolidated Cash Flow Available for Fixed Charges to Fixed
    Charges for the immediately preceding period of four consecutive
    fiscal quarters, calculated at the end of such fiscal quarter, is
    greater than or equal to 2.0 to 1.0, the Company will keep and
    maintain Consolidated Adjusted Net Worth at an amount not less than
    $30,000,000; and (ii) at all other times, the Company will keep and
    maintain Consolidated Adjusted Net Worth at an amount not less than
    $25,000,000.

    2.           Section 5.9 of the Note Agreement is amended to read in 
                 in its entirety as follows:

               5.9  Fixed Charges Coverage Ratio.  The Company will keep
     and maintain the ratio of its Consolidated Cash Flow Available for
     Fixed Charges to Fixed Charges at:

     (i)       not less than the amounts shown below for each period of
               eight consecutive fiscal quarters, calculated as of the end
               of each fiscal quarter shown below:

               Fiscal Quarter End                 Ratio

               December 28, 1996                  2.0 to 1.0
               March 29, 1997                     1.5 to 1.0
               June 28, 1997                      1.2 to 1.0
               September 27, 1997                 1.0 to 1.0
               December 27, 1997                  1.0 to 1.0
               March 29, 1998                     1.0 to 1.0
               June 27, 1998                      1.0 to 1.0
               September 26, 1998                 1.2 to 1.0

          (ii) not less than 2.0 to 1.0 for each period of four consecutive
               fiscal quarters thereafter, calculated as of the end of each
               such fiscal quarter.
     
          3.   Section 6.1(e) of the Note Agreement is amended to read in
     its entirety as follows:
     
                         (e) (i) At all times prior to the earlier of
          December 26, 1998 and the date on which the ratio of
          Consolidated Cash Flow Available for Fixed Charges to Fixed
          Charges for the immediately preceding period of four consecutive
          fiscal quarters, calculated at the end of such fiscal quarter,
          is greater than or equal to 2.0 to 1.0, default or the happening
          of an event shall occur under any indenture, agreement or other
          instrument under which any Debt in an aggregate principal amount
          of $2,000,000 or more of the Company or any Subsidiary may be
          issued, and, as a consequence of such default or event, such
          Debt has become, or has been declared, or one or more Persons
          are entitled to declare such Debt to be, due and payable before
          its stated maturity or before its regularly scheduled dates of
          payment; and (ii) at all other times, default or the happening
          of any event shall occur under any indenture, agreement or other
          instrument under which any Debt in an aggregate principal amount
          of $2,000,000 or more of the Company or any Subsidiary may be
          issued and such default or event shall result in the
          acceleration of the maturity of any Debt of the Company or any
          Subsidiary outstanding thereunder; or
     
          4.   The modifications set forth herein shall be effective as of
          December 28, 1996 when holders of 66 2/3% in aggregate principal
          amount of outstanding Notes shall have signed and returned to
          the Company a copy of this First Amendment Agreement.
     
          5.   Except as specifically modified hereby, the Note Agreement
     shall remain in full force and effect in accordance with the terms
     thereof.

          6.   Each reference in the Note Agreement to  the Note
     Agreement,   the Agreement,   this Agreement,   herein,   hereof,  or
     other words of like import referring to the Note Agreement shall mean
     the Note Agreement as amended by this First Amendment.
     
     
     
                                   KENTUCKY ELECTRIC STEEL, INC.
     
     
                                   By:  /s/ William J. Jessie              
                                        Name: William J. Jessie       
                                        Title:   Vice President            
     
     
     
     Agreed and Accepted:
     
     Noteholders:
     
     CONNECTICUT GENERAL 
     LIFE INSURANCE COMPANY
     
     By:  CIGNA  Investments, Inc.
     
     By:  /s/ Richard B. McGauley             
             Name:  Richard B. McGauley      
             Title: Managing Director        
                                             
     
          <PAGE>


CONNECTICUT GENERAL
LIFE INSURANCE COMPANY, on behalf of
one or more separate accounts

By:  CIGNA Investments, Inc.

     By:  /s/ Richard B. McGauley            
          Name:  Richard B. McGauley    
          Title: Managing Director  




MODERN WOODMEN OF AMERICA


By:  /s/ Nick S. Coin                             
     Name:   Nick S. Coin                    
     Title: Supervisor, Securities Division  
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