FORM 10-Q


	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C.  20549


(Mark One)
  X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

For the quarterly period ended            June 27, 1998                 

	OR

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934

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                   


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       

The number of shares outstanding of each of the issuer's classes of common 
stock, as of August 10, 1998, is as follows:					

4,626,657 shares of voting common stock, par value $.01 per share.





	KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY


	TABLE OF CONTENTS



                                                                   Page

PART I.  FINANCIAL INFORMATION 

   Item 1 - Financial Statements 

 	      Condensed Consolidated Balance Sheets ................    3
           
            Condensed Consolidated Statements of Operations ......    4
         
            Condensed Consolidated Statements of Cash Flows ......    5
          
            Notes to Condensed Consolidated Financial Statements . 6-8   
     

   Item 2 - Management's Discussion and Analysis of Financial
              Condition and Results of Operations ................ 9-12


PART II.    OTHER INFORMATION 

   Item 6 - Exhibits and Reports on Form 8-K .....................   13


            SIGNATURES  ..........................................   14




KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

<TABLE>
                                                     June 27,   Sept. 27,
                                                       1998        1997  
<S>                                                  <C>        <C>   
                    ASSETS
   CURRENT ASSETS
     Cash and cash equivalents                       $    136   $    127
     Accounts receivable, less allowance for doubtful
       accounts and claims of $445 at June 27, 1998    
       and $470 at September 27, 1997                  13,612     11,577
     Insurance claim receivable                          -           900
     Inventories                                       21,605     16,538
     Operating supplies and other current assets        4,981      4,802
     Refundable income taxes                             -           900
     Deferred tax assets                                  539        457

       Total current assets                            40,873     35,301

   PROPERTY, PLANT AND EQUIPMENT
     Land and buildings                                 4,532      4,448
     Machinery and equipment                           41,083     40,301
     Construction in progress                           3,188      2,012
     Less - accumulated depreciation                  (13,856)   (11,229)
                                                                 
          Net property, plant and equipment            34,947     35,532

   DEFERRED TAX ASSETS                                  6,136      7,159

   OTHER ASSETS                                         1,023        778

          Total assets                               $ 82,979   $ 78,770

        LIABILITIES AND SHAREHOLDERS' EQUITY
   CURRENT LIABILITIES
     Advances on line of credit                      $ 11,763   $ 10,635
     Accounts payable                                   9,600      7,977
     Capital expenditures payable                         829        547
     Accrued liabilities                                3,377      3,700
     Environmental liabilities                            982        982
     Current portion of long-term debt                    125        125
                                                              
          Total current liabilities                    26,676     23,966
                                                          
   LONG-TERM DEBT                                      20,000     20,000
                                                              
   OTHER LIABILITIES                                      754        593

          Total liabilities                            47,430     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, 4,983,201 and 4,977,988                        
  
       share issued, respectively                          50         50
     Additional paid-in capital                        15,700     15,665
     Less treasury stock - 356,544 and 350,976    
       shares at cost, respectively                    (2,675)   (2,638)
     Deferred compensation                                (86)     (170)
     Retained earnings                                 22,560     21,304

          Total shareholders' equity                   35,549     34,211

          Total liabilities and shareholders' equity $ 82,979   $ 78,770
        
<FN>
See notes to condensed consolidated financial statements

</TABLE>
	
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)

<TABLE>
                               Three Months Ended     Nine Months Ended  
                               June 27,   June 28,   June 27,   June 28,
                                 1998       1997       1998       1997   
<S>                            <C>        <C>        <C>        <C>      
                    
 
NET SALES                     $  27,751   $  22,724  $ 83,381  $ 69,265 
COST OF GOODS SOLD               24,294      20,354    74,161    67,365  
  Gross profit                    3,457       2,370     9,220     1,900 
 
SELLING AND ADMINISTRATIVE 
  EXPENSES                        1,832       1,761     5,421     5,144  
                             
  Operating income (loss)         1,625         609     3,799    (3,244) 

INTEREST INCOME AND OTHER            20           9        44        20 
INTEREST EXPENSE                   (594)       (545)   (1,816)   (1,593)

  Income (loss) before 
     income taxes                 1,051          73     2,027    (4,817) 
                                
PROVISION (CREDIT) FOR 
  INCOME TAXES                      399          28       771    (1,819)

  Net income (loss)            $    652    $     45  $  1,256  $ (2,998)
                          
NET INCOME (LOSS) PER COMMON 
  SHARE - BASIC AND DILUTED    $    .14    $    .01  $    .27  $   (.65)

WEIGHTED AVERAGE SHARES 
  OUTSTANDING - BASIC         4,626,375   4,622,062 4,626,264 4,636,370 

WEIGHTED AVERAGE SHARES 
  OUTSTANDING - DILUTED       4,630,192   4,622,062 4,632,513 4,636,370 




<FN>
See notes to condensed consolidated financial statements

</TABLE>

KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
           
<TABLE>
                                                  Nine Months Ended      
                                               June 27,       June 28,
                                                 1998           1997   
<S>                                            <C>            <C> 
Cash Flows From Operating Activities:
  Net income (loss)                            $  1,256      $ (2,998)
  Adjustments to reconcile net income (loss) to 
    net cash flows from operating activities:
      Depreciation and amortization               2,741         2,755
      Change in deferred taxes                    1,023        (1,397)
      Change in other                              (114)          (91)
      Change in current assets and current
        liabilities:
          Accounts receivable                    (2,035)        2,171
          Insurance claim receivable                900        (2,900)
          Inventories                            (5,067)        2,739  
          Operating supplies and other                             
            current assets                         (179)          (71)
          Refundable income taxes                   900          (260)
          Deferred tax assets                       (82)          337
          Accounts payable                        1,623           816 
          Accrued liabilities                      (323)         (592)
          Environmental liabilities                -            3,500

          Net cash flows from operating 
            activities                              643         4,009

Cash Flows From Investing Activities:
  Capital expenditures                           (2,042)       (2,485)
  Change in capital expenditures payable            282        (1,712)

          Net cash flows from investing 
            activities                           (1,760)       (4,197)

Cash Flows From Financing Activities:
  Net advances on line of credit                  1,128           647 
  Purchases of treasury stock                       (37)         (473)
  Issuance of common stock                           35            10 

          Net cash flows from financing 
            activities                            1,126           184

          Net increase (decrease) in cash      
            and cash equivalents                      9            (4)

Cash and Cash Equivalents at 
  Beginning of Period                               127           125 

Cash and Cash Equivalents at End of Period     $    136      $    121 

Interest Paid, net of amount capitalized       $  1,415      $  1,213 

Income Taxes Paid                              $     50      $   -    

<FN>
   
            See notes to condensed consolidated financial statements

</TABLE

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


(1)  Basis of Presentation

The accompanying unaudited condensed consolidated financial 
statements represent Kentucky Electric Steel, Inc. and its wholly-
owned subsidiary, KESI Finance Company, (the Company).  KESI Finance 
Company was formed in October 1996 to finance the Ladle Metallurgy 
Project.  All significant intercompany accounts and transactions have 
been eliminated. These statements have been prepared in accordance 
with generally accepted accounting principles for interim financial 
information and the instructions to Form 10-Q and Article 10 of 
Regulation S-X.  Accordingly, they do not include all of the 
information and footnotes required by generally accepted accounting 
principles for complete financial statements.  In the opinion of 
management, all adjustments (consisting of normal recurring 
adjustments) considered necessary for a fair presentation have been 
included.  Operating results for the nine-month period ended June 27, 
1998, are not necessarily indicative of the results that may be 
expected for the year ending September 26, 1998.  For further 
information, refer to the financial statements and footnotes thereto 
included in the Company's annual report on Form 10-K for the year 
ended September 27, 1997.

(2)  Accounting Policies

     Fiscal Year End
The Company's fiscal year ends on the last Saturday of 
September.  
     
     Property, Plant, 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 capitalizes interest costs as part of the historical 
cost of constructing major capital assets.  Interest cost of $11,000 
was capitalized for the nine months ended June 28, 1997. No interest 
was capitalized for the nine months ended June 27, 1998.


(3)  Inventories

	Inventories at June 27, 1998 and September 27, 1997 consist of 
the following ($000's): 
                                           June 27,      Sept. 27, 
                                        1998          1997    
      Raw materials                        $  3,178      $  3,280 
      Semi-finished and finished goods       18,427        13,258
           Total inventories                  $ 21,605      $ 16,538 



(4)	Earnings Per Share

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


</TABLE>
<TABLE>
                                    For the Three                 For the Three
                                    Months Ended                  Months Ended  
                                    June 27, 1998                 June  28, 1997                                
                                                   Per                             Per
                                                  Share                           Share 
                             Income     Shares    Amount    Income     Shares     Amount
<S>                          <C>        <C>       <C>       <C>        <C>        <C>
Amounts for Basic        
 Earnings Per Share          $652     4,626,375    $.14    $    45    4,622,062   $ .01

Effect of Dilutive 
 Securities Options            -          3,817      -        -            -         -      
Amounts for Diluted       
 Earnings Per Share          $652     4,630,192    $.14    $    45    4,622,062   $ .01



                                    For the Nine                  For the Nine
                                    Months Ended                  Months Ended  
                                    June 27, 1998                 June  28, 1997                                
                                                   Per                             Per
                                                  Share                           Share 
                              Income    Shares    Amount    (Loss)    Shares     Amount

Amounts for Basic       
 Earnings (Loss) Per Share  $ 1,256   4,626,264    $.27    $(2,998)   4,636,370   $(.65)

Effect of Dilutive 
 Securities Options            -          6,249      -        -            -         -    
Amounts for Diluted
 Earnings (Loss) Per Share  $ 1,256   4,632,513    $.27    $(2,998)   4,636,370   $(.65)
</TABLE>
		The Company had transition stock options of 137,016 and 158,702 
as of June 27, 1998 and June 28, 1997, respectively.  The options 
have exercise prices ranging from $8.76 to $20.86 per share which 
exceeded the average market price as of June 27, 1998 and as of June 
28, 1997, and therefore were not included in the computation of 
diluted earnings per share.  These options expire beginning July 14, 
1998 through February 18, 2003.

		The Company also had options of 301,976 and 315,976 as of June 
27, 1998 and June 28, 1997, respectively.  These options have 
exercise prices ranging from $7.63 to $12.31 per share which exceeded 
the average market price as of June 27, 1998 and June 28, 1997 and 
therefore were not included in the computation of diluted earnings 
per share.  These options expire beginning October 6, 2003 through 
May 8, 2006.  The Company also had 89,192 options at an exercise 
price of $5.56, which exceeded the average market price as of June 
28, 1997, and therefore were not included in the computation of 
diluted earnings per share for fiscal 1997.


(5)  Environmental Liabilities

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

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


(6)  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 material 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 5.  However, 
discovery of unknown conditions could result in the recording of 
accruals in the periods in which they become known.




KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


General.  The Company manufactures special bar quality alloy and 
carbon steel bar flats to precise customer specifications for sale in 
a variety of niche markets.  Its primary markets are manufacturers of 
leaf-spring suspensions and flat bed truck trailers, cold drawn bar 
converters, and steel service centers.

Net Sales.  Net sales increased $5.1 million (22.1%) in the 
third quarter of fiscal 1998 to $27.8 million, as compared to $22.7 
million for the third quarter of fiscal 1997. Net sales for the nine 
months ended June 27, 1998 increased $14.1 million (20.4%) to $83.4 
million, as compared to $69.3 million for the nine months ended June 
28, 1997. The increase in sales is attributed to an increase in 
shipments and an increase in average selling price. Tons shipped 
increased 18.6% in the third quarter of fiscal 1998 as compared to 
the third quarter of fiscal 1997. Tons shipped for the nine months 
ended June 27, 1998 increased 14.3% as compared to the nine months 
ended June 28, 1997.  The increase in shipments resulted from the 
strong demand for the Company's products and the increase in tons 
available for shipment due to improvements in productivity. Also, 
shipments for the quarter and nine months ended June 28, 1997 were 
negatively impacted by the effect on production of the melt shop 
operations being shut down for twelve days in order to decontaminate 
the baghouse facility, after the detection of a radioactive substance 
in the baghouse dust.  The increase in average selling price is 
attributed to the price increases implemented on many products 
primarily in the first and second quarters of fiscal 1998.

Cost of Goods Sold.  Cost of  goods  sold increased $4.0 million 
(19.4%) in the third quarter of fiscal 1998 to $24.3 million, as 
compared to $20.3 million for the third quarter of fiscal 1997.  As 
a percentage of net sales, cost of goods sold decreased from  89.6% 
for the third quarter of fiscal 1997 to 87.5% for the third quarter 
of fiscal 1998. The increase in cost of goods sold is primarily due 
to the 18.6% increase in shipments. The third quarter of fiscal 1997 
per ton cost were favorably impacted by the inclusion in the 
calculation of cost of goods sold of $2.3 million reimbursement from 
business interruption related to the decontamination of the baghouse. 
The third quarter of fiscal 1998 includes $.2 million in 
reimbursement from business interruption in the calculation of cost 
of goods sold representing the final settlement on the 
decontamination of the baghouse. Excluding the insurance 
reimbursements, the per ton cost of shipments in the third quarter of 
fiscal 1998 was significantly lower than in the third quarter of 
fiscal 1997 reflecting lower conversion costs due to improvements in 
productivity from our capital projects. 

     Cost of goods sold for the nine months ended June 27, 1998 
increased $6.8 million (10.1%) to $74.2 million as compared to $67.4 
million for the nine months ended June 28, 1997. As a percentage of 
net sales, cost of goods sold decreased from  97.3% for the nine 
months ended June 28, 1997 to 88.9% for the nine months ended June 
27, 1998. The increase in cost of goods sold reflects the increase in 
shipments offset by a decrease in the per ton cost of tons shipped. 
 The decrease in the per ton cost of tons shipped during the first 
nine months of fiscal 1998 as compared to the first nine months of 
fiscal 1997 resulted from lower conversion costs due to improvements 
in productivity from our capital projects, offset somewhat by an 
increase in scrap costs.  



Gross Profit (Loss). As a result of the above, gross profit for 
the third quarter of fiscal 1998 increased by $1.1 million (45.9%) to 
$3.5 million from $2.4 million for the third fiscal quarter of 1997. 
 As a percentage of net sales, gross profit increased from  10.4% for 
the third quarter of fiscal 1997 to 12.5% for the third quarter of 
fiscal 1998.  

		As a result of the above, gross profit for the nine months ended 
June 27, 1998 increased by $7.3 million to $9.2 million as compared 
to $1.9 million for the nine months ended June 28, 1997.  As a 
percentage of net sales, gross profit increased from 2.7% for the 
first nine months of fiscal 1997 to 11.1% for the first nine months 
of fiscal 1998.

Selling and Administrative Expenses.  Selling and administrative 
expenses include salaries and benefits, corporate overhead, 
insurance, sales commissions and other expenses incurred in the 
executive, sales and marketing, shipping, personnel, and other 
administrative departments. Selling and administrative expenses 
increased by approximately $71,000 and $277,000 for the three months 
and nine months ended June 27, 1998, as compared to the same periods 
in fiscal 1997.  The increase in selling and administrative expenses 
for the nine months is due primarily to an increase in legal and 
other professional fees and sales commissions.  As a percentage of 
net sales, such expenses decreased from 7.7% for the third quarter of 
fiscal 1997 to 6.6% for the third quarter of fiscal 1998, and from 
7.4% for the nine months ended June 28, 1997 to 6.5% for the nine 
months ended June 27, 1998.  The decrease, as a percentage of sales, 
is primarily the result of an increase in net sales (as discussed 
above) for the quarter and nine months ended June 27, 1998. 

Operating Income (Loss).  For the reasons described above, 
operating income increased $1.0 million from $.6 million in the third 
quarter of fiscal 1997 to $1.6 million in the third quarter of fiscal 
1998. As a percentage of net sales, operating income increased from 
2.7% in the third quarter of 1997 to 5.9% in the third quarter of 
1998.


		The nine months ended June 27, 1998 reflected an operating 
income of $3.8 million as compared to an operating loss of $3.2 
million for the nine months ended June 28, 1997. As a percentage of 
net sales, operating income (loss) increased from (4.7%) for the nine 
months ended June 28, 1997 to 4.6% for the nine months ended June 27, 
1998.

Interest Expense.  Interest expense increased by $49,000 for the 
three months ended June 27, 1998 from $545,000 for the third quarter 
of fiscal 1997 to $594,000 for the third quarter of fiscal 1998. 
Interest expense increased by $223,000 for the nine months ended June 
27, 1998 from $1.6 million for the nine months ended June 28, 1997 to 
$1.8 million for the nine months ended June 27, 1998.  The increase 
is the result of additional borrowings on the Company's line of 
credit.  

Net Income (Loss).  As a result of the above, net income 
increased $607,000 from $45,000 for the third quarter of fiscal 1997 
to $652,000 for the third quarter of fiscal 1998.

The nine months ended June 27, 1998 reflected net income of $1.3 
million as compared to a net loss of $3.0 million for the nine months 
ended June 28, 1997.

Liquidity and Capital Resources

	  The cash flows provided by operating activities were $.6 million 
for the first nine months of fiscal 1998 as compared to $4.0 million 
for the first nine months of fiscal 1997. The first nine months of 
fiscal 1998 operating cash flows reflect the profitable operations 
and an increase in accounts payable partially offset by increases in 
accounts receivable and inventories (due primarily to the increased 
level of sales and production). The cash flows provided by operating 
activities for the first nine months of fiscal 1997 reflect a 
reduction in accounts receivable and inventories.
 
		The cash flows used by investing activities were $1.7 million 
for the first nine months of fiscal 1998 as compared to $4.2 million 
for the first nine months of fiscal 1997.  The cash flows used by 
investing activities for the first nine months of fiscal 1998  
consist of $2.0 million in capital expenditures offset somewhat by an 
increase in capital expenditures payable of $.3 million.  The cash 
flows used by investing activities for the first nine months of 
fiscal 1997 consist of capital expenditures of $2.5 million and a 
reduction in capital expenditures payable of $1.7 million.

The cash flows provided from financing activities were $1.1 
million for the first nine months of fiscal 1998 as compared to $.2 
million for the first nine months of fiscal 1997. The cash flows 
provided from financing activities for the first nine months of 
fiscal 1998 reflect net advances of $1.1 million on the Company's 
line of credit which were used primarily for the working capital 
needs discussed above.  The cash flows provided from financing 
activities for the first nine months of fiscal 1997 reflect net 
advances of $.7 million on the Company's line of credit offset by $.5 
million used for the purchase of treasury stock.


Working capital at June 27, 1998 was $14.2 million as compared 
to $11.3 million at September 27, 1997, and the current ratio was 1.5 
to 1.0 at the end of both periods. 

The Company's primary ongoing cash requirements are for working 
capital needs.  The two sources for the Company's liquidity are 
internally generated funds and its bank credit facility.  The Company 
has $11.8 million in borrowings outstanding on its line of credit as 
of June 27, 1998.  The Company believes that the unused portion of 
its $24.5  million bank credit facility and internally generated 
funds will be sufficient to fund its ongoing cash needs.


Year 2000 Compliance
	
		The Company is currently assessing the issues confronting it 
related to the "Year 2000 problem", which is the result of the 
inability of many computer systems and electronic equipment to 
distinguish the year 2000 from the year 1900.  The Company's plan for 
addressing the Year 2000 problem encompasses both internal computer 
hardware and software and external organizations that may affect the 
Company's operations.  The Company has conducted an inventory of all 
of its manufacturing equipment and computer hardware and software to 
determine which are date sensitive and therefore potentially at risk. 
Each piece of equipment which is identified as being at risk will be 
tested and a determination will be made as to whether it should be 
modified or replaced. In addition, the Company's computer programmers 
are modifying its internal software to address the Year 2000 problem. 
The Company also intends to contact each of its significant external 
service providers, vendors, and customers to determine the status of 
their respective Year 2000 readiness and to evaluate how their 
respective Year 2000 issues might affect the Company.

		The Company expects to complete its software revisions and 
hardware and equipment testing, as well as the solicitation of the 
applicable information from vendors and customers, by the first 
quarter of calendar year 1999. Based on the results of those efforts, 
the Company will determine the nature and extent of its contingency 
plan.  The costs incurred to date in connection with the Company's 
Year 2000 project have not been material, and the Company likewise 
does not expect future costs to be material to its financial 
statements or results of its operations.


Collective Bargaining Agreement

	   As of June 27, 1998 the Company employed 437 people, 
approximately 78% of whom are members of The United Steelworkers of 
America.  The Company and The United Steelworkers of America have 
agreed to a one year extension of the current contract, which was to 
expire on September 10, 1998, and are continuing multi-year contract 
negotiations. 


Outlook

	Third quarter shipments were somewhat lower than anticipated 
reflecting some weaknesses in the steel service center and cold drawn 
bar converter markets due to customer inventory adjustments, combined 
with a work stoppage at major customer, the effect of the General 
Motors strike, and production interruptions relating to weather 
conditions.  In recent weeks shipments have increased but management 
continues to monitor the Company's major markets for the effect of 
the General Motors strike and changes in general economic conditions.


Forward-Looking Statements

The matters discussed or incorporated by reference in this 
Report on Form 10-Q that are forward-looking statements (as defined 
in the Private Securities Litigation Reform Act of 1995) involve 
risks and uncertainities.  These risks and uncertainities include, 
but are not limited to, reliance on the 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 estimate of 
niche market data; the cyclical and capital intensive nature of the 
industry; and cost of compliance with environmental regulations.  
These risks and uncertainities could cause actual results of the 
Company to differ materially from those projected or implied by such 
forward-looking statements.



<PAGE>



	PART II. - OTHER INFORMATION


   

ITEM 6. Exhibits and Reports on Form 8-K                    
	      
           A)  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.
    
            27    - Financial Data Schedule

           B)  Reports on Form 8-K - None.


<PAGE>







SIGNATURES

                                      
     Pursuant to the requirements of the Securities Exchange Act of 
1934, the Registrant has duly caused this report to be signed on its 
behalf by the undersigned thereunto duly authorized.




DATED:  August 10, 1998            KENTUCKY ELECTRIC STEEL, INC.  
                                            (Registrant) 

                                       William J. Jessie          
                                 William J. Jessie, Vice President,
                                   Secretary, Treasurer, and
                                   Principal Financial Officer