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 28, 1997           

                                       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 11, 1997, is as follows:

     4,624,995 shares of voting common stock, par value $.01 per share.
<PAGE>


                  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 ..................................... 6-7        
   Item 2 - Management's Discussion and Analysis of Financial
             Condition and Results of Operations ........... 8-11


PART II.    OTHER INFORMATION 

   Item 6 - Exhibits and Reports on Form 8-K ................ 12


            SIGNATURES ...................................... 13

<PAGE>

<TABLE>
                                                            KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
                                   (Unaudited)
                                                              June 28,      Sept. 28,
                                                               1997            1996  
   <S>                                                       <C>            <C> 
                    ASSETS
   CURRENT ASSETS
     Cash and cash equivalents                               $    121        $    124
     Accounts receivable, less allowance for doubtful
       accounts and claims of $560 at June 28, 1997 
       and $390 at September 28, 1996                           9,942          12,113
     Insurance claim receivable                                 2,900            -
     Inventories                                               14,628          17,367
     Operating supplies and other current assets                5,138           5,067
     Refundable income taxes                                      800             540
     Deferred tax assets                                          343             680
                                                              -------         ------- 
       Total current assets                                    33,872          35,891
                                                              -------         -------
   PROPERTY, PLANT AND EQUIPMENT
     Land and buildings                                         4,448           4,353
     Machinery and equipment                                   38,897          37,774
     Construction in progress                                   2,679           1,412
     Less - accumulated depreciation                          (10,337)         (7,852)
                                                              -------         -------
          Net property, plant and equipment                    35,687          35,687
                                                              -------         -------
   DEFERRED TAX ASSETS                                          7,659           6,263
                                                              -------         -------
   OTHER ASSETS                                                   763             592
                                                              -------         -------
          Total assets                                       $ 77,981        $ 78,433
        LIABILITIES AND SHAREHOLDERS' EQUITY
   CURRENT LIABILITIES
     Advances on line of credit                              $  8,193        $  7,546
     Accounts payable                                           8,030           7,214
     Capital expenditures payable                                 692           2,404
     Accrued liabilities                                        3,047           3,639
     Environmental liabilities                                  3,500            -
     Current portion of long-term debt                            125             125
                                                              -------         -------
          Total current liabilities                            23,587          20,928 
                                                              -------         -------
   LONG-TERM DEBT                                              20,000          20,000
                                                              -------         -------
   OTHER LIABILITIES                                              544             395
                                                              -------         -------
          Total liabilities                                    44,131          41,323
                                                              -------         -------
   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, 4,975,971 and 4,974,099                          
       share issued, respectively                                  50              50
     Additional paid-in capital                                15,720          15,710
     Less treasury stock - 350,976 and 273,000    
       shares at cost, respectively                            (2,638)         (2,165)
     Deferred compensation                                       (220)           (421)
     Retained earnings                                         20,938          23,936
                                                              -------         -------
          Total shareholders' equity                           33,850          37,110
                                                              -------         -------
          Total liabilities and shareholders' equity         $ 77,981        $ 78,433
<FN>
            See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
                  KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in Thousands, Except Per Share Data)
                                   (Unaudited)


                                           Three Months Ended         Nine Months Ended  
                                          June 28,    June 29,       June 28,    June 29, 
                                            1997        1996           1997        1996  
 
<S>                                       <C>         <C>            <C>         <C> 
NET SALES                                 $ 22,724    $ 26,483       $ 69,265    $ 74,796
COST OF GOODS SOLD                          20,354      23,814         67,365      67,104
                                           -------     -------        -------     -------
       Gross Profit                          2,370       2,669          1,900       7,692
SELLING AND ADMINISTRATIVE EXPENSES          1,761       1,819          5,144       5,806
                                           -------     -------        -------     -------
       Operating income (loss)                 609         850         (3,244)      1,886

INTEREST INCOME AND OTHER                        9           5             20          24
INTEREST EXPENSE                              (545)       (343)        (1,593)     (1,116)
GAIN ON INVOLUNTARY CONVERSION 
  OF EQUIPMENT                                -           -              -            369
                                           -------     -------        -------     -------
       Income (loss) before income taxes        73         512         (4,817)      1,163
     
PROVISION (CREDIT) FOR INCOME TAXES             28         193         (1,819)        439
                                           -------     -------        -------     -------

       Net income (loss)                  $     45    $    319       $ (2,998)   $    724

NET INCOME (LOSS) PER COMMON SHARE        $    .01    $    .07       $   (.65)   $    .15

WEIGHTED AVERAGE SHARES OUTSTANDING      4,622,062   4,790,885      4,636,370   4,831,054

<FN>
            See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
                  KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)
           
                                                                Nine Months Ended                                                 
                                                           June 28,          June 29, 
                                                             1997              1996  
<S>                                                        <C>               <C>   
Cash Flows From Operating Activities:
  Net income (loss)                                       $ (2,998)          $    724
  Adjustments to reconcile net income to net
    cash flows from operating activities:
      Depreciation and amortization                          2,755              1,990
      Gain on involuntary conversion of equipment             -                  (369)
      Change in deferred taxes                              (1,397)               976 
      Change in other                                          (91)              (259)
      Change in current assets and current
        liabilities:
          Accounts receivable                                2,171               (929)
          Insurance claim receivable                        (2,900)              -   
          Inventories                                        2,739              2,789  
          Operating supplies and other                             
            current assets                                     (71)                62 
          Deferred tax assets                                  337                 (3)
          Accounts payable                                     816               (278)
          Accrued liabilities                                 (592)              (857)
          Environmental liabilities                          3,500               -
          Accrued income taxes refundable/payable             (260)              (447)
                                                           -------            -------
          Net cash flows from operating activities           4,009              3,399
                                                           -------            -------
Cash Flows From Investing Activities:
  Proceeds from involuntary conversion of equipment           -                   912
  Capital expenditures                                      (2,485)            (8,412)
  Change in capital expenditures payable                    (1,712)               292 
                                                           -------            -------
          Net cash flows from investing activities          (4,197)            (7,208)
                                                           -------            -------
Cash Flows From Financing Activities:
  Net advances (repayments) on line of credit                  647             (6,749)
  Repayments on long-term debt                                -                (9,001)
  Proceeds from long-term debt borrowings                     -                20,000
  Purchases of treasury stock                                 (473)              (643)
  Net proceeds from issuance of common stock                    10               -  
                                                           -------            -------
          Net cash flows from financing activities             184              3,607
                                                           -------            -------
          Net decrease in cash and             
            cash equivalents                                    (4)              (202)

Cash and Cash Equivalents at Beginning of Period               125                327
                                                           -------            -------
Cash and Cash Equivalents at End of Period                $    121           $    125

Interest Paid, net of amount capitalized                  $  1,213           $    955

Income Taxes Paid                                         $   -              $    297
<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 28,
1997, are not necessarily indicative of the results that may be expected
for the year ended September 27, 1997.  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 28, 1996.

   Net income per common share is calculated based on 4,622,062 and
4,790,885 weighted average number of common shares outstanding during the
quarters ended June 28, 1997, and  June 29, 1996, respectively.  Net income
per common share is calculated based on 4,636,370 and 4,831,054 weighted
average number of shares outstanding for the nine months ended June 28,
1997 and June 29, 1996, respectively.


(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 $75,000 was
capitalized for the quarter  ended June 29, 1996.  Interest costs of
$11,000 and $159,000 were capitalized for the nine months ended June 28,
1997 and June 29, 1996, respectively. 


(3)  Inventories

   Inventories at June 28, 1997 and September 28, 1996 consist of the
following ($000's): 
                                       June 28,      September 28,
                                        1997            1996     
  Raw materials                        $  3,441        $  4,069 
  Semi-finished and finished goods       11,187          13,298             
    Total inventories                  $ 14,628        $ 17,367 


(4)  Long-Term Debt

   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 has been 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.

(5)  Insurance Claim Receivable and Environmental Liabilities

   During the quarter ended June 28, 1997, the Company's melt shop
operations were shut down for twelve days 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 $2.9 million which represents the
estimated balance due from the insurance carrier on the total projected
reimbursement of $6.9 million, which covers the costs incurred in the
radiation contamination clean-up, the disposal cost, and business
interruption.  To date the Company has received $4.0 million from the
insurance carrier as an advance payment for costs incurred.  The
accompanying statements of operations for the quarter and nine months ended
June 28, 1997 include $2.3 million of reimbursement for business
interruption in the calculation of cost of goods sold.  

   The $3.5 million in environmental liabilities recorded as a current
liability on the balance sheet represents approximately $1.0 million in
clean-up costs which have been incurred but unpaid as of June 28, 1997, and
$2.5 million in estimated disposal costs.  Through June 28, 1997, the
Company has paid $1.2 million in clean-up costs.  The estimated disposal
costs are based upon a signed contract with an environmental services
company for removal, transportation, treatment, and disposal of the
contaminated baghouse dust.  The contaminated baghouse dust will be shipped
offsite by August 15 and payment for the disposal will occur within the
next twelve months.  These costs are covered by the radiation contamination
insurance with the exception of a $100,000 deductible which has been
reflected as a reduction of the insurance claim receivable and expensed
during the current period.  Although it is possible that the ultimate
disposal costs may change from current estimates, the effect of the change
would not be material to the financial statements due to the sufficiency of
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.
<PAGE>

                  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, cold drawn bar converters, flat bed truck trailers, and
steel service centers.

   Net Sales.  Net sales decreased $3.8 million (14.2%) in the third
quarter of fiscal 1997 to $22.7 million, as compared to $26.5 million for
the third quarter of fiscal 1996.  The decrease in net sales is attributed
to a 17.1% decrease in shipments (discussed below) which is partially
offset by a 3.5% increase in average selling price.  The increase in
average selling price reflects the price increases implemented on many
products during the quarter, slightly offset by continued downward pricing
pressures in the spring and commodity square edge markets.

   Net sales for the nine months ended June 28, 1997 decreased $5.5
million (7.4%) to $69.3 million, as compared to $74.8 million for the nine
months ended June 29, 1996.  The decrease in net sales is primarily
attributed to a 6.0% decrease in shipments (discussed below) and to a
lesser degree a decrease in average selling price.  The decrease in average
selling price is attributed to a change in product mix and downward pricing
pressures in the spring and commodity square edge markets.  

   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 resulting shortage of billets idled the rolling mill for
approximately seven days and negatively impacted rolling mill productivity
for several weeks.  The Company has recorded $3.5 million in environmental
liabilities as a current liability on the balance sheet which represents
approximately $1.0 million in clean-up costs which have been incurred but
unpaid as of June 28, 1997, and $2.5 million in estimated disposal costs. 
Through June 28, 1997, the Company has paid $1.2 million in clean-up costs. 
The estimated disposal costs are based upon a contract with an
environmental services company for removal, transportation, treatment, and
disposal of the contaminated baghouse dust.  The contaminated baghouse dust
will be shipped offsite by August 15 and payment for the disposal will
occur within the next twelve months.  These costs are covered by the
radiation contamination insurance with the exception of a $100,000
deductible which has been expensed during the current period.  Although it
is possible that the ultimate disposal costs may change from current
estimates, the effect of the change would not be material to the financial
statements due to the sufficiency of insurance coverage.

   Cost of Goods Sold.  Cost of goods sold decreased $3.5 million (14.5%)
in the third quarter of fiscal 1997 to $20.3 million, as compared to $23.8
million for the third quarter of fiscal 1996.  As a percentage of net
sales, cost of goods sold decreased from  89.9% for the three months ended
June 29, 1996 to 89.6% for the three months ended June 28, 1997.  This
decrease in the cost of goods sold percentage reflects the increase in
average selling price offset by an increase in per ton costs.  The increase
in per ton costs is attributed to higher conversion costs, additional
depreciation related to the start-up of the ladle metallurgy and casting
facilities and a slight increase in health benefit costs, which has been
partially offset by a decrease in material costs.  The increase in
conversion costs was primarily attributed to lower production during the
quarter resulting from the shut down of the melt shop operations for twelve
days for decontamination of the baghouse facility.  The resulting shortage
of billets idled the rolling mill for approximately seven days and
negatively impacted rolling mill productivity for several weeks.  The
increase in conversion costs associated with the decontamination of the
baghouse has been offset by the inclusion of the $2.3 million reimbursement
from business interruption in the calculation of cost of goods sold.


   Cost of goods sold for the nine months ended June 28, 1997 increased
$.3 million (.4%) to $67.4 million as compared to $67.1 million for the
nine months ended June 29, 1996.  As a percentage of net sales, cost of
goods sold increased from 89.7% for the nine months ended June 29, 1996 to
97.3% for the nine months ended June 28, 1997.  The increase in cost of
goods sold is due to higher conversion costs and additional depreciation
related to the start-up of the ladle metallurgy and casting facilities,
which has been partially offset by a decrease in material costs. 
Conversion costs for the  first nine months of fiscal 1997 were adversely
impacted by lower production during the third quarter as discussed in the
preceeding paragraph and by the shutdown and restart of the caster during
the second quarter.  The caster was shut-down for 10 days in late December
and early January to allow for repairs to be made.  At the same time, the
Company converted an additional caster strand to allow for increased
production of thicker, wider products.  Also adversely impacting conversion
costs, although to a lesser degree, was an increase in repair and
maintenance cost, supply cost, health benefit cost and the continued start-
up phase of the new ladle metallurgy facility, which came on-line in the
fourth quarter of fiscal 1996.  The nine months ended June 29, 1996
includes a $1.7 million reimbursement from business interruption insurance,
related to the caster fire, in the calculation of cost of goods sold.  The
nine months ended June 28, 1997 includes $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 the third
quarter of fiscal 1997 decreased by $.3 million (11.2%) to $2.4 million
from $2.7 million for the third fiscal quarter of 1996.  As a percentage of
net sales, gross profit increased from  10.1% for the three months ended
June 29, 1996 to 10.4% for the three months ended June 28, 1997.

   As a result of the above, gross profit for the nine months ended June
28, 1997 decreased $5.8 million (75.3%) to $1.9 million as compared to $7.7
million for the nine months ended June 29, 1996.  As a percentage of net
sales, gross profit decreased from  10.3% for the nine months ended June
29, 1996 to 2.7% for the nine months ended June 28, 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, personnel, and other administrative departments. 
Selling and administrative expenses decreased by approximately $58,000 for
the three months ended June 28, 1997 as compared to the comparable period
in fiscal 1996.  As a percentage of net sales, such expenses increased from
6.9% for the three months ended June 29, 1996 to 7.7% for the three months
ended June 28, 1997.  The increase, as a percentage of sales, is primarily
the result of a decrease in shipments (as discussed above) resulting in
lower net sales for the quarter ended June 28, 1997 while selling and
administrative expenses only declined slightly.  The decrease in selling
and administrative expenses is attributed to a reduction in the provision
for uncollectible accounts (which was higher in the prior period due to
problems with certain specific accounts) and a decrease in other
miscellaneous expenses offset by an increase in health benefit costs.

   Selling and administrative expenses decreased by $.7 million for the
nine months ended June 28, 1997 as compared to the comparable period for
fiscal 1996.  As a percentage of net sales, such expenses decreased from
7.8% for the nine months ended June 29, 1996 to 7.4% for the nine months
ended June 28, 1997.  The decrease is primarily the result of a reduction
in the provision for uncollectible accounts (which was higher in the prior
period due to problems with certain specific accounts) and a decrease in
legal and professional fees.

   Operating Income.  For the reasons described above, operating income
decreased by $.3 million (28.4%) from $.9 million in the third quarter of
fiscal 1996 to $.6 million in the third quarter of fiscal 1997.  As a
percentage of net sales, operating income decreased from 3.2% in the third
quarter of 1996 to 2.7% in the third quarter of 1997.

   The nine months ended June 28, 1997 reflected an operating loss of
$3.2 million as compared to operating income of $1.9 million for the nine
months ended June 29, 1996.  As a percentage of net sales operating income
decreased from 2.5% for the nine months ended June 29, 1996 to (4.7%) for
the nine months ended June 28, 1997.

   Interest Expense.  Interest expense increased by $202,000 for the
three months ended June 28, 1997 from $343,000 for the third quarter of
fiscal 1996 to $545,000 for the third quarter of fiscal 1997, net of
interest capitalized of $75,000 for the third quarter of fiscal 1996. 
Interest expense for the nine months ended June 28, 1997 increased $477,000
from $1.1 million for the nine months ended June 29, 1996 to $1.6 million
for the nine months ended June 28, 1997, net of interest capitalized of
$159,000 and $11,000, respectively.  The increase in interest expense was
attributed to the additional debt incurred in financing the capital
expansion projects and the reduction of capitalized interest due to the
completion and start-up of the ladle metallurgy facility.

   Gain on Involuntary Conversion of Equipment.  As a result of the
caster fire, during the second quarter of fiscal 1996, 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
$274,000 (85.9%) for the three months ended June 28, 1997 from $319,000 for
the third quarter of fiscal 1996 to $45,000 for the third quarter of fiscal
1997.
   
   As a result of the above, the nine months ended June 28, 1997
reflected a net loss of $3.0 million as compared to net income of $.7
million for the nine months ended June 29, 1996.


Liquidity and Capital Resources.

       The cash flows provided from operating activities were $4.0 million
for the first nine months of fiscal 1997 as compared to $3.4 million for
the first nine months of fiscal 1996.  The first nine months of fiscal 1997
operating cash flows reflect a reduction in accounts receivable and
inventories.  The first nine months of fiscal 1996 operating cash flows
reflect a reduction in inventories.

   The cash flows used by investing activities were $4.2 million for the
first nine months of fiscal 1997 as compared to $7.2 million for the first
nine months of fiscal 1996.  The first nine months of fiscal 1997 investing
cash flows reflect capital expenditures of $2.5 million and payments on
capital expenditures payable of $1.7 million.  The first nine months of
fiscal 1996 investing cash flows reflect capital expenditures of $8.4
million which has been offset by an increase in capital expenditures
payable of $.3 million and the proceeds from the involuntary conversion of
equipment of $.9 million.

   The cash flows provided from financing activities were $.2 million for
the first nine months of fiscal 1997 as compared to $3.6 million for the
first nine months of fiscal 1996.  The cash flows provided from financing
activities for fiscal 1997 reflect net advances of $.7 million on the
Company's line of credit offset by $.5 million for purchase of treasury
stock.  The cash flows provided from financing activities for fiscal 
1996 reflect net repayments of $6.8 million on the Company's line of
credit, $9.0 million repayment on long-term debt, and $.6 million for
purchase of treasury stock; however, these amounts were offset with the
proceeds of $20.0 million of new long-term debt.

   Working capital at June 28, 1997 was $10.3 million as compared to
$15.0 million at September 28, 1996, and the current ratio was 1.4 to 1.0
as compared to 1.7 to 1.0.  The decrease in working capital and current
ratio is primarily attributed to a decrease in accounts receivable and
inventories.

   The Company's primary ongoing cash requirements are for the payment of
retainage on the capital expansion projects and current capital
expenditures.  The two sources for the Company's liquidity are internally
generated funds and its bank credit facility.  The Company has $8.2 million
in borrowings outstanding on its line of credit as of June 28, 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.


Recent Accounting Pronouncements

   In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS No. 128) related to the computation and
presentation of earnings per share data.  Under SFAS No. 128, basic and
diluted earnings per share for the three months and nine months ended June
28, 1997 would have been the same as reported.


Outlook

   Management believes the price increases implemented on many products
in March and April have been accepted by the marketplace, however, spring
pricing remains soft. The Company's position in the major markets it serves
combined with productivity improvements and continued strength in the
marketplace should enable the Company to continue to improve operating
results in the coming quarters.               


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, 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 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 ElectricSteel, 
                    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.
    
            10.15 - Remediation and Waste Disposal Agreement -
                    Zhagrus Environmental, Inc.
 
            27    - Financial Data Schedule

        B)  Reports on Form 8-K - None

                                                                            
                                                                            
                                   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 12, 1997               KENTUCKY ELECTRIC STEEL, INC.  
                                               (Registrant) 

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