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               December 28, 1996            

                                       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 February 11, 1997, is as follows:

     4,628,099 shares of voting common stock, par value $.01 per share.
<PAGE>






                         KENTUCKY ELECTRIC STEEL, INC.


                               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 .................8-10


PART II.   OTHER INFORMATION 

  Item 6 - Exhibits and Reports on Form 8-K ......................  11


           SIGNATURES  ...........................................  12


<PAGE>



<TABLE>



                                                                   KENTUCKY ELECTRIC STEEL, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
                                   (Unaudited)
<CAPTION>
                                                             December       September
                                                             28, 1996       28, 1996 
 <S>                  ASSETS                                 <C>            <C> 
   CURRENT ASSETS
     Cash and cash equivalents                               $    127        $    124
     Accounts receivable, less allowance for doubtful
       accounts of $535 at December 28, 1996 and $390
       at September 28, 1996                                   10,709          12,113
     Inventories                                               16,436          17,367
     Operating supplies and other current assets                5,433           5,067
     Refundable income taxes                                      540             540
     Deferred tax assets                                          276             680 
                                                              -------         ------- 
       Total current assets                                    33,521          35,891
                                                              -------         -------
   PROPERTY, PLANT AND EQUIPMENT
     Land and buildings                                         4,353           4,353
     Machinery and equipment                                   37,774          37,774
     Construction in progress                                   2,332           1,412
     Less - accumulated depreciation                           (8,671)         (7,852)
                                                              -------         -------
          Net property, plant and equipment                    35,788          35,687
                                                              -------         -------
   DEFERRED TAX ASSETS                                          7,511           6,263
                                                              -------         -------
   OTHER ASSETS                                                   658             592
                                                              -------         -------
          Total assets                                       $ 77,478        $ 78,433

        LIABILITIES AND SHAREHOLDERS' EQUITY
   CURRENT LIABILITIES
     Advances on line of credit                              $  9,652        $  7,546
     Accounts payable                                           7,508           7,214
     Capital expenditures payable payable                       1,890           2,404
     Accrued liabilities                                        2,504           3,639
     Current portion of long-term debt                            125             125
                                                              -------         -------
          Total current liabilities                            21,679          20,928 
                                                              -------         -------
   LONG-TERM DEBT                                              20,000          20,000
                                                              -------         -------
   OTHER LIABILITIES                                             445             395
                                          -------         -------
          Total liabilities                42,124          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, 4,974,099 shares issued                  50              50
     Additional paid-in capital                                15,710          15,710
     Less treasury stock - 346,000 and 273,000  
       shares at cost, respectively                            (2,608)         (2,165)
     Deferred compensation                                       (350)           (421)
     Retained earnings                                         22,552          23,936
                                           -------         -------
          Total shareholders' equity        35,354          37,110
                                           -------         -------
          Total liabilities and shareholders' equity         $ 77,478        $ 78,433
<FN>
            See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
                          KENTUCKY ELECTRIC STEEL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in Thousands, Except Per Share Data)
                                   (Unaudited)

<CAPTION>
                                                         Three Months Ended      
                                                   December              December     
                                                   28, 1996              30, 1995 
 
     <S>                                           <C>                   <C>
     NET SALES                                     $ 23,382              $ 23,688
     COST OF GOODS SOLD                              23,396                21,112   
                                                    -------             -------     
            Gross profit (loss)                         (14)              2,576     

     SELLING AND ADMINISTRATIVE EXPENSES              1,725                 1,963 
                                                    -------             -------     
            Operating income (loss)                  (1,739)                613     

     INTEREST INCOME AND OTHER                            5                     5
     INTEREST EXPENSE                                  (494)                 (358)
                                                    -------             -------     
            Income (loss) before income taxes        (2,228)                  260
     
     PROVISION (CREDIT) FOR INCOME TAXES               (844)                   98
                                                    -------               -------   

            Net income (loss)                      $ (1,384)             $    162 


     NET INCOME (LOSS) PER COMMON SHARE            $   (.30)             $    .03  

     WEIGHTED AVERAGE SHARES OUTSTANDING          4,658,691             4,871,140


<FN>
            See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
                          KENTUCKY ELECTRIC STEEL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)
<CAPTION>           
                                                               Three Months Ended                                   
                                                           December          December
                                                           28, 1996          30, 1995
<S>                                                        <C>               <C> 
Cash Flows From Operating Activities:
  Net income (loss)                                       $ (1,384)          $    162
  Adjustments to reconcile net income (loss) to
    net cash flows from operating activities:
      Depreciation and amortization                            894                641
      Change in deferred taxes                              (1,248)               224
      Change in other                                          (20)              (213)
      Change in current assets and current  
        liabilities:
          Accounts receivable                                1,404                382 
          Inventories                                          931               (647)
          Operating supplies and other                             
            current assets                                    (366)              (233)
          Deferred tax assets                                  404               (137)
          Accounts payable                                     294             (1,867)
          Accrued liabilities                               (1,135)            (1,141)
          Accrued income taxes refundable/payable             -                     1
                                                           -------            -------
          Net cash flows from                
            operating activities                              (226)            (2,828)
                                                           -------            -------
Cash Flows From Investing Activities:
  Capital expenditures                                        (920)              (997)
  Decrease in capital expenditures payable                    (514)              (813)
                                                           -------            -------
          Net cash flows from           
            investing activities                            (1,434)            (1,810)
                                                           -------            -------
Cash Flows From Financing Activities:
  Net advances (repayments) on line of credit                2,106             (6,346)
  Repayments on long-term debt                                -                (9,001)
  Proceeds from long-term debt borrowings                     -                20,000
  Purchases of treasury stock                                 (443)              (159)
                                                           -------            -------
          Net cash flows from financing activities           1,663              4,494
                                                           -------            -------
          Net increase (decrease) in cash      
            and cash equivalents                                 3               (144)

Cash and Cash Equivalents at Beginning of Period               124                327
                                                           -------            -------
Cash and Cash Equivalents at End of Period                $    127           $    183

Interest Paid, net of amount capitalized                  $    870           $    284

Income Taxes Paid                                         $   -              $     11

<FN>
            See notes to condensed consolidated financial statements

</TABLE>
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                          KENTUCKY ELECTRIC STEEL, INC


(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 three-month period ended December
28, 1996, 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 4,658,691 and
4,871,140 weighted average number of common shares outstanding during
the quarters ended December 28, 1996, and December 30, 1995,
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 costs of $7,834
and $52,474 were capitalized for the three months ended December 28,
1996 and December 30, 1995, respectively.

     Recent Accounting Pronouncements
  In October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123) related to accounting for stock-based
compensation.  SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans.  The
statement encourages the use of the fair value based method to measure
compensation cost for stock-based employee compensation plans, however,
it also continues to allow the intrinsic value based method of
accounting as prescribed by APB Opinion No. 25.  If the intrinsic value
based method is used, the statement requires pro forma disclosures of
net income and earning per share, as if the fair value based method of
accounting had been applied.  The fair value based method requires
compensation cost be measured at the grant date based upon the value of
the award and recognized over the service period, which is normally the
vesting period.  The Company adopted SFAS No. 123 effective September
29, 1996 and continues to use the intrinsic value based method of
accounting.


(3)  Inventories

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

   Raw materials                       $  4,092        $  4,069 
   Semi-finished and finished goods      12,344          13,298
     Total inventories                 $ 16,436        $ 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)  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.  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.
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS



  General.  The Company manufacturers 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 for the three months ended December 28, 1996
decreased by $.3  million (1.3%) to $23.4 million from $23.7 million
for the three months ended December 30, 1995.  The decrease in net
sales was primarily due to a decrease in average net selling price,
offset by an increase in shipments from 53,000 tons for the first
fiscal quarter of 1996 to 55,000 tons for the first fiscal quarter of
1997.  The decrease in average selling price is primarily attributable
to price reductions reflecting market conditions and pricing pressures. 
Shipments for the first fiscal quarter of 1996 were impacted by
customers inventory adjustments and a softening in demand. 

  Cost of Goods Sold.  Cost of goods sold for the three months ended
December 28, 1996  increased by $2.3 million (10.8%) to $23.4 million
from $21.1 million for the three months ended December 30, 1995.  As a
percentage on net sales, cost of goods sold increased from 89.1% for
the first fiscal quarter of 1996 to 100.1% for the first fiscal quarter
of 1997.  The increase in cost of goods sold is due to higher
conversion costs, additional depreciation related to the start-up of
the ladle metallurgy facility, and caster problems, offset somewhat by
lower scrap costs.  Conversion costs reflect lower production related
to the start-up of the ladle metallurgy facility and the effect of a
December melt shop shutdown. The shutdown was necessary to repair the
caster superstructure and to convert an additional caster strand for
increased production of the thicker, wider products.  Productivity in
the rolling mill, which had been negatively impacted in prior periods
due to the start-up of the expansion projects, improved during the
quarter.  However, lower production in the melt shop and the depletion
of billet inventory reduced finished goods production. 

  Gross Profit (Loss).  As a result of the above, the first quarter
of fiscal 1997 reflected a loss of $14,000 as compared to gross profit
of $2.6 million for the first quarter of fiscal 1996.  As a percentage
of net sales, gross profit decreased from 10.9% for the first quarter
of fiscal 1996 to (.1%) for the first quarter of 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, personnel, and other administrative
departments.  Selling and administrative expenses decreased by
approximately $238,000 for the three months ended December 28, 1996 as
compared to the same period in fiscal 1996.  As a percentage of net
sales, such expenses decreased from  8.3% for the three months ended
December 30, 1995 to 7.4% for the three months ended December 28, 1996. 
The decrease in selling and administrative was primarily the result of
a reduction in the provision for uncollectible accounts, which was
higher in the first quarter of fiscal 1996 due to problems with certain
specific accounts.

  Operating Income (Loss).  For the reasons described above,
operating income decreased by $2.3 million from $.6 million in the
first three months of fiscal 1996 to an operating loss of $1.7 million
in the first three months of fiscal 1997.  As a percentage of net
sales, operating income (loss) decreased from 2.6% for the first fiscal
quarter of 1996 to (7.4%) for the first fiscal quarter of 1997.

  Interest Expense.  Interest expense increased by $136,000 for the
three months ended December 28, 1996 from $358,000 for the first
quarter of fiscal 1996 to $494,000 for the first quarter of fiscal
1997, net of interest capitalized of $52,474 and $7,834, 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.               

  Net Income.  As a result of the above, net income decreased by $1.5
million for the three months ended December 28, 1996 from $162,000 for
the first quarter of fiscal 1996 to a net loss of $1.4 million for the
first quarter of fiscal 1997.


Liquidity and Capital Resources

     The cash flows used by operating activities was $226,000 for the
first quarter of fiscal 1997 as compared to $2.8 million for the first
quarter of fiscal 1996.   First quarter of fiscal 1997 operating cash
flows were negatively impacted by the net loss and a decrease in
accrued liabilities, which have been offset due to a decrease in
accounts receivable and inventories.  The cash flows used by investing
activities consist of capital expenditures of $.9 million for the first
quarter of fiscal 1997 and $1.0 million for the first quarter of fiscal
1996 and reductions in capital expenditures payable of $.5 million and
$.8 million for the first quarter of fiscal 1997 and 1996,
respectively.

  The cash flows from financing activities was $1.7 million in the
first quarter of fiscal 1997 as compared to $4.5 million for the first
quarter of fiscal 1996.  The cash flows from financing activities of
$1.7 million for the first quarter of fiscal 1997 reflects advances of
$2.1 million on the Company's line of credit and $.4 million for
purchase of treasury stock.  The cash flows from financing activities
of $4.5 million for the first quarter of fiscal 1996 reflects repayment
of $6.3 million on the Company's line of credit and $9.0 million
repayment of long-term debt, however, these amounts have been offset
with the proceeds of $20.0 million of new long-term debt.

  Working capital at December 28, 1996 was $11.8 million as compared
to $15.0 million at September 28, 1996, and the current ratio was 1.5
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 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.

  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
had $9.7 million in borrowings outstanding as of December 28, 1996. 
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.

Outlook

  The melt shop was shut down for ten days from December 24, 1996
through January 3, 1997 to repair the superstructure and to convert an
additional caster strand for increased production of the thicker, wider
products.  The major modifications to the new equipment are complete
and all of the Company's efforts are focused on increasing production.

  We believe the second quarter will be another difficult quarter as
the Company focuses its efforts on increasing production.  The
Company's new product sizes continue to be well received by the
marketplace.  Although the spring market is somewhat soft, the
Company's backlog remains firm and the Company is cautiously optimistic
about the future strength of the markets it serves.  


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) including those
statements in "Outlook" above, 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 estimate 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. 

<PAGE>

                         PART II. - OTHER INFORMATION



ITEM 6. Exhibits and Reports on Form 8-K

        A)  Exhibits

 
            3.1  Certification 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.

            4.4     First Amendment Agreement to Senior Note Agreement
                    between Registrant and a group of institutional
                    investors.

            4.5     Amendment No. 1 to Amended and Restated Loan
                    Agreement between Registrant and National City
                    Bank, Kentucky.

            10.15   First Addendum to Agreement with Morgan-Pomini
                    Company for Rolling and Finishing End Modernization 
                       
            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:  February 11, 1997           KENTUCKY ELECTRIC STEEL, INC.  
                                                  (Registrant) 

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