SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q
                                   (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 30, 2006

                                       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 number 0-14061

                             STEEL TECHNOLOGIES INC.
             (Exact name of registrant as specified in its charter)

                               Kentucky 61-0712014
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) Identification No.)

                 15415 Shelbyville Road, Louisville, KY   40245
               (Address of principal executive offices) (Zip Code)

                                 (502) 245-2110
              (Registrant's telephone number, including area code)

                                 Not applicable
--------------------------------------------------------------------------------
 (Former name, former address and former fiscal year, if changed since last
                                     report)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by  Sections  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

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the  Exchange  Act.  Large
accelerated filer __   Accelerated filer X   Non-accelerated filer __

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X].

Indicate the number of shares  outstanding  of each of the  Issuer's  classes of
common stock as of the latest practical date.

There were 13,055,542 shares outstanding of the Registrant's  common stock as of
July 31, 2006.


<PAGE>





                             STEEL TECHNOLOGIES INC.

                                      INDEX



                                                                     Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

        Condensed Consolidated Balance Sheets
        June 30, 2006 and September 30, 2005 ..............................  3

        Condensed Consolidated Statements of Income
        Three and Nine months Ended June 30, 2006 and 2005 ................  4

        Condensed Consolidated Statements of Comprehensive Income
        Three and Nine months Ended June 30, 2006 and 2005 ................  5

        Condensed Consolidated Statements of Cash Flows Nine Months
        Ended June 30, 2006 and 2005 ......................................  6

        Notes to Condensed Consolidated Financial Statements .............. 7-17

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations .............................................18-29

Item 3. Quantitative and Qualitative Disclosures About Market
        Risk .............................................................. 29

Item 4. Controls and Procedures ........................................... 29

PART II.OTHER INFORMATION

Item 6. Exhibits .......................................................... 29

Signature ................................................................. 30



<PAGE>

                         Part I. - FINANCIAL INFORMATION
                          Item 1. Financial Statements

                             STEEL TECHNOLOGIES INC.
                      Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In thousands, except shares)                           June 30     September 30
(Unaudited)                                              2006           2005
--------------------------------------------------------------------------------
 <S>                                                   <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents ...................      $  16,384       $  30,991
   Trade accounts receivable, net ..............        107,313         112,033
   Inventories .................................        158,921         114,128
   Deferred income taxes .......................          2,272             605
   Prepaid expenses and other assets ...........          5,628           6,289
   Assets helf for sale ........................            -            20,475
                                                      ---------       ---------
      Total current assets .....................        290,518         284,521
                                                      ---------       ---------

Property, plant and equipment, net .............        111,256         106,492
Investments in unconsolidated affiliates .......         60,919          25,182
Goodwill .......................................         26,325           8,991
Other assets ...................................          6,005           2,737
                                                      ---------       ---------
      Total assets ............................      $ 495,023       $ 427,923
                                                      =========       =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable ............................      $  68,287       $  59,559
   Accrued liabilities .........................         17,853          13,380
   Income taxes payable ........................          2,865           1,244
   Deferred income taxes .......................            -               254
   Liabilities associated with
      assets helf for sale .....................            -               185
   Long-term liabilities .......................          1,185             -
                                                      ---------       ---------
      Total current liabilities ................         90,190          74,622
                                                      ---------       ---------

Long-term debt .................................        113,827          80,000
Deferred income taxes ..........................         20,833          14,785
Other long-term liabilities.....................          6,762           3,757
                                                      ---------       ---------
      Total liabilities ........................        231,612         173,164
                                                      ---------       ---------
Commitments and contingencies

 Shareholders' equity:
   Preferred stock, no par value: 500,000 shares
    authorized; none issued or outstanding.....             -               -
   Common stock, no par value: 50,000,000 shares
    authorized; issued and outstanding shares:
    13,048,432 at June 30, 2006 and
    12,927,826 at September 30, 2005............         71,142          70,662
   Treasury stock at cost:  2,635,513 shares at
    June 30, 2006 and 2,635,114 at September
    30, 2005....................................        (24,486)        (24,475)
   Additional paid-in capital ..................          6,265           5,494
   Retained earnings ...........................        216,005         207,116
   Accumulated other comprehensive loss ........         (5,515)         (4,038)
                                                      ---------       ---------
      Total shareholders' equity ...............        263,411         254,759
                                                      ---------       ---------
                                                      $ 495,023       $ 427,923
                                                      =========       =========
</TABLE>


   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.
                                       3
<PAGE>

                             STEEL TECHNOLOGIES INC.
                   Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
(In thousands, except per                    For The              For The
common share data)                     Three Months Ended     Nine Months Ended
(Unaudited)                                  June 30              June 30
--------------------------------------------------------------------------------
                                        2006       2005       2006       2005
                                      ------------------------------------------
<S>                                   <C>        <C>        <C>        <C>
Sales ................................ $234,455   $243,675   $673,976  $764,629
Cost of goods sold ...................  215,980    226,376    630,990   687,012
                                       --------   --------   --------  --------
      Gross profit ...................   18,475     17,299     42,986    77,617

Selling, general and
   administrative expenses ...........   10,541      9,409     28,357    28,634
Equity in net income of unconsolidated
   affiliates ........................    2,224        780      3,699     3,997
                                       --------   --------   --------   -------
   Operating income ..................   10,158      8,670     18,328    52,980

Interest expense, net ................    1,432        912      2,641     2,933
                                       --------   --------   --------   -------
   Income before income taxes ........    8,726      7,758     15,687    50,047

Provision for income taxes ...........    2,045      2,730      3,913    16,986
                                       --------   --------   --------   -------
   Income from continuing operations .    6,681      5,028     11,774    33,061

Discontinuing operations, net of tax
   (including gain on disposal of
   $25 and $271, for the three
   and nine months ended
   June 30, 2006, respectively) ......     (104)       643      1,010     2,481
                                       --------   --------   --------   -------
Net income ........................... $  6,577   $  5,671   $ 12,784   $35,542
                                       ========   ========   ========   =======

Diluted weighted average number of
   common shares outstanding .........   13,132     13,093     13,106    13,095
                                       ========   ========   ========   =======

Diluted earnings per common share:
   From continuing operations ........ $   0.51   $   0.38   $   0.90   $  2.52
   From discontined operation ........    (0.01)      0.05       0.08      0.19
                                       --------   --------   --------   -------
                                       $   0.50   $   0.43   $   0.98   $  2.71
                                       ========   ========   ========   =======

Basic weighted average number of
   common shares outstanding .........   12,964     12,922     12,950    12,884
                                       ========   ========   ========   =======

Basic earnings per common share:
   From continuing operations ........ $   0.52   $   0.39   $   0.91   $  2.57
   From discontined operation ........    (0.01)      0.05       0.08      0.19
                                       --------   --------   --------   -------
                                       $   0.51   $   0.44   $   0.99   $  2.76
                                       ========   ========   ========   =======

Cash dividends per common share ...... $   0.15   $   0.15   $   0.30   $  0.25
                                       ========   ========   ========   =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
                             financial statements.


                                       4
<PAGE>

            Condensed Consolidated Statements of Comprehensive Income

<TABLE>
<CAPTION>
                                           For The               For The
(In thousands)                        Three Months Ended     Nine Months Ended
(Unaudited)                                June 30               June 30
--------------------------------------------------------------------------------
                                        2006       2005       2006       2005
                                      ------------------------------------------
<S>                                   <C>        <C>        <C>       <C>
Net income ........................... $  6,577   $  5,671   $  12,784  $35,542
  Foreign currency translation
        adjustment ...................   (3,345)       876      (1,815)   1,906
  Change in unrealized loss on cash
        flow hedges, net of taxes ....       97       (132)        338     (132)
                                       --------   --------    --------  --------
Comprehensive income ................. $  3,329   $  6,415    $ 11,307  $37,316
                                       ========   ========    ========  ========
</TABLE>


   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.


                                       5
<PAGE>

                             STEEL TECHNOLOGIES INC.
                 Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands)                                               Nine Months Ended
(Unaudited)                                                       June 30
--------------------------------------------------------------------------------
                                                             2006       2005
                                                           ---------------------
<S>                                                       <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income .........................................   $ 12,784    $ 35,542
   Adjustments to reconcile net income to net cash
    (used in) provided by operating activities:
       Depreciation ...................................     12,174      11,341
       Stock-based compensation expense ...............        494         -
       Deferred income taxes ..........................     (3,265)     (1,258)
       Undistributed equity in earnings of
        unconsolidated affiliates .....................     (3,506)     (3,997)
       Provision for bad debts ........................        549       1,252
       Gain on sale of Custom Steel ...................       (271)        -
       Increase (decrease) in cash, net acquisitions
        and dispositions, resulting from changes in:
             Trade accounts receivable ................      4,622       9,968
             Inventories ..............................    (41,707)     24,248
             Prepaids expenses and other assets .......      1,174        (470)
             Accounts payable .........................      7,769     (46,695)
             Income taxes payable .....................      2,420      (3,605)
             Accrued liabilities ......................      2,306         489
                                                          --------    --------
Net cash (used in) provided by operating activities ...     (4,457)     26,815
                                                          --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, plant and equipment .........    (14,492)    (14,885)
   Acquistion of Kasle Steel, net of cash acquired ....    (33,748)        -
   Net cash proceeds fromsale of Custom Steel .........     16,311         -
   Proceeds from sale fo property, plant
     and equipment.....................................        -           601
   Repayment of advances to unconsolidated affiliates .        -         2,000
                                                          --------    --------
Net cash used in investing activities .................    (31,929)    (12,284)
                                                          --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term debt .......................     57,000      88,000
   Principal payments on long-term debt ...............    (31,279)    (85,000)
   Cash dividends on common stock .....................     (3,895)     (3,222)
   Proceeds from stock option exercises................        469         893
   Excess tax benefits from stock options .............         52         -
                                                          --------    --------
Net cash provided by financing activities .............     22,347         671
                                                          --------    --------
Effect of exchange rate changes on cash ...............       (568)        403
                                                          --------    --------
Net (decrease) increase in cash and cash equivalents ..    (14,607)     15,605
Cash and cash equivalents, beginning of year ..........     30,991       2,273
                                                          --------    --------
Cash and cash equivalents, end of period ..............   $ 16,384    $ 17,878
                                                          ========    ========


</TABLE>

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.

                                       6
<PAGE>

                             STEEL TECHNOLOGIES INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.  BASIS OF PRESENTATION

The condensed  consolidated  balance sheet as of June 30, 2006 and the condensed
consolidated  statements  of income and  comprehensive  income for the three and
nine months ended June 30, 2006 and 2005, and condensed  consolidated cash flows
for the nine months  ended June 30, 2006 and 2005,  have been  prepared by Steel
Technologies Inc. (the Company) without audit. In the opinion of management, all
adjustments  (which  include  only normal  recurring  adjustments)  necessary to
present fairly the financial  position,  results of operations and cash flows as
of and for the three and nine  months  ended June 30,  2006 and for all  periods
presented have been made.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have  been  condensed  or  omitted.   It  is  suggested  that  these   condensed
consolidated  financial  statements  be read in  conjunction  with the financial
statements  and notes thereto  included in the  Company's  Annual Report on Form
10-K for the fiscal year ended September 30, 2005. The results of operations for
the three and nine months ended June 30, 2006 are not necessarily  indicative of
the operating results for the full year.



2.  RECLASSIFICATIONS

Certain  prior year amounts have been  reclassified  to conform with the current
year presentation with no effect on net income or shareholders' equity.

3.  ACQUISITION OF KASLE STEEL

On May 8, 2006, the Company (through its wholly owned  subsidiary)  acquired all
of the outstanding stock of privately held Kasle Steel Corporation (Kasle Steel)
headquartered in Dearborn,  Michigan pursuant to a Stock Purchase Agreement. The
Company acquired Kasle Steel to expand value-added steel processing capabilities
to include exposed automotive blanking. Including its unconsolidated affiliates,
Kasle Steel is North America's largest independent  supplier of automotive steel
blanks.  Kasle  Steel's  wholly owned  operations  include  operations in Flint,
Michigan and Windsor,  Ontario. Its three unconsolidated affiliates consist of a
50% interest in RSDC of Michigan,  L.L.C. in Holt,  Michigan;  a 50% interest in
Kasle Metal Processing,  LLC in Jeffersonville,  Indiana;  and a 49% interest in
Delaco-Kasle LLC, a certified minority-owned business in Woodhaven, Michigan.

The Company paid approximately  $33,748,000 in cash for the stock of Kasle Steel
and  assumed  approximately   $25,009,000  of  Kasle  Steel's  liabilities.   In
conjunction with the purchase,  the Company retired approximately  $3,970,000 of
Kasle Steel's debt. The Company utilized its existing  revolving credit facility
to provide funding for the purchase.

Under the terms of the Stock  Purchase  Agreement,  $2,000,000  of the  purchase
price was deposited in an escrow account to satisfy  indemnification  provisions
provided by former  shareholders  of Kasle Steel to the Company.  Pursuant to an
Escrow  Agreement,  all  uncontested  escrowed  funds will be distributed to the
former shareholders at various times from November 2007 through May 2012.




                                       7
<PAGE>
The acquisition has been recorded under the purchase method of accounting,  with
the operating  results being  included in the Company's  condensed  consolidated
financial  statements since the date of acquisition.  Accordingly,  the purchase
price has been  preliminarily  allocated to the assets  acquired and liabilities
assumed  based on the  estimated  fair  values at the date of  acquisition.  The
purchase  price  exceeded the estimated  fair values of the net tangible  assets
acquired by approximately  $18,285,000.  We preliminarily  allocated this excess
purchase price to other intangible asset of $1,500,000,  associated deferred tax
liabilities of $549,000, and non-deductible  goodwill of $17,334,000.  The other
intangible asset consisted of a non-competition agreement with an aggregate fair
market value of $1,500,000 to be amortized  over five years.  The  allocation is
subject  to  change  pending  completion  of  the  valuation  by a  third  party
specialist  firm  assisting  us in  determining  the fair  value  of the  assets
acquired.

The following  summarizes the allocation of the purchase price of Kasle Steel to
the assets acquired and liabilities assumed:

<TABLE>


(In thousands)
-------------------------------------
<S>                                     <C>
Working capital                          $    234
Investments in unconsolidated affiliates   32,231
Property, plant and equipment               2,753
Goodwill                                   17,334
Intangible asset subject to amortization    1,500
Other current and long-term assets          1,732
Deferred tax liability, net                (7,300)
Debt and capital lease obligations         (8,562)
Other current and long-term liabilities    (6,174)
                                          --------
Purchase price                           $ 33,748
                                          ========
</TABLE>

The following  unaudited pro forma consolidated  results of operations have been
prepared as if the  acquisition  of Kasle Steel had occurred as of the beginning
of each respective period.

<TABLE>

(In thousands except per
 common share data)                      Three Months Ended    Nine Months Ended
(Unaudited)                                   June 30              June 30
--------------------------------------------------------------------------------
                                        2006       2005       2006       2005
                                      ------------------------------------------
<S>                                    <C>        <C>        <C>       <C>
Sales ................................  $236,277   $248,630   $687,415  $783,822
Income from continuing
   operations ........................     6,527      4,468     11,221    35,813
Net income ...........................     6,425      5,111     12,231    38,294
Earnings per common share:
 Diluted:
   Income from continuing operations .     $0.50      $0.34      $0.86     $2.73
   Net income ........................     $0.49      $0.39      $0.93     $2.92

 Basic
   Income from continuing operations .     $0.50      $0.35      $0.87     $2.78
   Net income ........................     $0.50      $0.40      $0.94     $2.97

</TABLE>

This  unaudited pro forma  information is presented for  informational  purposes
only and is not necessarily indicative of future operating results.

                                       8
<PAGE>
4.  SALE OF CUSTOM STEEL

On March 24, 2006, the Company  entered into a Stock Purchase  Agreement to sell
all the capital  stock of its wholly owned Custom  Steel,  Inc.  (Custom  Steel)
subsidiary to a wholly owned  subsidiary of American  Railcar  Industries,  Inc.
(ARI). Custom Steel operates a facility located in Kennett, Missouri adjacent to
ARI's  component  manufacturing  facility that produces  value-added  fabricated
steel parts that  primarily  support  ARI's  railcar  manufacturing  operations.
Substantially all of Custom Steel's sales are to ARI.

In connection  with the closing of this  transaction,  the final sales price was
approximately $17,061,000,  of which $16,311,000 was remitted to the Company and
an additional  $750,000 to a third party escrow agent. In addition,  the Company
retained certain  obligations  consisting  primarily of trade accounts  payable,
accrued liabilities and deferred taxes totaling approximately $3,012,000.

Under the terms of the Stock  Purchase  Agreement,  the  Company  has  agreed to
indemnify  ARI  for any  payments  required  to be  made by ARI for  liabilities
incurred by the Company prior to March 31, 2006. The indemnification  provisions
for most liabilities  expire on March 31, 2008 and require the buyer to incur at
least  $75,000  in  aggregate  liabilities  before  a  claim  can  be  asserted.
Indemnification provisions for certain liabilities, primarily taxes, expire with
applicable  statutes of  limitations  and the  remaining  provisions,  primarily
environmental,  do not expire.  The Company has not recorded any liabilities for
these  indemnifications  since  management has determined it is not probable the
Company  will  incur  such  liabilities.  Pursuant  to the  terms  of an  Escrow
Agreement,  ARI deposited $750,000 in an escrow account that will be distributed
to the Company at various  times prior to September 30, 2007 to the extent there
are no indemnification claims made by ARI.

In accordance with Statement of Financial  Accounting  Standards (SFAS) No. 144,
"Accounting  for the  Impairment or Disposal of Long-Lived  Assets," the sale of
Custom Steel has been  accounted for as a discontinued  operation.  Accordingly,
the  results  of  operations  and the gain on the sale have been  classified  as
discontinued  operations,  net of income taxes,  in the  accompanying  condensed
consolidated  statements  of income.  Interest  expense  on debt that  cannot be
attributed to other operations of the Company has been allocated to discontinued
operations.

Summarized condensed  consolidated income statement  information of Custom Steel
follows:

<TABLE>


(In thousands)                          Three Months Ended     Nine Months Ended
(Unaudited)                                 June 30               June 30
--------------------------------------------------------------------------------
                                        2006       2005       2006       2005
                                      ------------------------------------------
<S>                                    <C>       <C>        <C>        <C>
Sales ................................  $  -      $ 12,757   $  23,470  $32,777
(Loss) income before income taxes ....    (224)        989       1,199    3,817
(Loss) income from continuing
  operations .........................    (129)        643         739    2,481
Gain on sale, net of income taxes ....      25         -           271      -
Net (loss) income ....................    (104)        643       1,010    2,481

</TABLE>

                                       9
<PAGE>


A summary of the assets and liabilities of Custom Steel held for sale follows:
<TABLE>

(In thousands)                                                  September 30
(Unaudited)                                                         2005
-------------------------------------------------------------- --------------
     <S>                                                       <C>

     Inventories                                                $    7,295
     Property, plant and equipment, net                              4,009
     Goodwill                                                        9,157
     Other assets                                                       14
                                                                 ------------
     Assets held for sale                                           20,475
                                                                 ------------
     Accrued liabilities                                                14
     Deferred income tax liability                                     171
                                                                 ------------
    Liabilities associated with assets held for sale                   185
                                                                 ------------
    Net assets held for sale                                     $  20,290
                                                                 ============
</TABLE>

5.  INVENTORIES

<TABLE>
<CAPTION>
Inventories consists of:


(In thousands)                                         June 30     September 30
(Unaudited)                                             2006           2005
-------------------------------------------------------------------------------
<S>                                                 <C>           <C>
Raw materials ....................................   $  116,500   $   79,813
Finished goods and work in process ...............       42,421       34,315
                                                     ----------   ----------
                                                     $  158,921   $  114,128
                                                     ==========   ==========
</TABLE>


6.  INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Summarized condensed consolidated income statement information of Mi-Tech Steel,
Inc.  (Mi-Tech Steel),  a 50% owned  unconsolidated  affiliate,  the three Kasle
Steel unconsolidated affiliates (see Note 3) and Ferrolux Metals Co., LLC, a 49%
owned  unconsolidated  affiliate,  all  accounted for using the equity method of
accounting, follows:

<TABLE>
<CAPTION>
(In Thousands)          Three Months Ended           Nine Months Ended
(Unaudited)                  June 30                      June 30
-----------------      ---------------------      -----------------------
                         2006         2005          2006           2005
                         ----         ----          ----           ----

                    <c>          <c>           <c>            <c>
Sales                  $82,520      $76,146       $219,046        $229,729
Gross profit             9,759        5,615         19,231          22,073
Net income               4,456        1,562          7,412           8,002
</TABLE>

7.  STOCK BASED COMPENSATION

The Company  granted  incentive stock options to employees to purchase shares at
not less  than  100% of  market  value at date of grant or  non-qualified  stock
options at a price  determined  by the  Compensation  Committee of the Company's
Board of Directors.  Generally,  options were  exercisable  at the rate of 20% a
year  beginning  one year from date of grant and expired ten years from the date
of grant.  On November 4, 2005,  the  remaining  91,000  shares  available  were
granted at an average exercise price of $25.42.

                                       10
<PAGE>

On January 26, 2006,  the  shareholders  of the Company  voted to adopt the 2006
Restricted  Stock Plan (the 2006  Plan),  which was  previously  approved by the
Board of Directors on November 4, 2005. The 2006 Plan authorizes the award of up
to 300,000  shares of the  Company's  Common Stock,  no par value,  which may be
awarded as authorized,  but unissued,  shares.  The terms of any award of shares
will be determined by the  Compensation  Committee in its sole discretion at the
time of the award.  Unless  otherwise  specified by the  Committee,  none of the
shares  awarded shall be  restricted  for a period of less than one year or more
than ten years. The number of shares which may be awarded to any single employee
will not be limited  by the 2006  Plan.  On April 27,  2006,  80,000  restricted
shares  were  granted  under the 2006 Plan which vest at a rate of 33.33% a year
over three years. On July 27, 2006, 5,000  restricted  shares were granted under
the 2006 Plan which vest at a rate of 20% a year over five years.

On October 1, 2005, the Company adopted SFAS No. 123(R),  "Share-Based Payment,"
using  the  modified   prospective   transition   method.   Under  this  method,
compensation cost is recognized for all share-based payments granted this fiscal
year and for all unvested  awards granted to employees  prior to the adoption of
SFAS No. 123(R).  The Company recognizes  compensation  expense for stock option
grants  on a  graded-vesting  basis  over  the  employee's  vesting  period.  In
accordance  with the  modified  prospective  transition  method,  the  financial
statements for prior periods have not been restated.

Since all outstanding options are incentive stock options,  the Company does not
receive  any  income tax  deductions  for  options  granted  unless  there is an
exercise and disqualifying  disposition of those shares as defined under current
tax laws.  Upon the  occurrence  of a  disqualifying  disposition,  the  Company
recognizes  the income tax  benefit  that  corresponds  to the  cumulative  book
compensation  cost as a reduction to income tax expense and any excess  benefits
are recorded as an addition to additional paid-in capital.

As a result of  adopting  SFAS No.  123(R),  the  Company  recorded  stock-based
compensation expense included in selling, general and administrative expenses of
$197,000  and  $494,000  for the  three and nine  months  ended  June 30,  2006,
respectively.  In  addition,  the Company  recognized  an income tax benefit for
disqualifying  dispositions  of stock options of $84,000  during the nine months
ended June 30, 2006, of which approximately  $32,000 was recorded as a reduction
in income tax expense during the nine months ended June 30, 2006.  There were no
disqualifying  dispositions  of stock options during the three months ended June
30, 2006.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes  option-pricing  model  with  the  following  assumptions  for the
options granted on November 4, 2005:


<TABLE>
<S>                                     <C>
Expected dividend yield                    1.4%
Expected stock price volatility           46.0%
Weighted average risk-free interest rate   4.6%
Expected life option (years)               6.5
</TABLE>

                                       11
<PAGE>
The assumptions for expected dividend yield, expected stock price volatility and
expected life of options are based on historical  trends.  The weighted  average
risk-free interest rate is based on a traded zero-coupon U.S. Treasury bond with
a term equal to the option's  expected life. The weighted average fair value for
the  options  granted  during  the first  nine  months of fiscal  2006 using the
assumptions listed above was $11.52 per share.

The summary of stock  options as of June 30,  2006 and  changes  during the nine
months ended June 30, 2006 are presented below.


<TABLE>
                                    Shares        Weighted
                                 Outstanding      Average
                                    Under         Exercise
                                    Plans          Price
   --------------------------------------------------------
   <S>                             <C>            <C>
   Balance, September 30, 2005     304,500        $ 9.32
   Granted                          91,000         25.42
   Exercised                       (42,400)         9.10
   Canceled                        (14,700)        18.00
                                   -------        -------
   Balance, June 30, 2006          338,400        $13.30
                                   =======        =======
  </TABLE>


<TABLE>

                      Shares    Weighted    Weighted     Aggregrate
                   Outstanding   Average     Average     Intrinsic     Aggregate
                       Under    Exercise   Contractual   Value Per     Intrinsic
                       Plan      Price        Term       Share (1)     Value (1)
--------------------------------------------------------------------------------
<S>                    <C>          <C>          <C>        <C>         <C>
Options outstanding
  at June 30, 2006     338,400    $ 13.30    5.81 years   $  7.62     $2,579,000
Options exercisable
  at June 30, 2006     169,100       8.54    3.95 years     10.90      1,843,000
Options vested and
  expected to vest     338,400      13.30    5.81 years      7.62      2,579,000

</TABLE>

(1)  Computed  based  upon the  amount  by which  the fair  market  value of the
Company's  common  stock at June 30,  2006 of  $19.44  per  share  exceeded  the
weighted average exercise price.

The total intrinsic value of stock options  exercised  during the three and nine
months ended June 30, 2006 was $241,000 and $636,000, respectively,  compared to
$0 and  $2,488,000,  respectively,  for the three and nine months ended June 30,
2005. All unexercised options expire from 2008 to 2015.


                                       12
<PAGE>

The summary of restricted  stock as of June 30, 2006 and changes during the nine
months ended June 30, 2006 are presented below.

<TABLE>
                               Restricted
                                  Stock
                               ----------
<S>                             <C>

Balance, September 30, 2005         -
Granted                          80,000
Exercised                           -
Forfeited                        (5,000)
                                 ------
Balance, June 30, 2006           75,000
                                 ======

</TABLE>

Total  compensation  costs  related to nonvested  options and  restricted  stock
awards not yet  recognized  was  approximately  $2,520,000  at June 30, 2006. We
expect to recognize this  compensation  cost as follows using the graded vesting
method over a weighted average period of 1.90 years:



<TABLE>
                                       Amount
                                   --------------
        <S>                          <C>

         Remainder of fiscal 2006    $  287,000
         2007                           937,000
         2008                           774,000
         2009                           441,000
         2010                            61,000
         2011                            20,000
                                   --------------
         Total                       $2,520,000
                                   ==============
</TABLE>


Prior to fiscal 2006, as permitted by SFAS No. 123  "Accounting  for Stock-Based
Compensation"  and  amended  by  SFAS  No.  148,   "Accounting  for  Stock-Based
Compensation  Transition and Disclosure," the Company followed the provisions of
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees," and related interpretations in accounting for its stock option plans
under the intrinsic value based method. Accordingly, no stock-based compensation
expense was  recognized  for stock  options  issued under the plans as all stock
options  granted  under the plans had an  exercise  price at least  equal to the
market  value  of  the  underlying  common  stock  on the  date  of  grant.  Had
compensation  expense  been  determined  based  on the fair  value of the  stock
options at the grant date  consistent  with the  provisions of SFAS No. 123, the
Company's  net income and basic and diluted net income per common  share for the
three and nine months ended June 30, 2005 would have been affected as follows:


                                       13
<PAGE>


<table>
<caption>
(In thousands except per
common share data)                        Three Months Ended  Nine Months Ended
(Unaudited)                                      June 30           June 30
--------------------------------------------------------------------------------
                                                   2005              2005
                                                  ------            ------
<S>                                              <C>                <C>
Net income - as reported                          $5,671            $35,542
Total stock-based employee compensation
   expense determined under
   fair value method for all awards,
   net of taxes                                       54                164
                                                 -------            -------
Net income - pro forma                            $5,617            $35,378
                                                 =======            =======

Diluted net income per common share-as reported   $ 0.43            $ 2.71
Diluted net income per common share-pro forma     $ 0.43            $ 2.70
Basic net income per common share-as reported     $ 0.44            $ 2.76
Basic net income per common share-pro forma       $ 0.43            $ 2.75
</table>


8.  NET INCOME PER COMMON SHARE COMPUTATIONS

The following is a  reconciliation  of the  denominator of the basic and diluted
per common share computations:
<TABLE>
<CAPTION>

                                                           Three Months Ended
(In thousands, except per common share data)                     June 30
(Unaudited)                                                  2006        2005
-------------------------------------------------------   ----------  ----------
<S>                                                       <C>         <C>
Net income from continuing operations .................   $   6,681   $   5,028
Discontinued operations ...............................        (104)        643
                                                          ---------   ---------
Net income ............................................   $   6,577   $   5,671
                                                          =========   =========
Shares (denominator) used for diluted
   per common share computations:
    Weighted average shares of common  stock
        outstanding ...................................      12,964      12,922
    Plus: dilutive effect of stock options ............         168         171
                                                          ---------   ---------
           Diluted weighted average shares ............      13,132      13,093
                                                          ---------   ---------
Shares (denominator) used for basic per
   common share computations:
   Weighted average shares of common stock
       outstanding ....................................      12,964      12,922
                                                          ---------   ---------
Net income per common share data:
    Diluted
       From continuing operations .....................   $    0.51   $    0.38
       From discontinued operations ...................       (0.01)       0.05
                                                          ---------   ---------
                                                          $    0.50   $    0.43
                                                          =========   =========
    Basic
       From continuing operations .....................   $    0.52   $    0.39
       From discontinued operations ...................       (0.01)       0.05
                                                          ---------   ---------
                                                          $    0.51   $    0.44
                                                          =========   =========
</TABLE>

                                       14
<PAGE>
<TABLE>
<CAPTION>

                                                             Nine Months Ended
(In thousands, except per common share data)                     June 30
(Unaudited)                                                  2006        2005
-------------------------------------------------------   ----------  ----------
<S>                                                       <C>         <C>
Net income from continuing operations .................   $  11,774   $  33,061
Discontinued operations ...............................       1,010       2,481
                                                          ---------   ---------
Net income ............................................   $  12,784   $  35,542
                                                          =========   =========
Shares (denominator) used for diluted
   per common share computations:
    Weighted average shares of common  stock
        outstanding ...................................      12,950      12,884
    Plus: dilutive effect of stock options ............         156         211
                                                          ---------   ---------
           Diluted weighted average shares ............      13,106      13,095
                                                          ---------   ---------
Shares (denominator) used for basic per
   common share computations:
   Weighted average shares of common stock
       outstanding ....................................      12,950      12,884
                                                          ---------   ---------
Net income per common share data:
    Diluted
       From continuing operations .....................   $    0.90   $    2.52
       From discontinued operations ...................        0.08        0.19
                                                          ---------   ---------
                                                          $    0.98   $    2.71
                                                          =========   =========
    Basic
       From continuing operations .....................   $    0.91   $    2.57
       From discontinued operations ...................        0.08        0.19
                                                          ---------   ---------
                                                          $    0.99   $    2.76
                                                          =========   =========
</TABLE>
Outstanding options of 83,500 shares were excluded from the diluted earnings per
common  share  calculation  for the three and nine months  ended June 30,  2006,
respectively,  because the  exercise  price of the options was greater  than the
average market price of the Company's common stock. All outstanding  options are
included in the diluted  earnings  per common  share  calculation  above for the
three and nine months ended June 30, 2005.


                                       15
<PAGE>


9.  RELATED PARTIES

The Company has various  transactions  with its  unconsolidated  affiliates (see
Note  6).  Both  the  Company  and its  unconsolidated  affiliates  buy and sell
products and services at prevailing market prices from each other.  Beginning in
February  2005,  the  Company  incurred  expenses  from  Mi-Tech  Steel for toll
processing and storage  services  provided at its Decatur,  Alabama  facility at
agreed upon rates.  Prior to February  2005,  Mi-Tech Steel was  reimbursed  for
operating costs incurred at its Decatur,  Alabama facility by its owners. Equity
in the net income of  unconsolidated  affiliates  and  management fee income are
also  included in  operating  income of the Company.  A summary of  transactions
between the Company and its unconsolidated  affiliates during the three and nine
months ended June 30, 2006 and 2005 follows:


<TABLE>
<CAPTION>
(In Thousands)                      Three Months Ended         Nine Months Ended
(Unaudited)                              June 30                   June 30
-----------------                   ---------------------   --------------------
                                      2006         2005         2006       2005
                                      ----         ----         ----       ----

                                  <c>          <c>         <c>         <c>
Sales to unconsolidated affiliates   $ 1,152       $ 961      $ 3,164    $ 2,778
Purchases from and expense
   reimbursements to Mi-Tech Steel       415         535        1,286      1,674
Interest income from Mi-Tech Steel       -            27          -           71
Equity in net income of
   unconsolidated affiliates           2,224         780        3,699      3,997

</TABLE>

Accounts receivable from  unconsolidated  affiliates was $1,511,000 and $302,000
as of June 30, 2006 and September 30, 2005,  respectively,  and accounts payable
to  unconsolidated  affiliates was $198,000 and $103,000 as of June 30, 2006 and
September 30, 2005, respectively.

During the three and nine months ended June 30, 2006, the Company recorded sales
of  $3,499,000  and  $10,177,000,  respectively,  for scrap  products  sold to a
company owned by a director of the Company  compared to sales of $2,471,000  and
$14,697,000, respectively, during the three and nine months ended June 30, 2005.
Accounts  receivable  from  the  aforementioned   company  were  $2,534,000  and
$2,508,000 as of June 30, 2006 and September 30, 2005, respectively.  Management
reports these  transactions  to the Audit Committee of the Board of Directors as
frequently  as  requested by the  Committee,  but at least  annually.  The Audit
Committee  reviewed and approved these  transactions  in April 2006. The Company
has the ability to continue or cease  selling scrap steel to this company at any
time.


10. FINANCIAL INSTRUMENTS

In order to mitigate a portion of the market risk on its variable rate debt, the
Company  entered  into an interest  rate swap  contract  with a major  financial
institution on June 20, 2005. Under the terms of the contract,  which matures in
September 2008, the Company receives a U.S. dollar LIBOR based variable interest
rate  and  pays  a  fixed  interest  rate  of  4.31%  on a  notional  amount  of
$30,000,000. The variable interest rate paid on the contract is determined based
on the three month U.S. dollar LIBOR rate, which is consistent with the variable
rate determination on the underlying debt.




                                       16

<PAGE>


SFAS No. 133, "Accounting for Derivative  Instruments and Hedging Activities" as
amended,  establishes  accounting and reporting  standards  requiring that every
derivative  financial  instrument be recorded as either assets or liabilities on
the balance  sheet at its fair  value,  and sets forth the manner in which gains
and losses thereon are to be recorded.  The treatment of such gains or losses is
dependent  upon the type of  exposure,  if any,  for  which  the  derivative  is
designated as a hedge. Gains and losses for qualifying hedges can be deferred in
accumulated  other  comprehensive  loss and  recognized in the income  statement
along with the related  results of the hedged item.  SFAS No. 133 requires  that
the Company formally  document,  designate and assess the  effectiveness of such
transactions in order to qualify for hedge accounting treatment.

The Company  designated  its interest rate swap contract as a cash flow hedge of
anticipated  interest payments under its variable rate line of credit agreement.
Gains and losses on this swap is recorded  in  accumulated  other  comprehensive
loss and is reclassified into net income as interest expense, net in the periods
in which the related variable interest is paid.


11. INCOME TAXES

Net income for the three and nine months ended June 30, 2006  included a benefit
of $811,000, or $0.06 per diluted common share, reflecting a one-time adjustment
to record a deferred tax asset related to changes in tax laws effective  January
1, 2005 for our Mexican operations.

The  American  Jobs  Creation  Act (the Act) was enacted in October  2004 and is
effective  for  fiscal  2006.   This law  provides a phased in  deduction  for a
percentage of qualified income from domestic production activities and a special
one-time tax deduction on the repatriation of foreign earnings.  The opportunity
is subject to a number of limitations and requirements,  including adoption of a
specific domestic  reinvestment plan for any repatriated funds. The Company does
not plan to  repatriate  foreign  earnings  under the  provisions of the Act and
estimates the Act has lowered our effective  income tax rate by less than 1% for
fiscal 2006.


12. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2006,  the  Financial  Accounting  Standards  Board  (FASB)  issued FASB
Interpretation  No. 48 (FIN 48),  "Accounting for Uncertainty in Income Taxes an
Interpretation  of FASB  Statement No. 109". FIN 48 clarifies the accounting for
uncertainty in income taxes  recognized in a company's  financial  statements in
accordance with FASB Statement No. 109,  "Accounting  for Income Taxes".  FIN 48
prescribes a recognition  threshold and measurement  attribute for the financial
statement  recognition and measurement of a tax position taken or expected to be
taken  in a  tax  return.  FIN  48  also  provides  guidance  on  derecognition,
classification,   interest  and  penalties,   accounting  in  interim   periods,
disclosure  and  transition.  The  requirements  of FIN 48 are effective for our
fiscal  year  beginning  October  1,  2007.  The  Company  is in the  process of
evaluating the effect of FIN 48 and has not determined whether its adoption will
have a material impact on our financial position,  results of operations or cash
flows.



                                       17
<PAGE>


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

When  used  in the  following  discussion,  the  words  "estimates,"  "expects,"
"intends,"  "anticipates," "believes" and other similar expressions are intended
to  identify  forward-looking  statements,  which are made  pursuant to the safe
harbor provisions of the Private Securities  Litigation Reform Act of 1995. Such
forward-looking  statements are subject to certain risks and uncertainties  that
could cause actual results to differ  materially from those projected.  Specific
risks and uncertainties  include,  but are not limited to,  competitive  factors
such as  pricing  and  availability  of  steel;  cyclical  demand  in the  steel
industry,  specifically  in the  automotive  market;  our  ability  to make  and
integrate acquisitions;  our inability to obtain sufficient capital resources to
fund our operations  and our growth;  risk of business  interruptions  affecting
automotive manufacturers;  and reliance on key customers.  Readers are cautioned
not to place undue  reliance on these  forward-looking  statements,  which speak
only as of the date  hereof.  We undertake no  obligation  to republish  revised
forward-looking  statements to reflect the occurrence of unanticipated events or
circumstances  after the date  hereof.  Unless the context  otherwise  requires,
references to "we," "us" or "our" refer  collectively to Steel Technologies Inc.
and its subsidiaries.

We  completed  the sale of our Custom  Steel,  Inc.  subsidiary  in March  2006.
Accordingly,  results of operations  and gain on the sale of Custom Steel,  Inc.
are  treated  as  discontinued   operations.   In  addition,  we  completed  the
acquisition  of Kasle Steel  Corporation  (Kasle Steel) on May 8, 2006,  and the
results of  operations  of Kasle Steel are included in our results  beginning in
May 2006.



Application of Critical Accounting Policies
-------------------------------------------

Our condensed consolidated financial statements have been prepared in accordance
with  generally  accepted  accounting  principles.   The  preparation  of  these
financial  statements requires management to make estimates and assumptions that
affect the amounts reported in the  consolidated  financial  statements.  Actual
results  could  differ  from these  estimates  under  different  assumptions  or
conditions.  On an ongoing  basis,  we monitor and  evaluate our  estimates  and
assumptions.

A summary of  significant  accounting  policies used in the  preparation  of the
condensed  consolidated  financial statements is included in Note 1 of the Notes
to Consolidated  Financial  Statements in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2005.

Our  most  critical  accounting  policies  include  the  valuation  of  accounts
receivable,  which impacts selling,  general and administrative expense, and the
assessment  of  recoverability  of goodwill and  long-lived  assets.  Management
reviews the estimates, including, but not limited to, the allowance for doubtful
accounts  on  a  regular  basis  and  makes   adjustments  based  on  historical
experiences,  current  conditions  and  future  expectations.  The  reviews  are
performed  regularly and adjustments are made as required by currently available
information. We believe these estimates are reasonable, but actual results could
differ from these estimates.


                                     18

<PAGE>


     Allowance for Doubtful Accounts Receivable
     ------------------------------------------

     Our accounts  receivable  represent  those amounts that have been billed to
     our customers but not yet collected.  An allowance for doubtful accounts is
     maintained  for  estimated  losses  resulting  from  the  inability  of our
     customers to make required payments. The allowance is maintained at a level
     considered  appropriate  based on historical  and other factors that affect
     collectibility.  These factors  include  historical  trends of  write-offs,
     sales,  recoveries  and credit losses,  the monitoring of portfolio  credit
     quality,  and current and projected economic and market conditions.  If the
     financial  condition of our customers was to  deteriorate,  resulting in an
     impairment of the ability to make payments  beyond  previously  established
     terms,  additional  allowances  may  be  required.  Uncollectible  accounts
     receivable  are written off against the  allowance  for  doubtful  accounts
     receivable  when  management  determines that the probability of payment is
     remote and collection efforts have ceased.

     Long-Lived Assets
     -----------------

     Long-lived  assets with  estimated  useful lives are  depreciated  to their
     residual  values over the useful lives in proportion to the economic  value
     consumed.  We  review  the  carrying  value of our  long-lived  assets  for
     impairment  whenever changes in events and circumstances  indicate that the
     carrying amount of the assets may not be recoverable. If an evaluation were
     required,  the estimated future  undiscounted cash flows associated with an
     asset would be compared to the asset's  carrying  value to  determine  if a
     write-down  to market value or  undiscounted  cash flows value is required.
     Future changes in circumstances,  cash flow estimates and estimates of fair
     value could affect the valuations.

     Goodwill is reviewed annually, or sooner if indicators of impairment exist,
     for impairment using the present value technique to determine the estimated
     fair  value of  goodwill  associated  with each  reporting  entity.  If the
     goodwill is indicated as being  impaired  (the present  value of cash flows
     (fair value) of the reporting unit is less than the carrying  amount),  the
     fair value of the reporting  unit would then be allocated to our assets and
     liabilities in a manner  similar to the purchase price  allocation in order
     to determine the implied fair value of the reporting  unit  goodwill.  This
     implied fair value of the reporting  unit  goodwill  would then be compared
     with the carrying  amount of the  reporting  unit  goodwill and, if it were
     less, we would then recognize an impairment loss.

     Considerable  management  judgment is  necessary to assess  impairment  and
     estimate fair value.  The  projection of future cash flows for the goodwill
     impairment  analysis  requires  significant  judgment  and  estimates  with
     respect to future  revenues  related  to the  assets  and the  future  cash
     outlays related to those  revenues.  Actual revenues and related cash flows
     or changes in  anticipated  revenues and related cash flows could result in
     changes  in  the  assessment  and  result  in  an  impairment  charge.  The
     assumptions used in our evaluations,  such as forecasted growth rates, cost
     of capital,  tax rates and residual values are consistent with our internal
     projections  and  operating  plans.  The  use  of  different   assumptions,
     including  cash flows and discount  rates,  could  increase or decrease the
     related impairment charge.


                                       19
<PAGE>


Overview
--------

Steel  Technologies  is  one  of  the  largest  independent  flat  rolled  steel
processors and exposed automotive blankers in North America. With the completion
or our  most  recent  acquisition  during  the  last  quarter,  we now  have  23
facilities, including our unconsolidated affiliates, strategically positioned in
steel producing and consuming  markets in the United States,  Canada and Mexico.
We bring value to our customers through precision steel processing, supply chain
management,  quality control and technical support. We utilize the most advanced
equipment to produce our  high-quality  steel  products,  and we  specialize  in
meeting exact  specifications  for customers in a variety of industries  and end
use markets including automotive, lawn and garden and appliance industries.

We focus our sales and  marketing  strategies  to leverage  more fully our North
American platform of value added steel processing  facilities.  In recent years,
we have been  successful  in growing our volume across all  operations  and have
gained meaningful  market growth,  both with existing and new customers across a
wide range of end use markets.  Our broad  capabilities and geographic  presence
offer  distinct  competitive  advantages  to  customers  that  have  multi-plant
operations  throughout  the United  States,  Canada and  Mexico.  Our ability to
provide  precision  steel  products  with  efficient  just-in-time  delivery has
enabled us to expand our business with regional and large national accounts.

Income from  continuing  operations for the third quarter of fiscal 2006 totaled
$6.7 million or $0.51 per diluted  common share versus $5.0 million or $0.38 per
diluted  common  share in the same period last year.  Sales for the quarter were
$234.5 million  compared with the $243.7  million  reported in the third quarter
last year.  Third quarter  earnings  growth was driven by improving  margins,  a
weaker Mexican peso and a strong first two months  realized from our acquisition
of Kasle Steel.  Net income for the quarter  included a benefit of $811,000,  or
$0.06 per diluted  common  share,  reflecting a one-time  adjustment to record a
deferred tax asset related to changes in tax laws effective  January 1, 2005 for
our Mexican operations.

Income  from  continuing  operations  for the first nine  months of fiscal  2006
totaled $11.8 million or $0.90 per diluted  common share versus $33.1 million or
$2.52 per diluted common share for the same period last year. For the first nine
months of fiscal 2006,  sales were $674.0  million  compared with $764.6 million
for the same  period  last  year.  Year-to-date  net  income  for  fiscal  2006,
including  a $271,000  gain on the sale of Custom  Steel,  was $12.8  million or
$0.98 per diluted common share compared with a record $35.5 million or $2.71 per
diluted common share in the first nine months of fiscal 2005.

Tons of  company-owned  steel  products sold in our third quarter of fiscal 2006
were  292,000,  an  increase  of 2% over the third  quarter of fiscal  2005.  In
addition, we processed 108,000 tons of customer-owned steel products through our
facilities  while  our  unconsolidated   affiliates'   operations  processed  an
additional  400,000  tons of  customer-owned  steel  products  during  the third
quarter of fiscal  2006.

Foreign  currency  transaction  gains  included  in sales  were  $1,967,000  and
$872,000  during the three and nine months  ended June 30,  2006,  respectively,
reflecting a stronger  average  exchange rate of the U.S. dollar relative to the
Mexican peso.  Foreign  currency  transaction  losses included as a reduction in
sales  for the three and nine  months  ended  June 30,  2005 were  $486,000  and
$833,000, respectively.


                                       20
<PAGE>


Our balance sheet remains strong by any measure.  Ample debt capacity enables us
to continue focusing on flat rolled steel processing growth  initiatives  across
four main strategic  fronts:  acquisitions,  investments at current  operations,
investments in unconsolidated  affiliates,  and greenfield expansions. On May 8,
2006, we completed an acquisition of all the outstanding stock of privately held
Kasle Steel  Corporation  (Kasle  Steel) in Dearborn,  Michigan.  Kasle Steel is
North  America's  largest  independent  supplier  of  automotive  steel  blanks,
shipping over 1.5 million tons annually through its five processing  facilities,
including three unconsolidated  affiliates.  We paid approximately $33.7 million
in cash for the stock of Kasle Steel and assumed  approximately $25.0 million of
Kasle Steel's liabilities. We utilized our existing revolving credit facility to
fund the  purchase,  and we have  retired  approximately  $4.0  million of Kasle
Steel's  outstanding  debt. The operating results of Kasle Steel are included in
our condensed consolidated financial statements since the date of acquisition.

During  the first  nine  months of fiscal  2006,  we spent  approximately  $14.5
million on capital  expenditures and expect to spend  approximately $3.5 million
on capital  expenditures during the fourth quarter of fiscal 2006. These capital
expenditures  include new leveling  capabilities  to our  pickling  operation in
Ghent,  Kentucky and  additional  multi-blanking  capabilities  to our Berkeley,
South  Carolina  facility.  These  projects  will  allow us to expand  capacity,
improve  quality and services to customers and lower our conversion  costs.  Our
remaining major project is a new operation in Juarez,  Mexico which is scheduled
to begin processing in the second quarter of fiscal 2007.


Financial Highlights (in thousands except per common share data and percentages)
--------------------------------------------------------------------------------

<table>
<caption>


                                  For the Three Months Ended June 30
                                         2006             2005
                                  ----------------  ----------------
                                            % of              % of         %
(Unaudited)                        Actual   Sales    Actual   Sales      Change
--------------------------------- -------- -------  -------- -------    --------

                              <c>       <c>      <c>       <c>         <c>
Sales                            $234,455  100.0%   $243,675  100.0%      (4)%
Gross profit                       18,475    7.9      17,299    7.1        7
Selling, general and
   administrative expenses         10,541    4.5       9,409    3.9       12
Equity in net income of
   unconsolidated affiliates        2,224    1.0         780    0.3      185
Operating income                   10,158    4.3       8,670    3.6       17
Interest expense, net               1,432    0.6         912    0.4       57
Income from continuing
   operations                       6,681    2.9       5,028    2.1       33
Diluted earnings per common share
   from continuing operations       $0.51              $0.38              34
Cash dividends per common share     $0.15              $0.15              -

Other data
----------
Average days sales outstanding      41.2               39.7                4
Inventory turnover                   5.4                6.0              (10)
Return on equity (annualized)       10.0%               7.9%              27

</table>
                                       21
<PAGE>


<table>
<caption>


                                  For the Nine Months Ended March 31
                                         2006             2005
                                  ----------------  ----------------
                                            % of              % of         %
(Unaudited)                        Actual   Sales    Actual   Sales      Change
--------------------------------- -------- -------  -------- -------    --------

                              <c>       <c>      <c>       <c>         <c>
Sales                            $673,976  100.0%   $764,629  100.0%     (12)%
Gross profit                       42,986    6.4      77,617   10.2      (45)
Selling, general and
   administrative expenses         28,357    4.2      28,634    3.7       (1)
Equity in net income of
   unconsolidated affiliates        3,699    0.6       3,997    0.5       (7)
Operating income                   18,328    2.7      52,980    6.9      (65)
Interest expense, net               2,641    0.4       2,933    0.4      (10)
Income from continuing
   operations                      11,774    1.8      33,061    4.3      (64)
Diluted earnings per common share
   from continuing operations       $0.90              $2.52             (64)
Cash dividends per common share     $0.30              $0.25              20

Other data
----------
Average days sales outstanding      43.0               37.9               13
Inventory turnover                   5.3                6.1              (13)
Return on equity (annualized)        4.9%              17.7%             (72)

</table>


Results of Operations
---------------------

     Sales
     -----

     We posted net sales of  $234,455,000  for the third  quarter ended June 30,
     2006,  a decrease  of 4% from sales of  $243,675,000  for the third  fiscal
     quarter ended June 30, 2005. Tons shipped of  company-owned  steel products
     in the third  quarter of fiscal 2006 were 292,000  tons, a 2% increase from
     the  third   quarter  of  fiscal  2005.   The  average   selling  price  of
     company-owned  steel  products  decreased  approximately  8% from  the peak
     levels of the third  quarter of fiscal 2005 to the third  quarter of fiscal
     2006 as customers  have taken  advantage of reduced raw materials  costs to
     negotiate lower purchase prices.  We are working closely with our customers
     to put in place  more  flexible  pricing  arrangements  that in many  cases
     adjust with market indices.

     Sales for the nine months ended June 30, 2006 were $673,976,000  reflecting
     a decrease  of 12% from sales for the nine  months  ended June 30,  2005 of
     $764,629,000.  Tons  shipped  in the  first  nine  months  of  fiscal  2006
     decreased  4%  compared to the first nine  months of fiscal  2005.  Average
     selling  prices of steel for the first nine months of fiscal 2006 decreased
     approximately 9% compared to the same period in fiscal 2005.

     Kasle Steel contributed approximately $4,835,000 of sales for the three and
     nine months ended June 30, 2006.

                                       22
<PAGE>


     Gross profit
     ------------

     Our gross  profit  margin  was 7.9% in the  third  quarter  of fiscal  2006
     compared to 7.1% in the third  quarter of fiscal  2005.  Cost of goods sold
     decreased  5% in the third  quarter  of fiscal  2006  compared  to the same
     period of fiscal 2005. Cost of materials sold decreased  $14,402,000 in the
     third  quarter of fiscal 2006  primarily  due to lower average raw material
     costs.  This  decrease  was  offset by an  increase  in  delivery  costs of
     $851,000  driven by higher  shipments  and  increases  in fuel  costs and a
     $3,155,000 increase primarily as a result of higher sales volume, the Kasle
     Steel acquisition,  higher labor costs and increases in utility and natural
     gas prices.

     For the first nine months of fiscal 2006,  our gross profit margin was 6.4%
     compared to 10.2% for the first nine months of fiscal  2005.  Cost of goods
     sold decreased 8.2% in the first nine months of fiscal 2006 compared to the
     first  nine  months  of  fiscal  2005.  Cost of  materials  sold  decreased
     $61,269,000  primarily  due to lower  average raw material  costs and lower
     shipment levels.  The remaining  $5,247,000  increase in cost of goods sold
     for the nine months ended June 30, 2006  compared to June 30, 2005 resulted
     from higher delivery costs,  the Kasle Steel  acquisition,  increased labor
     costs and related fringe benefits.

     Though our pricing environment remains competitive, our gross profit margin
     increased  to 7.9% in the third  quarter  of  fiscal  2006 from 5.2% in the
     second quarter of fiscal 2006. We remain focused on improving  gross profit
     trends through  production  cost  efficiencies,  and we are working closely
     with our  customers and suppliers to improve our product mix. We expect our
     average  selling  prices to increase  about 2% during the fourth quarter of
     fiscal 2006 compared to this past  quarter.  We expect  increased  sales of
     customer-owned  products processed in our facilities  compared to the prior
     year levels,  though we expect tons sold of  company-owned  products during
     the next  quarter  to remain  consistent  with  sales  levels of the fourth
     quarter of fiscal 2005.


     Selling, general and administrative expenses
     --------------------------------------------

     Selling, general and administrative costs were $10,541,000 or 4.5% of sales
     for the three months ended June 30, 2006, compared to $9,409,000 or 3.9% of
     sales for the three months  ended June 30, 2005.  The increase is primarily
     attributable  to the additional  expenses  associated  with the addition of
     Kasle Steel and an increase in stock-based compensation expense of $197,000
     as a result of adopting SFAS No. 123(R).

     Selling,  general and  administrative  costs were  $28,357,000 for the nine
     months ended June 30,  2006,  compared to  $28,634,000  for the nine months
     ended June 30, 2005. The change is primarily  attributable to a decrease of
     $2,228,000 in company wide bonus plan expenses due to lower earnings.  This
     decrease is partially offset by increases of $1,106,000 associated with the
     addition of Kasle Steel,  $494,000 in additional  stock-based  compensation
     expense as a result of adopting SFAS No.  123(R),  additional  property tax
     expense  of  $311,000  resulting  from  the  successful  appeal  of a state
     property tax  assessment  during the second  quarter of fiscal 2005, and an
     increase  of $40,000  in  remaining  selling,  general  and  administrative
     expenses.

     We   continue   to  manage  the  level  at  which   selling,   general  and
     administrative expenses are added to our cost structure.

                                       23
<PAGE>



     Equity in net income of unconsolidated affiliates
     -------------------------------------------------

     Our share of the income of our unconsolidated affiliates was $2,224,000 for
     the third quarter of fiscal 2006 compared to $780,000 in 2005. For the nine
     months  ended June 30,  2006,  income from  unconsolidated  affiliates  was
     $3,699,000 compared to $3,997,000 for the same period in fiscal 2005. Kasle
     Steel's   three   unconsolidated   affiliates   contributed   approximately
     $1,966,000 to equity in net income of our unconsolidated affiliates for the
     three and nine months ended June 30, 2006.

     Our unconsolidated  affiliates reported  $82,520,000 in sales for the third
     quarter of fiscal 2006,  an increase of 8% compared to the third quarter of
     fiscal  2005.   Sales  for  the  nine  months  ended  June  30,  2006  were
     $219,046,000,  a decrease of 8% compared to the nine months  ended June 30,
     2005.   Kasle   Steel's   three   unconsolidated   affiliates   contributed
     approximately $19,984,000 in sales for the three and nine months ended June
     30, 2006. Our unconsolidated  affiliates continue to play an important role
     in our North  American  platform,  and expansion of our joint ventures is a
     key part of our  overall  strategy  as we expand  our  position  with large
     national customers.


     Interest expense
     ----------------

     Net interest  expense for the third  quarter of fiscal 2006 was  $1,432,000
     compared to $912,000 for the third quarter of fiscal 2005.  The increase is
     primarily  related to higher  interest rates,  increased  borrowings on our
     line of credit to fund the  acquisition  of Kasle  Steel and a decrease  of
     $323,000  in  interest  income  from lower  average  short-term  investment
     balances during the quarter.

     Net interest expense for the nine months ended June 30, 2006 was $2,641,000
     compared to $2,933,000  during the same period of fiscal 2005. The decrease
     is due to an additional  $175,000 in interest income  resulting from higher
     average  short-term  investment  balances  during the first nine  months of
     fiscal  2006 and lower  average  borrowings  on our line of  credit  during
     fiscal 2006 compared to fiscal 2005.


     Income tax expense
     ------------------

     Our  effective  income  tax  rate  was   approximately   23.4%  and  35.2%,
     respectively,  for the third quarters of fiscal 2006 and 2005. For the nine
     months of fiscal 2006 and 2005, our effective income tax rate was 24.9% and
     33.9%,  respectively.  Excluding  the tax  effect of the  one-time  benefit
     discussed  in Note 11 in the  notes  to  condensed  consolidated  financial
     statements,  our  effective  income  tax rate was  approximately  33.4% and
     30.5%,  respectively,  for the three and nine months  ended June 30,  2006.
     These rates reflect a reduction in Mexico's  statutory income tax rate from
     30% to 29% during the second quarter of fiscal 2006.

     The American Jobs Creation Act (the Act) was enacted in October 2004 and is
     effective  for fiscal 2006.  This law provides a phased in deduction  for a
     percentage of qualified  income from domestic  production  activities and a
     special one-time tax deduction on the repatriation of foreign earnings. The
     opportunity  is  subject  to a  number  of  limitations  and  requirements,
     including  adoption  of a  specific  domestic  reinvestment  plan  for  any
     repatriated  funds. We do not plan to repatriate foreign earnings under the
     provisions  of the Act, and we estimate  this law has lowered our effective
     income tax rate by less than 1% for fiscal 2006.


                                       24
<PAGE>


     Discontinued Operations
     -----------------------

     We  completed  the  sale of all  the  capital  stock  of our  Custom  Steel
     subsidiary  to ARI  (see  Note 4 of our  Notes  to  Condensed  Consolidated
     Financial Statements) on March 31, 2006.

     Summarized  condensed  consolidated income statement  information of Custom
     Steel follows:

<TABLE>


(In thousands)                          Three Months Ended    Nine Months Ended
(Unaudited)                                  June 30              June 30
--------------------------------------------------------------------------------
                                        2006       2005       2006       2005
                                      ------------------------------------------
<S>                                   <C>        <C>        <C>       <C>
Sales ................................ $    -     $ 12,757   $  23,470  $32,777
(Loss) income before income taxes ....     (224)       989       1,199    3,817
(Loss) income from continuing
   operations ........................     (129)       643         739    2,481
Gain on sale, net of income taxes ....       25        -           271      -
Net (loss) income ....................     (104)       643       1,010    2,481

</TABLE>

Liquidity and Capital Resources
-------------------------------

As of June 30, 2006, we had  $200,328,000  of working  capital,  we maintained a
current  ratio of  3.2:1  and we had  total  debt at 30% of  capitalization.  In
periods of economic expansion and increased demand for our products, our working
capital  requirements  generally  increase.  Conversely,  in periods of economic
contraction   and  reduced  demand  for  our  products,   our  working   capital
requirements decrease.

Our  liquidity  needs  are  met  primarily  by our  cash  flows  from  operating
activities  and  our  revolving  credit  facility.   Operating  cash  flows  are
influenced by  cyclicality  of demand in the steel  industry,  especially in the
automotive  market.  We anticipate  borrowing on our existing  revolving  credit
facility to support our continued  growth and to meet our working capital needs.
Cash flows from operations and available borrowing  capabilities are expected to
meet our future needs.

Average  days sales  outstanding  to  customers  was 43 days for the nine months
ended June 30,  2006  compared to 38 for the nine  months  ended June 30,  2005.
Average  days  inventory  was 68 days  for the nine  months  ended June 30, 2006
compared to 60 days for the nine months ended June 30, 2005.  We expect  average
days sales  outstanding  and average days inventory to increase  somewhat during
our fourth quarter of fiscal 2006 due to seasonality.

Our average  payment days to suppliers  was 29 days as of June 30, 2006 compared
to 34 days as of June 30, 2005. We expect  average  payment days to suppliers to
remain  consistent in our fourth quarter compared to our third quarter of fiscal
2006.

We used  $4,457,000  of cash from  operations  during the first  nine  months of
fiscal 2006,  compared to cash provided by operations of $26,815,000  during the
first nine  months of fiscal  2005.  The  decrease in  operating  cash flows was
primarily from lower net income offset by changes in working capital.

                                       25
<PAGE>

We increased  inventory by  $41,707,000  to more normal  levels during the first
nine  months of fiscal  2006 to support our sales  levels.  Accounts  receivable
decreased by $4,622,000 primarily due to lower average selling prices during the
first nine  months of fiscal  2006  compared to fiscal  2005.  Accounts  payable
increased  by  $7,769,000  related to the  increase in our  inventory  purchases
offset by meeting our obligations to suppliers.

Capital   expenditures  for  the  first  nine  months  of  fiscal  2006  totaled
approximately  $14,492,000.  We continue to expand production  capacity to serve
the growing needs of customers, invest in information systems to improve quality
and service to our customers  and invest in  automation to improve  productivity
and make our operations more efficient.  For fiscal 2006, the capital  additions
to all facilities are expected to approximate $18,000,000.

On May 8, 2006, we completed the acquisition of all of the outstanding  stock of
Kasle  Steel  for  $33,748,000   million  in  cash  and  assumed   approximately
$25,009,000  of Kasle Steel's  liabilities.  We utilized our existing  revolving
credit  facility  to  fund  the  purchase,  and we  have  retired  approximately
$3,970,000 of Kasle Steel's outstanding debt.

Under the terms of the Stock  Purchase  Agreement,  $2,000,000  of the  purchase
price was deposited in an escrow account to satisfy  indemnification  provisions
provided  by former  shareholders  of Kasle  Steel to us.  Pursuant to an Escrow
Agreement,  all  uncontested  escrowed  funds will be  distributed to the former
shareholders at various times from November 2007 through May 2012.

We recorded $4,902,000 in debt and capital lease obligations as of June 30, 2006
associated  with the  acquisition  of Kasle Steel,  including a  consulting  and
non-compete  agreement  with a former Kasle Steel  shareholder.  This  agreement
requires  monthly  payments  of $25,000  until May 2011.  Additionally,  monthly
payments of  $20,559,  including  interest  of 7%, are  required to be made to a
former Kasle Steel shareholder  through May 2017.  Annual principal  payments of
$350,000  plus  interest at 9% are  required to be made to a former  Kasle Steel
shareholder every year until January 1, 2010. Existing capital lease obligations
of Kasle Steel require monthly  payments ranging from  approximately  $28,000 to
$33,000 until June 2007.  Kasle Steel also  maintains  various  operating  lease
agreements with future minimum lease payments of up to $476,000 per year through
2009.

On March 24, 2006,  we entered into a Stock  Purchase  Agreement to sell all the
capital stock of our wholly owned Custom Steel,  Inc. (Custom Steel)  subsidiary
to a wholly owned  subsidiary of American  Railcar  Industries,  Inc.  (ARI). In
connection  with the  closing of this  transaction,  the final  sales  price was
approximately  $17,061,000,  of  which  $16,311,000  was  remitted  to us and an
additional  $750,000 to a third party escrow  agent.  The proceeds  were used to
reduce indebtedness under our revolving credit facility.

In connection  with the sale of Custom Steel,  we retained  certain  obligations
consisting primarily of trade accounts payable, accrued liabilities and deferred
taxes  totaling  approximately  $3,012,000.  In  addition,  we  have  agreed  to
indemnify  ARI for any  payments  required  to be made by them  for  liabilities
incurred by Custom Steel prior to March 31, 2006. The indemnification provisions
for most liabilities  expire on March 31, 2008 and require the buyer to incur at
least  $75,000  in  aggregate  liabilities  before  a  claim  can  be  asserted.
Indemnification provisions for certain liabilities, primarily taxes, expire with
applicable  statutes of  limitations  and the  remaining  provisions,  primarily
environmental,  do not expire.  We have not recorded any  liabilities  for these
indemnifications  since  management  has  determined  it is not probable we will
incur  such  liabilities.  Pursuant  to the  terms of an Escrow  Agreement,  the
$750,000  escrow will be  distributed  to us at various times prior to March 31,
2008 to the extent there are no indemnification claims made by ARI.


                                       26
<PAGE>

We  maintain  an equity  investment  of  $25,744,000  in our  90%-owned  Mexican
subsidiary. Additional investments in our Mexican operations, if required, would
be financed with  operating  cash flows and  available  funds from our revolving
credit facility.

The translation of the financial statements of our Mexican subsidiary from local
currencies to the U.S. dollar subjects exposes us to fluctuating exchange rates.
This  exposure  is  somewhat  mitigated,  however,  by  a  large  percentage  of
transactions  denominated in the U.S. dollar. We do not consider our exposure to
exchange  rate risks to be material  and  consider the Mexican peso a relatively
stable currency.  Though we monitor the effect of foreign currency fluctuations,
we  currently  are not using  derivative  financial  instruments  to manage  our
related foreign currency exchange rate risk. Foreign currency  transaction gains
included in sales were  $1,967,000 and $872,000 during the three and nine months
ended June 30, 2006,  respectively,  reflecting a stronger average exchange rate
of the U.S. dollar relative to the Mexican peso.  Foreign  currency  transaction
losses included as a reduction in sales for the three and nine months ended June
30, 2005 were $486,000 and $833,000, respectively.

We maintain a 50% equity investment in Mi-Tech Steel and a 49% equity investment
in Ferrolux Metals.  Additional  equity  contributions  to these  unconsolidated
affiliates  are not required and we do not  guarantee any  obligations  of these
unconsolidated affiliates.  While distributions from Mi-Tech Steel are permitted
if authorized by Mi-Tech  Steel's board of  directors,  such  distributions  are
restricted by one of Mi-Tech  Steel's loan  agreements to 15% of Mi-Tech Steel's
net income in any fiscal year. Distributions from Mi-Tech Steel are not, and are
not  expected to be,  material  sources of  liquidity  for us.  Mi-Tech  Steel's
liquidity  needs are met  primarily by their  operating  cash flows and existing
revolving  credit  facility.  We expect  that cash  flows  from  operations  and
available borrowing capabilities will meet Mi-Tech Steel's future needs.

As a result of the acquisition of all of the  outstanding  stock of Kasle Steel,
we acquired a 50% equity  investment in RSDC of Michigan,  L.L.C.,  a 50% equity
investment in Kasle Metal  Processing,  LLC (KMP) and a 49% equity investment in
Delaco-Kasle  LLC  (DK).  While  we do not  expect  to  make  additional  equity
contributions  to these  unconsolidated  affiliates,  Kasle Steel has guaranteed
debt  obligations of $2,500,000 for KMP and $490,000 for DK. Liquidity needs are
met  primarily by these  unconsolidated  affiliates'  cash flows from  operating
activities  and  existing  credit  facilities.  Cash flows from  operations  and
available  borrowing  capabilities  are  expected  to meet these  unconsolidated
affiliates'   future   needs.   Pursuant  to   operating   agreements,   minimum
distributions are required to be made by these unconsolidated  affiliates to its
members on a periodic basis.

In October 2004, we issued  $50,000,000  in unsecured  senior notes at a blended
interest rate of 5.67%. The notes are comprised of $10,000,000 of 5.33% Series A
Senior Notes due October 21, 2011 and $40,000,000 of 5.75% Series B Senior Notes
due October 21, 2014. Semiannual interest payments are required until maturity.

Borrowings and repayments  under our revolving credit agreement are initiated as
needed to fund our operating and investing  activities  described above.  During
the first  nine  months of fiscal  2006,  we  borrowed  $57,000,000  to fund our
working capital needs and Kasle Steel  acquisition,  and we paid  $31,279,000 on
our outstanding  debt from cash flows from operating  activities and the sale of
Custom Steel.


                                       27
<PAGE>

We have a $135,000,000  unsecured revolving credit facility that matures October
2010. At our request and upon meeting certain requirements, our existing banking
group  can  elect to  expand  our  revolving  credit  facility  availability  to
$200,000,000.  We can elect to pay interest on the facility at various  floating
rates,  none of which is greater than the bank's  prime rate.  At June 30, 2006,
there was $60,000,000 outstanding on the revolving credit facility.

Provisions  contained in our debt  agreements  require us to maintain  specified
levels of net  worth,  maintain  certain  financial  ratios  and  limit  capital
expenditures,   operating  leases,   capital  leases  and  additional  debt.  In
connection  with the Kasle Steel  acquisition,  we amended our revolving  credit
facility to permit certain debt  obligations and limited  guarantees.  We are in
compliance with our loan  covenants,  and none of these covenants would restrict
the completion of currently planned capital expenditures.

We have  entered  into  leases  to  meet  the  needs  of our  facilities.  These
obligations,  along  with our  obligations  for  outstanding  debt and  interest
payments,  have not changed  significantly  from those  disclosed  in our Annual
Report  on Form 10-K for the year  ended  September  30,  2005,  except  for the
acquisition of Kasle Steel.

We maintain a contract with our union employees in our Canton, Michigan facility
which expires in March 2010 and in our Windsor, Canada facility which expires in
December 2006.

At this time, we have no other known material  off-balance  sheet  arrangements,
contractual obligations,  contingent liabilities or commitments that must be met
beyond the next twelve months.

We believe  all  manufacturing  facilities  are in  compliance  with  applicable
federal and state environmental  regulations.  We are not presently aware of any
fact or  circumstance,  which would require the expenditure of material  amounts
for environmental compliance.

Related Party Transactions
--------------------------

We have various  transactions with  unconsolidated  affiliates and we sell scrap
steel  products  to a  company  owned by  Stuart N.  Ray,  a  director  of Steel
Technologies  (see  Note 9 of our  Notes  to  Condensed  Consolidated  Financial
Statements). Management reports these transactions to the Audit Committee of the
Board of Directors as  frequently  as requested by the  Committee,  but at least
annually.  Most  recently,  in April  2006,  the Audit  Committee  reviewed  and
approved  these  transactions.  We have the ability to continue or cease selling
scrap steel to this company at any time.

Recently Issued Accounting Pronouncements
-----------------------------------------

In July 2006,  the  Financial  Accounting  Standards  Board  (FASB)  issued FASB
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes - an
Interpretation  of FASB  Statement No. 109". FIN 48 clarifies the accounting for
uncertainty in income taxes  recognized in a company's  financial  statements in
accordance with FASB Statement No. 109,  "Accounting  for Income Taxes".  FIN 48
prescribes a recognition  threshold and measurement  attribute for the financial
statement  recognition and measurement of a tax position taken or expected to be
taken  in a  tax  return.  FIN  48  also  provides  guidance  on  derecognition,
classification,   interest  and  penalties,   accounting  in  interim   periods,
disclosure  and  transition.  The  requirements  of FIN 48 are effective for our
fiscal year  beginning  October 1, 2007. We are in the process of evaluating the
effect  of FIN 48 and have not  determined  whether  its  adoption  will  have a
material impact on our financial position, results of operations or cash flows.




                                       28
<PAGE>

       Item 3. Quantitative and Qualitative Disclosures About Market Risk

In order to mitigate a portion of the market risk on its variable rate debt, the
Company  entered  into an interest  rate swap  contract  with a major  financial
institution on June 20, 2005. Under the terms of the contract,  which matures in
September  2008, the Company  receives a LIBOR based variable  interest rate and
pays a fixed  interest rate of 4.31% on a notional  amount of  $30,000,000.  The
variable  interest  rate paid on the contract is  determined  based on the three
month LIBOR rate,  which is consistent with the variable rate  determination  on
the underlying debt.

There has been no material  change  during the nine  months  ended June 30, 2006
from the  disclosures  about market risk  provided in our Annual  Report on Form
10-K for the year ended September 30, 2005.


                        Item 4. Controls and Procedures

Management,  including our Chief Executive Officer and Chief Financial  Officer,
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls and  procedures  as of the end of the third fiscal  quarter  covered by
this  Quarterly  Report on Form  10-Q.  Based  upon that  evaluation,  our Chief
Executive  Officer and Chief  Financial  Officer  concluded  that the disclosure
controls  and  procedures  are  effective  to ensure that  material  information
required to be disclosed  in the reports we file or submit under the  Securities
Exchange Act of 1934 is made known to us by others within our company, including
our consolidated subsidiaries,  particularly during the period for which reports
of our company, including this Quarterly Report on Form 10-Q, are being prepared
and to permit our  company to report  that  information  within the time  period
specified to the Securities and Exchange Commission.

There were no changes in our internal  control  over  financial  reporting  that
occurred during our third fiscal quarter that have materially  affected,  or are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                           Part II - Other Information

                                Item 6. Exhibits

Exhibits filed or furnished with this report:


   Exhibit 31.1    Certification of Chief Executive  Officer Pursuant to
                   Section 302 of the  Sarbanes-Oxley  Act of 2002

   Exhibit 31.2    Certification of Chief Financial  Officer Pursuant to
                   Section 302 of the  Sarbanes-Oxley  Act of 2002

   Exhibit 32.1    Certification of Chief Executive  Officer  Pursuant to
                   Title 18, United States Code,  Section 1350 as adopted
                   pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

   Exhibit 32.2    Certification of Chief Financial  Officer  Pursuant to
                   Title 18, United States Code,  Section 1350 as adopted
                   pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


                                       29
<PAGE>


SIGNATURE

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.



STEEL TECHNOLOGIES INC.
----------------------
    (Registrant)




By      /s/ Roger D. Shannon
        -----------------------------
        Roger D. Shannon
        Chief Financial Officer
        (Principal Financial and Chief Accounting Officer)




Dated:  August 9, 2006

                                       30

<PAGE>
                                  EXHIBIT 31.1
                CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bradford T. Ray, certify that:

1.   I have reviewed this  quarterly  report on Form 10-Q of Steel  Technologies
     Inc. for the fiscal quarter ended June 30, 2006;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and  15d-15(e))and  internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f)) for the registrant and have:

     a)   Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   Designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     c)   Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     d)   Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          third fiscal  quarter that has materially  affected,  or is reasonably
          likely to materially  affect,  the registrant's  internal control over
          financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's  auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

     a)   All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Date: August 9, 2006

/s/ Bradford T. Ray
--------------------
Bradford T. Ray
Chief Executive Officer


<PAGE>
                                  EXHIBIT 31.2
                CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Roger D. Shannon, certify that:

1.   I have reviewed this  quarterly  report on Form 10-Q of Steel  Technologies
     Inc. for the fiscal quarter ended June 30, 2006;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f))for the registrant and have:

     a)   Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   Designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;


     c)   Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     d)   Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          third fiscal  quarter that has materially  affected,  or is reasonably
          likely to materially  affect,  the registrant's  internal control over
          financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's  auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

     a)   All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

Date: August 9, 2006

/s/ Roger D. Shannon
---------------------
Roger D. Shannon
Chief Financial Officer


<page>

                                  EXHIBIT 32.1


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
             PURSUANT TO TITLE 18, UNITED STATES CODE, SECTION 1350
      AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Title 18, United States Code,  Section 1350, as adopted  pursuant to
Section  906 of the  Sarbanes-Oxley  Act of 2002,  I,  Bradford  T.  Ray,  Chief
Executive Officer of Steel Technologies Inc., (the Company) certify, to the best
of my knowledge, based upon a review of the Quarterly Report on Form 10-Q of the
Company for the quarter ended June 30, 2006:

     (1)  The Report fully  complies with the  requirements  of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of the Company.

                                                      /s/ Bradford T. Ray
                                                      -------------------
                                                      Bradford T. Ray
                                                      Chief Executive Officer
                                                      Date: August 9, 2006

<page>
                                  EXHIBIT 32.2


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
             PURSUANT TO TITLE 18, UNITED STATES CODE, SECTION 1350
      AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Title 18, United States Code,  Section 1350, as adopted  pursuant to
Section  906 of the  Sarbanes-Oxley  Act of 2002,  I,  Roger D.  Shannon,  Chief
Financial Officer of Steel Technologies Inc., (the Company) certify, to the best
of my knowledge, based upon a review of the Quarterly Report on Form 10-Q of the
Company for the quarter ended June 30, 2006:

     (1)  The Report fully  complies with the  requirements  of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of the Company.

                                                      /s/ Roger D. Shannon
                                                      ---------------------
                                                      Roger D. Shannon
                                                      Chief Financial Officer
                                                      Date: August 9, 2006