10-Q

	FORM 10-Q


	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C.  20549


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

For the quarterly period ended         March 28, 1998             

	OR

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

For the transition period from _______________ to ______________.

	Commission File No.  0-22416 

	KENTUCKY ELECTRIC STEEL, INC.
	(Exact name of Registrant as specified in its charter)

        Delaware                                    61-1244541  
(State or other jurisdiction of                 (I.R.S. Employer  
incorporation or organization)                   Identification 
                                                    Number)

	   P. O. Box 3500, Ashland, Kentucky 41105-3500  
	(Address of principal executive office, Zip Code)

	                (606) 929-1222                   


Indicate by check mark whether the registrant (1) has filed all 
reports required to be filed by Section 13 or 15(d) of the Securities 
Exchange Act of 1934 during the preceding 12 months (or for such 
shorter period that the registrant was required to file such 
reports), and (2) has been subject to such filing requirements for 
the past 90 days.


	YES    x         NO       

The number of shares outstanding of each of the issuer's classes of 
common stock, as of May 11, 1998, is as follows:				
	

4,626,561 shares of voting common stock, par value $.01 per 
share.




	KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY


	TABLE OF CONTENTS


                                                            Page

PART I.  FINANCIAL INFORMATION 

 Item 1 - Financial Statements 

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

 Item 2 - Management's Discussion and Analysis of Financial
            Condition and Results of Operations ........... 9-11


PART II.    OTHER INFORMATION 

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


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





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


                                   Three Months Ended      Six Months Ended  
                                   Mar. 28,   Mar. 29,    Mar. 28,   Mar. 29,
                                     1998       1997        1998       1997                
             
                                                      
NET SALES                        $  29,610   $  23,159   $ 55,630   $ 46,541 
COST OF GOODS SOLD                  26,187      23,615     49,867     47,011  

  Gross profit (loss)                3,423        (456)     5,763       (470)
 
SELLING AND ADMINISTRATIVE EXPENSES  1,901       1,658      3,589      3,383  
                             
  Operating income (loss)            1,522      (2,114)     2,174     (3,853) 

INTEREST INCOME AND OTHER               14           6         24         11 
INTEREST EXPENSE                      (627)       (554)    (1,222)    (1,048)

  Income (loss) before 
     income taxes                      909      (2,662)       976     (4,890) 
                                
PROVISION (CREDIT) FOR INCOME TAXES    346      (1,003)       372     (1,847)

  Net income (loss)               $    563    $ (1,659)  $    604   $ (3,043)
                          
NET INCOME (LOSS) PER COMMON 
  SHARE - BASIC AND DILUTED       $    .12    $   (.36)  $    .13   $   (.66)

WEIGHTED AVERAGE SHARES 
  OUTSTANDING - BASIC            4,626,033   4,626,639  4,626,208  4,643,258

WEIGHTED AVERAGE SHARES 
  OUTSTANDING - DILUTED          4,630,520   4,626,639  4,631,502  4,643,258


See notes to condensed consolidated financial statements



KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
           
                                                       Six Months Ended                    
                                               Mar. 28,       Mar. 29,
                                                      1998           1997   
                                                                 
Cash Flows From Operating Activities:
  Net income (loss)                                 $    604       $ (3,043)
  Adjustments to reconcile net income (loss) to 
    net cash flows from operating activities:
      Depreciation and amortization                    1,832          1,821
      Change in deferred taxes                           687         (1,417)
      Change in other                                   (113)           (88)
      Change in current assets and current
        liabilities:
          Accounts receivable                         (3,422)           927 
          Inventories                                 (2,498)         2,210  
          Operating supplies and other                             
            current assets                              (690)          (977)
          Refundable income taxes                        900           (411)
          Deferred tax assets                            (95)           371
          Accounts payable                              (215)         2,069 
          Accrued liabilities                           (255)          (347)  

          Net cash flows from operating activities    (3,265)         1,115

Cash Flows From Investing Activities:
  Capital expenditures                                (1,852)        (1,728)
  Change in capital expenditures payable                 364         (1,498)

          Net cash flows from investing activities    (1,488)        (3,226)

Cash Flows From Financing Activities:
  Net advances on line of credit                       4,758          2,574 
  Purchases of treasury stock                            (25)          (463)
  Issuance of common stock                                21           -    

          Net cash flows from financing activities     4,754          2,111

          Net increase in cash and             
            cash equivalents                               1           -    

Cash and Cash Equivalents at Beginning of Period         127            124

Cash and Cash Equivalents at End of Period          $    128       $    124

Interest Paid, net of amount capitalized            $  1,194       $  1,050

Income Taxes Paid                                   $   -          $   -    


   
            See notes to condensed consolidated financial statements


           
                                For the Three                   For the Three
                              Months Ended                    Months Ended  
                            March 28, 1998                   March 29, 1997         
                                            Per                               Per
                      Income               Share       Income                Share 
                      (Loss)     Shares    Amount      (Loss)     Shares     Amount
                                                 
Amounts for Basic        
  Earnings Per Share    $563    4,626,033    $.12      $(1,659)   4,626,639   $(.36)

Effect of Dilutive 
  Securities Options      -         4,487      -          -            -         -  
    
Amounts for Diluted       
  Earnings Per Share    $563    4,630,520    $.12      $(1,659)   4,626,639   $(.36)


                             For the Six                    For the Six
                             Months Ended                    Months Ended  
                            March 28, 1998                   March 29, 1997         
                                           Per                               Per
                     Income               Share       Income                Share 
                     (Loss)     Shares    Amount      (Loss)     Shares     Amount

Amounts for Basic       
  Earnings Per Share    $604    4,626,208    $.13      $(3,043)   4,643,258   $(.66)

Effect of Dilutive 
  Securities Options      -         5,294      -          -            -         -  
  
Amounts for Diluted
  Earnings Per Share    $604    4,631,502    $.13      $(3,043)   4,643,258   $(.66)
   

		The Company had transition stock options of 141,081 and 
163,329 as of March 28, 1998 and March 29, 1997, respectively. 
 The options have exercise prices ranging from $8.76 to $20.86 
per share which exceeded the average market price as of March 
28, 1998 and as of March 29, 1997, and therefore were not 
included in the computation of diluted earnings per share.  
These options expire beginning July 14, 1998 through February 
18, 2003.

		The Company also had options of 305,476 and 327,976 as of 
March 28, 1998 and March 29, 1997, respectively.  These options 
have exercise prices ranging from $7.63 to $12.31 per share 
which exceeded the average market price as of March 28, 1998 
and March 29, 1997 and therefore were not included in the 
computation of diluted earnings per share.  These options 
expire beginning October 6, 2003 through May 8, 2006.  The 
Company also had 89,192 options at an exercise price of $5.62, 
which were less than the average market price as of March 29, 
1997, however, these options are anti-dilutive and were not 
included in the computation of earnings per share.

(5)  Insurance Claim Receivable and Environmental Liabilities

The Company's melt shop operations were shut down for 
twelve days during the third quarter of fiscal 1997 in order to 
decontaminate its baghouse facilities after detection of a 
radioactive substance in the baghouse dust, a by-product of the 
melting process. The financial statements include a receivable 
of $.9 million which represents the estimated balance due from 
the insurance carrier on the total projected reimbursement of 
$6.7 million, which reimburses the costs incurred in the 
radiation contamination clean-up, the disposal cost, and 
business interruption.  To date, the Company has received $5.8 
million from the insurance carrier for payment of costs 
incurred.

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


(6)  Commitments and Contingencies

The Company has various commitments for the purchase of 
materials, supplies and energy arising in the ordinary course 
of business.

The Company is subject to various claims, lawsuits and 
administrative proceedings arising in the ordinary course of 
business with respect to commercial, product liability and 
other matters, which seek remedies or damages. The Company 
believes that any liability that may ultimately be determined 
will not have a material effect on its financial position or 
results of operations.

The Company generates both hazardous wastes and non-
hazardous wastes which are subject to various governmental 
regulations.  Estimated costs to be incurred in connection with 
environmental matters are accrued when the prospect of 
incurring costs for testing or remedial action is deemed 
probable.  The Company is not aware of any material asserted or 
unasserted environmental claims against the Company and no 
accruals for such matters have been recorded in the 
accompanying balance sheets except as disclosed in Note 5.  
However, discovery of unknown conditions could result in the 
recording of accruals in the periods in which they become 
known.


	PART II. - OTHER INFORMATION

   

ITEM 4.     Submission of Matters to a Vote of Security-Holders
		
The annual meeting of shareholders was held on 
February 4, 1998.  In connection with the meeting, 
proxies were solicited pursuant to the Securities 
Exchange Act.  The following are the voting results 
on proposals considered and voted upon at the 
meeting, all of which were described in the proxy 
statement.

1. The nominees  for director were elected.  The  
   vote was as follows:
                                                       Term
	                                    For    Withheld Expires

              Carl E. Edwards, Jr. 4,387,841  20,700   2001
              J. Marvin Quin, II   4,388,641  19,900   2001
	
              2. The proposal to ratify the Board of Directors' 
                 appointment of Arthur Andersen LLP as the     
                 Company's independent public accountants for  
                 the fiscal year ending September 26, 1998.
                 (For 4,401,041; Against 4,600; Abstain 2,900)

ITEM 6.     Exhibits and Reports on Form 8-K                 
   

A)  Exhibits  

               3.1   -  Certificate of Incorporation of      
                        Kentucky Electric Steel, Inc., filed 
                        as Exhibit 3.1 to Registrant's       
                        Registration Statement on Form S-1
                           (No. 33-67140), and incorporated by 
                           reference herein.






                  3.2   -  By-Laws of Kentucky Electric Steel, 
                           Inc., filed as Exhibit 3.2 to       
                           Registrant's Registration Statement 
                           on Form S-1 (No. 33-67140), and     
                           incorporated by reference herein.
    
              27     -  Financial Data Schedule

             B)  Reports on Form 8-K - None.

10-Q

           
                                For the Three                   For the Three
                              Months Ended                    Months Ended  
                            March 28, 1998                   March 29, 1997         
                                            Per                               Per
                      Income               Share       Income                Share 
                      (Loss)     Shares    Amount      (Loss)     Shares     Amount
                                                 
Amounts for Basic        
  Earnings Per Share    $563    4,626,033    $.12      $(1,659)   4,626,639   $(.36)

Effect of Dilutive 
  Securities Options      -         4,487      -          -            -         -  
    
Amounts for Diluted       
  Earnings Per Share    $563    4,630,520    $.12      $(1,659)   4,626,639   $(.36)


                             For the Six                    For the Six
                             Months Ended                    Months Ended  
                            March 28, 1998                   March 29, 1997         
                                           Per                               Per
                     Income               Share       Income                Share 
                     (Loss)     Shares    Amount      (Loss)     Shares     Amount

Amounts for Basic       
  Earnings Per Share    $604    4,626,208    $.13      $(3,043)   4,643,258   $(.66)

Effect of Dilutive 
  Securities Options      -         5,294      -          -            -         -  
  
Amounts for Diluted
  Earnings Per Share    $604    4,631,502    $.13      $(3,043)   4,643,258   $(.66)
   

		The Company had transition stock options of 141,081 and 
163,329 as of March 28, 1998 and March 29, 1997, respectively. 
 The options have exercise prices ranging from $8.76 to $20.86 
per share which exceeded the average market price as of March 
28, 1998 and as of March 29, 1997, and therefore were not 
included in the computation of diluted earnings per share.  
These options expire beginning July 14, 1998 through February 
18, 2003.

		The Company also had options of 305,476 and 327,976 as of 
March 28, 1998 and March 29, 1997, respectively.  These options 
have exercise prices ranging from $7.63 to $12.31 per share 
which exceeded the average market price as of March 28, 1998 
and March 29, 1997 and therefore were not included in the 
computation of diluted earnings per share.  These options 
expire beginning October 6, 2003 through May 8, 2006.  The 
Company also had 89,192 options at an exercise price of $5.62, 
which were less than the average market price as of March 29, 
1997, however, these options are anti-dilutive and were not 
included in the computation of earnings per share.

(5)  Insurance Claim Receivable and Environmental Liabilities

The Company's melt shop operations were shut down for 
twelve days during the third quarter of fiscal 1997 in order to 
decontaminate its baghouse facilities after detection of a 
radioactive substance in the baghouse dust, a by-product of the 
melting process. The financial statements include a receivable 
of $.9 million which represents the estimated balance due from 
the insurance carrier on the total projected reimbursement of 
$6.7 million, which reimburses the costs incurred in the 
radiation contamination clean-up, the disposal cost, and 
business interruption.  To date, the Company has received $5.8 
million from the insurance carrier for payment of costs 
incurred.

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


(6)  Commitments and Contingencies

The Company has various commitments for the purchase of 
materials, supplies and energy arising in the ordinary course 
of business.

The Company is subject to various claims, lawsuits and 
administrative proceedings arising in the ordinary course of 
business with respect to commercial, product liability and 
other matters, which seek remedies or damages. The Company 
believes that any liability that may ultimately be determined 
will not have a material effect on its financial position or 
results of operations.

The Company generates both hazardous wastes and non-
hazardous wastes which are subject to various governmental 
regulations.  Estimated costs to be incurred in connection with 
environmental matters are accrued when the prospect of 
incurring costs for testing or remedial action is deemed 
probable.  The Company is not aware of any material asserted or 
unasserted environmental claims against the Company and no 
accruals for such matters have been recorded in the 
accompanying balance sheets except as disclosed in Note 5.  
However, discovery of unknown conditions could result in the 
recording of accruals in the periods in which they become 
known.


	PART II. - OTHER INFORMATION

   

ITEM 4.     Submission of Matters to a Vote of Security-Holders
		
The annual meeting of shareholders was held on 
February 4, 1998.  In connection with the meeting, 
proxies were solicited pursuant to the Securities 
Exchange Act.  The following are the voting results 
on proposals considered and voted upon at the 
meeting, all of which were described in the proxy 
statement.

1. The nominees  for director were elected.  The  
   vote was as follows:
                                                       Term
	                                    For    Withheld Expires

              Carl E. Edwards, Jr. 4,387,841  20,700   2001
              J. Marvin Quin, II   4,388,641  19,900   2001
	
              2. The proposal to ratify the Board of Directors' 
                 appointment of Arthur Andersen LLP as the     
                 Company's independent public accountants for  
                 the fiscal year ending September 26, 1998.
                 (For 4,401,041; Against 4,600; Abstain 2,900)

ITEM 6.     Exhibits and Reports on Form 8-K                 
   

A)  Exhibits  

               3.1   -  Certificate of Incorporation of      
                        Kentucky Electric Steel, Inc., filed 
                        as Exhibit 3.1 to Registrant's       
                        Registration Statement on Form S-1
                           (No. 33-67140), and incorporated by 
                           reference herein.






                  3.2   -  By-Laws of Kentucky Electric Steel, 
                           Inc., filed as Exhibit 3.2 to       
                           Registrant's Registration Statement 
                           on Form S-1 (No. 33-67140), and     
                           incorporated by reference herein.
    
              27     -  Financial Data Schedule

             B)  Reports on Form 8-K - None.

EX-27

 

<ARTICLE>      5
<LEGEND>
This schedule contains summary financial information extracted 
from Kentucky Electric Steel, Inc.'s condensed consolidated 
financial statements as of and for the six month period ended 
March 28, 1998 included in this Company's quarterly report on 
Form 10-Q and is qualified in its entirety by reference to such 
condensed consolidated financial statements.

<CIK>			0000910394
<NAME>			KENTUCKY ELECTRIC STEEL, INC.
<MULTIPLIER>		1,000
<CURRENCY>	     	U.S. DOLLARS
       
			        
<PERIOD-TYPE>	              6-MOS
<FISCAL-YEAR-END>	        SEP-26-1998 
<PERIOD-START>	        SEP-28-1997
<PERIOD-END>	        MAR-28-1998
<EXCHANGE-RATE>	                  1        
<CASH>		                128   
<SECURITIES>	                  0         
<RECEIVABLES>	             15,564   
<ALLOWANCES>	                565               
<INVENTORY>	             19,036     
<CURRENT-ASSETS>	             41,107
<PP&E>		             48,614
<DEPRECIATION>	             12,978
<TOTAL-ASSETS>	             84,199
<CURRENT-LIABILITIES>           28,618
<BONDS>		             20,000
<COMMON>		                 50
<PREFERRED-MANDATORY>                0
<PREFERRED>	                  0
<OTHER-SE>	             34,830
<TOTAL-LIABILITY-AND-EQUITY>    84,199
<SALES>		             55,630
<TOTAL-REVENUES>	             55,630
<CGS>		             49,867
<TOTAL-COSTS>	             49,867
<OTHER-EXPENSES>	                  0
<LOSS-PROVISION>	                  0
<INTEREST-EXPENSE>	              1,222 
<INCOME-PRETAX>	                976 
<INCOME-TAX>	                372 
<INCOME-CONTINUING>	                604 
<DISCONTINUED>	                  0
<EXTRAORDINARY>	                  0
<CHANGES>       	                  0
<NET-INCOME>	                604 
<EPS-PRIMARY>	                .13 
<EPS-DILUTED>	                .13