Kobe Steel’s cheating engulfs more divisions; shares resume slide

FAN Editor
The logo of Kobe Steel is seen at the group's Tokyo headquarters building in Tokyo
The logo of Kobe Steel is seen at the group’s Tokyo headquarters building in Tokyo, Japan October 10, 2017. REUTERS/Issei Kato

October 13, 2017

By Yuka Obayashi

TOKYO (Reuters) – Crisis-hit Kobe Steel Ltd said on Friday its steel division has also falsely labeled products, the latest in a string of revelations confirming widespread cheating at the firm that has engulfed its global customers.

The bombshell admissions by Japan’s third-largest steel maker sent its shares plummeting again, with the scale of the misconduct dealing a body blow to the nation’s reputation as a high-quality manufacturing destination.

Boeing Co, has some of the falsely certified products, a source with knowledge of the matter told Reuters, but stressed that the world’s biggest maker of passenger jets does not as yet consider the issue a safety problem.

More than 30 non-Japanese customers including Daimler AG and Airbus SE had been affected by the firm’s data fabrication, the Nikkei newspaper reported on Friday.

A Kobe Steel spokesman said the companies received its products but would not confirm they had any of the falsely certified components.

Chief Executive Hiroya Kawasaki will brief media at 0080 GMT, as the crisis ripples through supply chains across the world.

The company also confirmed another Nikkei report that it found cases of data tampering in its steel wire products. Customers have said there are no problems with the safety or function of the products, the spokesman said.

Nuclear power plant parts are the latest to join the list of affected equipment as Fukushima nuclear operator Tokyo Electric Power (Tepco) said on Friday it had taken delivery of pipes from Kobe Steel that were not checked properly.

The pipes were delivered to its Fukushima Daini station, located near the destroyed Fukushima Daiichi plant, but have not been used, Tepco said, adding it was checking all its facilities.

Faulty parts have also been found in Japan’s famous bullet trains that run at speeds as high as around 300 kilometers (180 miles) per hour and a space rocket that was launched in Japan earlier this week. One bullet train operator has already said it will seek compensation from Kobe Steel.

The government has ordered Kobe Steel to address safety concerns within about two weeks and report on how the misconduct occurred in a month.


No safety issues have yet been identified in the unfolding imbroglio.

Kobe Steel shares fell nearly 9 percent on Friday and have fallen more than 40 percent since the scandal broke.

“Since the company was fabricating data deliberately, it will likely be flooded with lawsuits. This involves materials, and materials are used everywhere,” said a market analyst.

“If the company gets hit with lawsuits, its main banks are likely to propose a merger deal. This news is so big that such a scenario can’t be ruled out,” the analyst said, adding it has attractive businesses such as its titanium production.

The latest revelations come after Kobe Steel admitted at the weekend it had falsified data about the quality of aluminum and copper products used in cars, aircraft, space rockets and defense equipment, affecting about 200 companies.

Kobe Steel was founded in 1905 and has been a pillar of Japan’s manufacturing sector. Such are its establishment bona fides that Shinzo Abe, the prime minister and scion of a political dynasty, worked at the company decades ago, before entering politics.

But those credentials have been shattered, a point amplified by CEO Kawasaki who said the credibility of the firm “has plunged to zero.”

Kobe Steel said it was examining possible data falsification going back 10 years – a familiar echo of a string of other cheating scandals involving Japan inc.

The corrosive business practices have raised broader questions over corporate governance in Japan, and cast doubt on the integrity of a manufacturing industry once the envy of the world.

Previous cases in Japan involving falsified data included Nissan Motor, Mitsubishi Motors and Takata, which filed for bankruptcy this year over faulty airbags that were blamed for 17 deaths and scores of injuries.

In 2015, it was revealed that Toyo Tire & Rubber fabricated data to secure government approval for materials to absorb shocks from earthquakes. Conglomerate Toshiba Corp is still battling the fallout of a scandal over reporting inflated profits.

“It will likely continue to be extremely difficult to make judgments on creditworthiness and investment until the safety of the products and the extent of damages are clarified,” SMBC Nikko Securities said in a note to clients.

(Additional reporting by Ayai Tomisawa, Chang-Ran Kim and Kaori Kaneko; Writing by Aaron Sheldrick; Editing by Stephen Coates & Shri Navaratnam)

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