October 11, 2017 1:03 pm JST  (Updated October 11, 2017 3:35 pm JST)

Kobe Steel scandal expands beyond aluminum, copper

Iron plant may be fifth facility involved in data fabrication

MITSURU OBE, Nikkei staff writer

A man walks past the signboard of Kobe Steel at the group's Tokyo headquarters on Oct.10. © Reuters

TOKYO -- The scandal engulfing Kobe Steel has spread beyond aluminum and copper. It emerged Wednesday that the company may also have falsified data on iron powder products.

A subsidiary was separately found to have engaged in massaging quality control data, suggesting lax handling of data was a group-wide practice.

On Wednesday, the company's shares closed down 18% at 878 yen, having reached as low as 850 yen at one point -- their lowest in 11 months.

"Long-term investors are getting rid of Kobe Steel shares from their portfolio," said Takeshi Irisawa of Tachibana Securities.

"The company has a reputation for quality, so if it loses the trust of its clients," he continued, "it will be hard to pursue a strategy of expanding in growth areas of aluminum and copper."

On Sunday, the company admitted it had altered inspection certificates to falsely show that certain aluminum and copper components had satisfied client specifications for strength.

Data fabrication is now suspected at another plant in western Japan and on a different type of product.

Iron powder is an important material for automobile parts as it can easily be formed into various shapes.

The company has briefed one client on the matter and they are working together on internal investigations.

The scandal is no longer limited to Kobe Steel. A subsidiary, Kobelco Research Institute, has been found to be involved in cases where evaluations of semiconductor-making equipment were performed without sufficient analysis or examination.

With the scandal potentially affecting more than 200 companies across Japan, Kobe Steel is desperately trying to figure out the exact scale of the problem, while at the same time working with clients to check whether rockets, trains and cars made using its products are safe to operate.

The clients now discovering they may have used defective products include defense contractors, such as Mitsubishi Heavy Industries, Kawasaki Heavy Industries, Subaru and IHI, according to the Ministry of Economy, Trade and Industry.

The ministry has asked these companies to cooperate in a probe into Kobe Steel and the four are reportedly conducting internal safety investigations. The ministry said it had not confirmed whether any suspect components have been used at nuclear power plants.

The transport ministry has also asked automakers and aircraft manufacturers to check the status and safety of Kobe Steel-supplied components. Boeing and other leading aircraft manufacturers procure core components from these suppliers. The ministry is working with international aviation authorities to gather data regarding the safety of planes flying in Japanese airspace.

Sunday's announcement revealed improper conduct had taken place at four group facilities in Japan from September 2016 through August 2017, affecting 19,300 tons of flat-rolled and extruded aluminum products, 19,400 units of aluminum casting and forgings as well as 2,200 tons of copper products -- altogether representing roughly 4% of annual sales for these segments.

Dozens of employees, including senior managers, were found to have been involved in the misconduct. Furthermore, a review of the past 10-years revealed other incidents of falsification, suggesting a widespread organizational effort to distort data to align with customer specifications.

Sunday's announcement came just days after Nissan Motor said that unauthorized workers had been conducting final safety checks on its vehicles, sparking a recall of more than one million cars.

Kobe Steel, Ltd.

Japan

Market(Ticker): TKS(5406)
Sector:
Industry:
Non-Energy Minerals
Steel
Market cap(USD): 3,461.56M
Shares: 364.36M

Mitsubishi Heavy Industries, Ltd.

Japan

Market(Ticker): TKS(7011)
Sector:
Industry:
Producer Manufacturing
Industrial Machinery
Market cap(USD): 12,698.23M
Shares: 337.36M

Kawasaki Heavy Industries, Ltd.

Japan

Market(Ticker): TKS(7012)
Sector:
Industry:
Producer Manufacturing
Industrial Conglomerates
Market cap(USD): 5,453.16M
Shares: 167.08M

Subaru Corp.

Japan

Market(Ticker): TKS(7270)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 25,111.10M
Shares: 769.17M

IHI Corp.

Japan

Market(Ticker): TKS(7013)
Sector:
Industry:
Producer Manufacturing
Industrial Machinery
Market cap(USD): 4,987.03M
Shares: 154.67M

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