October 13, 2017 7:00 am JST

Kobe Steel's data fraud now tarnishes core business

JR West hints at seeking compensation for cost of bullet train parts

Kobe Steel Chairman and CEO Hiroya Kawasaki bows his head in apology Thursday.

TOKYO -- The scandal involving Kobe Steel's data falsification continues to worsen, with the latest revelation implicating the major Japanese steelmaker in engaging in fabrication of quality inspection data in its core business of steel products.

Reeling from the data falsification scandal at peripheral segments, Chairman and CEO Hiroya Kawasaki tried to save face Thursday by declaring there was no evidence of cheating at the company's core steel operation "at this time." Hours later, it was discovered that Kobe Steel also overwrote quality certification data for wire rods made outside Japan.

Kobe Steel controls large global shares in some wire-rod products, which include axle springs and tire-reinforcing material.

This is in addition to the falsely certified aluminum and copper products, which Kobe Steel supplied to a wide range of companies. They include such pillars of Japan's defense and space sector as Mitsubishi Heavy Industries, Kawasaki Heavy Industries and IHI.

Misrepresented material also surfaced in Panasonic's semiconductor-related components, as well as air-conditioning equipment manufactured by Daikin Industries and the Toshiba group. Outside of Japan, big names like Intel in the U.S. and British automaker Rolls-Royce Holdings were also affected.

If Kobe Steel ends up losing trust across the board, the impact could spread to other Japanese material makers looking to expand their overseas footprints.

America's Alcoa produces the lion's share of aluminum material for passenger planes. But Japanese rivals have in recent years expanded business with Western clients by not only supplying materials, but also processing materials into finished components. The Kobe Steel scandal threatens to stall the growth of that revenue source.

Quality standards are stricter for military hardware than they are for automobiles and other consumer products. Kobe Steel is likely to not only lose customers, but also face lawsuits.

"If accidents and such were to happen due to insufficient parts strength, Kobe Steel could be subject to damage claims," said Yoji Maeda, an attorney well versed in international business transactions.

At least one Japanese client appears to be moving toward that action.

West Japan Railway, also known as JR West, said Thursday that its own high-speed shinkansen trains are running on parts whose inspection certificates were falsified by Kobe Steel. The components' strength missed Japanese Industrial Standards specifications by a few percentages.

Although the parts present no danger to passenger safety, JR West will replace them within a year during regular inspections.

JR West President Tatsuo Kijima indicated plans to demand that Kobe Steel and train car makers cover replacement and related costs. "We have yet to decide if we sign new contracts or review the existing ones [with Kobe Steel] but we may ask [the steelmaker and rolling-stock manufacturers] to cover the costs," he said at Thursday's news conference.

Subaru is still conducting safety checks. But if the automaker is forced to issue a recall, "we would likely abide by the rules and make a claim for damages," said President Yasuyuki Yoshinaga.

Kobe Steel will formally present the cause of the scandal and corrective measures within a month, but it is all but certain that the company will face demands from clients to pay compensation or supply untainted replacements.

(Nikkei)

Kobe Steel, Ltd.

Japan

Market(Ticker): TKS(5406)
Sector:
Industry:
Non-Energy Minerals
Steel
Market cap(USD): 2,844.47M
Shares: 364.36M

Mitsubishi Heavy Industries, Ltd.

Japan

Market(Ticker): TKS(7011)
Sector:
Industry:
Producer Manufacturing
Industrial Machinery
Market cap(USD): 13,556.70M
Shares: 337.36M

Kawasaki Heavy Industries, Ltd.

Japan

Market(Ticker): TKS(7012)
Sector:
Industry:
Producer Manufacturing
Industrial Conglomerates
Market cap(USD): 5,745.33M
Shares: 167.08M

IHI Corp.

Japan

Market(Ticker): TKS(7013)
Sector:
Industry:
Producer Manufacturing
Industrial Machinery
Market cap(USD): 5,394.22M
Shares: 154.67M

Panasonic Corp.

Japan

Market(Ticker): TKS(6752)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 35,727.55M
Shares: 2,453.05M

Daikin Industries, Ltd.

Japan

Market(Ticker): TKS(6367)
Sector:
Industry:
Producer Manufacturing
Industrial Machinery
Market cap(USD): 31,184.54M
Shares: 293.11M

Toshiba Corp.

Japan

Market(Ticker): TKS(6502)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 12,790.07M
Shares: 4,237.60M

West Japan Railway Co.

Japan

Market(Ticker): TKS(9021)
Sector:
Industry:
Transportation
Railroads
Market cap(USD): 13,965.10M
Shares: 193.73M

Subaru Corp.

Japan

Market(Ticker): TKS(7270)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 27,123.35M
Shares: 769.17M

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