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Kobe Steel Loses 34% Of Market Value In Two Days Amid Falsified Data Scandal

Kobe Steel Group has lost 34% of its market value in two days as a serious scandal engulfs the Japanese metals company. Last weekend, Kobe announced that it had falsified data on the quality of aluminum and copper it sold, igniting a firestorm affecting the global supply chain and throwing Japan’s reputation for precision manufacturing into doubt.

The announcement is likely to affect hundreds of companies, including automakers such as Toyota, GM, and Ford, as well as aircraft manufacturers Boeing and Mitsubishi heavy industries. Roughly 19,300 tons of flat-rolled and extruded aluminum products, 19,400 units of aluminum casting and forgings, and 2,200 tons of copper products were affected.

On Wednesday, the scandal deepened, as Kobe Steel announced that iron powder products had been affected as well. Iron powder is used to cast all sorts of high-stress engine and other mechanical parts, such as camshafts, shock absorbers, and transmission parts.

Employees at four Kobe factories had altered inspection certificates from September 2016 – August 2017 in order to make it appear as if the metals had met manufacturing specifications required by customers – including requirements for safety-related tolerances such as tensile strength.

Complicated business

Now, affected industries will have to forensically determine if metal they’ve purchased has come from Kobe Steel – a daunting task, as multinationals tend to source from many suppliers and producers. If and when substandard materials are discovered, it will undoubtedly lead to massive recalls on planes, trains, automobiles, building construction materials, bridges, ski lift cables, and a variety of other applications in which failure means potential death.

Loss of honor and reputation

The New York Times writes:

The scandal hits a tender spot for Japan. The country relies on its reputation for quality manufacturing as a selling point over China and other countries that offer cheaper alternatives. But its reputation has been marred by a series of problems at some of Japan’s biggest manufacturers.

Last week, Nissan Motor said unqualified staff members had carried out inspections at its factories, prompting the carmaker to recall 1.2 million vehicles, though it was not clear if the quality of the vehicles had been affected. Mitsubishi Motors and Suzuki Motor both admitted last year that they had been exaggerating the fuel economy of their vehicles by cheating on tests.

Perhaps the biggest blow to Japan’s reputation for quality has come from Takata, the airbag maker that was at the center of the largest auto safety recall in history, involving tens of millions of vehicles. Its faulty airbags have been blamed for more than a dozen deaths. Takata declared bankruptcy in June.

“The falsification problem has become an issue that could destroy international faith in Japanese manufacturing,” said Japanese financial newspaper Nikkei on Tuesday.

Japan’s reputation for quality and precision has helped its metals industry to hold its own against China – the world’s #1 manufacturer of steel.

Kobe Credit Default Swaps (CDS) through the roof

Five-year CDS on Kobe Steel have gone up 400% in two days, reaching 248 basis points according to the Financial Times.

Kobe Steel said that “tens” of employees were responsible for the falsifications. What a disaster.

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6 comments

  1. bountyhunter1

    China is going to seize the opportunity here ….

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  2. sarcrilege

    This post doesn’t give enough info as to what led to the admission of fake certificates; however, it’s a bit neurotic reaction in light of Tepko, BOJ, etc. lying and doctoring stats and why should customers be outraged when everything in their countries, most notably US, is fake? Fake news, fake labor data, fake deflation, fake government, fake policy, fake everything.

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  3. moonshot

    Are you this trusting with your personal relationships?

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  4. zeropointnow

    Sac, this is all we know – “tens” of employees forged certificate data on various metals:

    “Kobe Steel said on Sunday that employees at four of its factories had altered inspection certificates on aluminum and copper products from September 2016 to August this year. The changes, it said, made it look as if the products met manufacturing specifications required by customers — including for vital qualities like tensile strength, a measure of stiffness — when they did not.”

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  5. sarcrilege

    @zpn, so there’s VW “cheating” on emission tests until they get “caught” (by US auto mfg who then lobbied EPA to take action) and here is Kobe publicly announcing their own QA failure. Their stock dumps 34%. Other companies would quietly strengthen their internal QA and STFU about it. Is there more to it? Is there a precedent? Is it preemptive?

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  6. zeropointnow

    VW emissions bullshit is nothing compared to crankshafts breaking at high speeds or other critical failures. Maybe a whole line of Toyotas or whatever is affected, requiring a 25 hour engine dismantle. We don’t know exactly how this came to light – perhaps a govt. inspector discovered the error and the Japanese gov allowed the company to self-report.

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