Kobe Steel data falsification scandal deepens as iron powder products involved, shares slump 20%

The scandal engulfing Kobe Steel deepened Wednesday with reports that the falsification of product data may also involve its iron powder products as shares in the steelmaker plummeted 20 percent to a share, adding to Tuesday’s 22% loss.

Japan’s third largest steel maker admitted over the weekend to falsifying data on the strength and durability of aluminum and copper products supplied to its customers, which include car makers Toyota, Honda, Subaru and Nissan.

Kobe Steel also said it had found a case of data falsification in its iron powder products and 70 cases at its Kobelco Research unit.

The admission apart from affecting the company’s share price has sparked Japanese car, train and aircraft makers investigating whether they have used any sub-standard materials in their products.

Toyota, Nissan and Honda are among the companies examining their output.

Hitachi on its part said its new trains in Britain used Kobe Steel but had all passed rigorous tests, while US plane manufacturer Boeing said it had not found any safety issues.

Meanwhile, Mazda said it used aluminium made by Kobe in car bonnets.

“We are still investigating what vehicles that metal is in and deciding what action we need to take. We won’t know if we need to take any action until those investigations are complete,” a spokesperson said.

Also Honda said the aluminium produced by Kobe Steel had been used in doors and bonnets of some of its cars.

As yet, the financial implications of the scandal are difficult to gauge as it would depend on recall costs the company would have to bear and what other measures the company may have to implement, according to Yuji Matsumoto, Nomura analyst.

“The volumes announced by the company represent 5 percent of rolled and extruded aluminum products and 1.5 percent of copper products in 17/3. We forecast that the aluminum & copper segment will account for 19 percent of total sales and 23 percent of recurring profits in 18/3,” wrote Matsumoto in a note to clients.

“On that basis, we do not see any serious impact on near-term earnings provided the scandal only involves the volumes announced by the company. However, we need to bear in mind that the Nikkei reported that some data falsification had been taking place over a much longer timeframe,” he added

Matsumoto equally noted the reputational damage the company could suffer given its not the first time it has been involved in multiple data falsification scandals.

In 2016, Kobe Steel announced that affiliate Shinko Wire Stainless had falsified data pertaining to tensile strength testing of some wire for springs over a period of nine years and that it shipped products that were not compliant to Japanese Industrial Standards. In 2006, it admitted to falsifying emission data from at its Kakogawa steel works over a period of five years.

Kobe Steel falsifying data is the latest scandal to hit Japan Inc. In 2015, Takata admitted to withholding key details about faulty airbags, which led to the company filing for bankruptcy earlier this year after the faulty components were linked to several deaths and prompted the recall of tens of millions of vehicles.

Also in 2015, Toshiba Corp. was fined an unprecedented JPY 7.4 billion by Japan’s regulators after finding that the giant manufacturer of nuclear power plants and semiconductors misled investors by filing false financial statements. Its nuclear power division filed for bankruptcy protection in the U.S. earlier this year. And just last week, Nissan Motor recalled 1.2 million cars because unauthorized inspectors signed off on quality checks.

Meanwhile, the Nikkei Asian Review reports that Kobe Steel intends to put its real estate business on the block in an effort to shore up already shaky finances now threatened by the data falsification scandal.

Wholly-owned Shinko Real Estate could fetch around JPY50 billion according to the report.