Substandard steel found in bullet trains

Kobe Steel’s fake data scandal penetrated deeper into the most hallowed corners of Japanese industry as iconic bullet trains were found with substandard parts supplied by the steelmaker.

While there’s no safety risk, two companies operating the high-speed Shinkansen trains said they found Kobe Steel components that failed to meet Japanese industry standards. The chief executive officer of the 112-year old steelmaker apologized for the crisis as compromised materials turn up in everything from cars to DVDs. The affair has wiped off more than a third of the company’s market value and led to speculation it may be broken up.

The latest scandal to hit Japanese manufacturing erupted Sunday after the country’s third-largest steelmaker admitted it faked data about the strength and durability of some aluminum and copper. As clients from Toyota to General Motors scrambled to determine if they used the suspect materials and whether safety was compromised in their cars, trains and planes, the company said two more products were affected and further cases could come to light. There have been no reports of products being recalled or safety concerns raised.

“I deeply apologize for causing concern to many people, including all users and consumers,” Kobe Steel Chief Executive Officer Hiroya Kawasaki said at a meeting with a senior government official on Thursday. He said trust in the company has fallen to “zero” and he will work to restore its reputation. “Safety is the top priority.”

Shares in the company rebounded 0.5 percent Thursday, after plunging 36 percent over the previous two days. About $1.6 billion of Kobe Steel’s market value has been wiped out since the revelations were made.

While shares collapsed, bond risk has spiked. Five-year credit-default swaps insuring the company’s debt against default have jumped 222 basis points to 279, the highest since February 2016, according to data from CMA.

Figures were systematically fabricated at all four of Kobe Steel’s local aluminum plants, with the practice dating back as long as 10 years for some products, the company said Sunday. Data was also faked for iron ore powder and target materials that are used in DVDs and LCD screens, it said three days later.

Central Japan Railway Co., which operates bullet trains between Tokyo and Osaka, said aluminum components connecting wheels to train cars failed Japanese industry standards. Of the tested parts, 310 were found to be substandard and will be replaced at the next regular inspection, spokesman Haruhiko Tomikubo said. They were produced by Kobe Steel over the past five years, he said. West Japan Railway Co, which runs services from Osaka to Fukuoka, also found sub-standard parts made by Kobe Steel.

Buddhika Weerasinghe / Bloomberg A security guard descends steps near the entrance of the Kobe Steel Ltd. headquarters in Kobe, Hyogo, Japan.