Japan bullet train wheel parts made by Kobe Steel failed quality tests, say officials

Two high-speed train operators in Japan said they have found sub-standard parts made by Kobe Steel in their bullet trains. PHOTO: AFP

TOKYO (BLOOMBERG) - Kobe Steel parts used in Japan's iconic bullet trains failed industry standards, officials said on Thursday (Oct 12), bringing to light fresh evidence of wrongdoing by the steelmaker as investors speculated that the crisis could trigger a break-up of the 100-year-old company.

Central Japan Railway, which operates the high-speed trains between Tokyo and Osaka, said two types of aluminium parts used to connect cars to wheels fell short in quality tests, though they do not pose any safety concerns.

West Japan Railway, which runs services from Osaka to Fukuoka, also found sub-standard parts made by Kobe Steel, company spokesman Yudai Ochi told Bloomberg by phone.

The latest scandal to hit Japan's storied manufacturing industry erupted on Sunday after the country's third-largest steel producer admitted it faked data about the strength and durability of some aluminium and copper products.

As scores of its clients from Toyota Motor to General Motors scrambled to determine if they used the suspect materials and whether safety was compromised, the company said two more products were affected and further cases could come to light.

The company's shares steadied after a two-day rout.

Figures were systematically fabricated at all four of Kobe Steel's local aluminium plants, with the practice dating back as long as 10 years for some products, executive vice-president Naoto Umehara said on Sunday.

The company said on Wednesday that data was also faked for iron ore powder and target materials that are used in DVDs and LCD screens.

In Central Japan Railway's bullet trains, 310 of the tested parts were found to be sub-standard 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.

Kobe Steel chief executive officer Hiroya Kawasaki visited the Ministry of Economy, Trade and Industry on Thursday and told a senior official in charge that the company has set safety checks of its shipped products as a priority.

"I deeply apologise for causing concern to many people, including all users and consumers," Mr Kawasaki said at the meeting.

While there has not been any reports that Kobe Steel products posed safety risks, the company is likely to face lawsuits from investors, customers, consumers and regulators in Japan and the United States, experts say.

Deputy Chief Cabinet Secretary Kotaro Nogami on Wednesday said the faked data undermined the basis of fair trade, calling it "inappropriate".

Shares in the company rebounded 1 per cent on Thursday, after plunging 36 per cent over the previous two days. About US$1.6 billion (S$2.2 billion) of the company's market value has been wiped out since the revelations were made.

If lenders were to take over Kobe Steel, a break-up of the company along business lines would be beneficial for shareholders, according to analyst Thanh Ha Pham at Jefferies Japan.

"This is not going to be the end of Kobe Steel, it could be the end for management," he said in a Bloomberg TV interview. "It could result in the break-up of the company."

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Japan's third-largest steelmaker is in crisis mode as a ballooning scandal over the quality of its products throws into question the safety of countless products from cars to space rockets.

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