News Leak Centre

No Fear No Favour

Bullet Train parts failed quality tests: Steel scandal may draw worry line to PM’s pet project

As Japan showed its interest in developing a high-speed railway corridor between Ahmedabad and Mumbai, a major incident of corruption in Japan will draw a worry line to Prime Minister Modi’s pet project in India.

A fake data scandal by Kobe Steel Limited, the largest steel manufacturing company which provides its material to Bullet trains for making its railway line, is found to have provided the sub-standard quality parts for the same. This, in turn, will raise questions if the same company would provide the parts in India.

According to Central Japan Railway Co, which operates the high-speed trains between Tokyo and Osaka, haven’t found any safety risks, however, the aluminium components connecting wheels to train cars failed Japanese industry standards.

The latest scandal that hit Japan’s manufacturing industry will surely resonate in India. The company, Kobe Steel Ltd, the third-largest steel producer had admitted to fake data about the strength and durability of some aluminium and copper. The company has the scores of clients from aviation to four-wheelers which include Toyota Motor Corp, General Motors Co would scramble if they have used the suspected material parts and if the safety has been compromised.

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

After plunging down to 36 percent over previous two days, the company’s shares in the company rebounded by 1 percent on Thursday. The company has lost the market value of about $1.6 billion since the revelations were made.

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, 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.

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.

While there have 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 U.S., experts say. Deputy Chief Cabinet Secretary Kotaro Nogami on Wednesday said the faked data undermined the basis of fair trade, calling it “inappropriate.”

If lenders were to take over Kobe Steel, a break-up of the company along business lines could be beneficial for shareholders and rivals, according to Thanh Ha Pham, an analyst at Jefferies Japan Ltd., who has a “Buy” rating for the company. Kobe’s steel business would fetch roughly 200 billion yen ($1.78 billion), he said.

Japan’s steel industry is dominated by JFE Holdings Inc. and Nippon Steel & Sumitomo Metal Corp., which accounted for about 70 percent of the country’s production in the year ended March.

“I talked with management of JFE and I think they are very happy to buy Kobe Steel’s steel businesses,” Pham said Thursday on Bloomberg TV. “That would be a very good scenario, to have further restructuring in the steel industry in Japan.”

JFE said it isn’t actively considering purchasing Kobe Steel’s steel business.

Leave a Reply

Your email address will not be published. Required fields are marked *