Kobe Steel of Japan has seen its share price slashed by more than 40% in two days after it announced that it had discovered part of its business has been selling sub-standard aluminium and copper to clients.
The affected clients include car manufacturers, airline manufacturers and shipping firms.
In a statement, Kobe says a portion of the products traded with customers did not comply with the product specifications which were agreed between the company and its customers.
“Data in inspection certificates had been improperly rewritten etc, and the products were shipped as having met the specifications concerned. This incident of improper conduct came to light following self-inspections and emergency quality audits of the compliance status of contracts executed as to products shipped over the past year,” it said in a statement published in Japan.
Included in the list are aluminium flat-rolled products, which are often used in car parts such as doors and bodywork, as well as aircraft wings and fuselage.
But it also says aluminium extrusions were sold that were sub-standard. These are used for the more crucial parts of both vehicles and aircraft, including frames for vehicles and spars inside the wings of aircraft.
Should these be found to be defective, the vehicles and planes will either have to undergo a massive overhaul or be scrapped.
The other parts which are sub-standard, says Kobe, are copper strips used in power generation, copper tubes used in plumbing, and aluminium castings and forgings which could end up in car engines or maritime engines.
The total quantity of material involved includes 19,300 tons of flat-rolled and extruded aluminium, 2,200 tons of copper products like strips and tubes and 19,400 tons of aluminium castings and forgings.
According to Kobe Steel, customers who received these defective products are being informed “one by one”.
Car seat frame
“The company has been carrying out technical verifications with its customers on the impact of the nonconforming products on quality (including safety) of the end products,” Kobe said.
Its share price has collapsed, losing more than a third of its value in two days of trading.
Customers like Shinsho Corporation, which lost a quarter of its value on Monday, 10 October, and Mitsubishi Corporation, which saw its share price plunge by almost $1bn, are exposed and Kobe could face additional damages claims by some of the world’s biggest manufacturing companies.
Toyota Motor Coporation is Kobe Steel’s number three buyer.
Boeing has already checked the Kobe-related deliveries and says it has found no problems so far with the material emanating from Kobe that is used in its aircraft.
"The company has also been conducting an investigation on the facts pertaining to the improper conduct and an investigation as to whether or not similar improper conducts exist in its other business units," it said in an online statement.
Kobe has also embarked on a quality control audit and says no other problems were found.
An investigation committee has been set up, which includes the company chairman, president and CEO Hiroya Kawasaki while it has called in an outside law firm to investigate who was involved and who may face further action for “improper conduct”.
Japanese quality-related scandals have increased over the past decade as the country’s industrial sector faces stiff competition from China and India and tries to find cost-effective ways of improving production.
It’s not the first time that Kobe has found irregularities in production.
In June 2016, Kobe Steel said one of its subsidiary companies had falsified test data of tensile strength regarding its stainless steel wire. In 2008, another Kobe Steel company failed to run proper tests as required by the Japanese government on products before shipment.
In May 2016, Suzuku admitted it had falsified fuel-economy data in 16 types of cars and trucks sold in Japan, well over one million vehicles in all. In April 2016, Mitsubishi Motors admitted that it had also manipulated fuel-economy tests and more than 600,000 vehicles were involved.
In 2015, independent investigators found that Toshiba had exaggerated profits over five years and led to a write-down of more than $360m for the company on its 2014 results.