Kobe Steel Problems Deepen as Shares Take Big Dive

Kobe Steel Ltd. based in Tokyo, Japan plunged further into crisis Wednesday after new revelations showed that data fabrication at the Japanese steelmaker was much more widespread that what was initially thought, increasing a worry over safety along the supply chain.

Investors have become worried over the possible legal ramifications as well as the financial impact to Kobe, and are dumping its stock for the second straight day, wiping out almost 40% of its market value. Kobe is the third largest steelmaker in Japan.

Earlier Wednesday, Kobe said it might have fabricated some data for iron powder products that are used in components like automotive gears and was conducting an investigation after the media reported those abuses.

It also launched a separate investigation into its Kobelco Research Institute, which tests different products for the parent company, said the steelmaker.

Nikkei newspaper reported that the unit shipped materials that were used for manufacturing semiconductors to clients before inspecting them.

These latest revelations came following an admission by the steelmaker last weekend that it falsified data over the quality of copper and aluminum products that were used in space rockets, cars, aircraft and different types of defense equipment in a new blow to the reputation of the Japanese manufacturer for the quality of its production.

Kobe Steel said it was currently examining other potential data falsifications that date back more than 10 years.

Kobe is facing possible costs from any potential recalls, replacement of products or legal action, including U.S. class-action suits.

These revelations about the tampering of data in its copper and aluminum unit could hit plans it has to expand its business as car manufacturers increasingly uses aluminum, which is much lighter than steel is, to meet the tougher environmental regulations.

Multinationals, including Ford Motor, Toyota Motors and aircraft maker Boeing, along with Mitsubishi Heavy Industries, said they are doing their own investigating.

The impact in the market for Kobe Steel has been harsh, with its shares diving 18% on Wednesday, following a drop of 22% Tuesday which wiped away over $1.6 billion of its paper value the last two sessions.

The scandal is only deepening and forced the Japanese government to push Kobe Steel to resolve its crisis in a speedy fashion.

Kobe Steel’s misconduct follows scandals that involved falsifying data at companies such as Mitsubishi Motors, Takata and Nissan. Takata was forced to file bankruptcy earlier in 2017.