In a startling turn of events, Japan’s third largest steel manufacturer has admitted to falsifying products that were sold across the transportation sector. Reuters reports that:
The scale of the misconduct at Japan’s third-largest steelmaker pummeled its shares as investors, worried about the financial impact and legal fallout, wiped about $1.8 billion off its market value this week.
This is a massive blow to what has been a fragile Japanese market as of late. The country is also under constant threat from North Korea and is facing a snap election. All of these factors could make the markets even more unstable, but this latest scandal has proven to be a major concern.
Bloomberg reports that:
“This is not going to be the end of Kobe Steel, it could be the end for management,” said Thanh Ha Pham, an analyst at Jefferies Japan Ltd. “It could result in the break-up of the company.”
The breakup of a major steel magnate would throw not only Japanese steel production and competition out of control, but global steel as well. With global steel markets constantly shifting towards cheaper steel from China, this latest debacle could threaten the advantage that more developed and expensive steel companies had; their credibility.
We will have to wait and see how this effects the steel market as well as the numerous clients that Kobe Steel sells to. For example, many top brands in the automotive sector use Kobe Steel in their products; Bloomberg reports that:
There are carmakers such as Toyota Motor Corp. and Honda Motor Co.; they used the suspect materials in hoods and doors.
There may be fallout for these companies as well. If the faulty steel compromises vehicle safety then consumers can expect a significant amount of recalls. The consequences of such a move would likely send shock-waves through the markets at large.
Investors should stay up to date with the situation as it could threaten to erode many companies who have purchased the over-graded steel. Be sure to check your portfolio and ensure that you are properly insulated from any associated risks with Kobe Steel.
To read Reuters’ story on the Kobe Steel scandal, click here.
To read Bloomberg’s story on the Kobe Steel scandal, click here.
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