Economics

The Kobe Steel Scandal Flows Through The Entire Supply Chain

Zach Botzenhart, Product Specialist, Strategic Enterprise Services and Hiroshi Sambongi, Sales Specialist Rep, Asia CTS Specialists contributed to this article.

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Earlier this month, Kobe Steel, Ltd. acknowledged it had been falsifying data on the quality of its aluminum, copper, and steel products. It also admitted that shipments of raw materials were made to its customers without meeting quality standards. Among the 500 affected customers are some of the largest automobile, aircraft, and electronics manufacturers in the world. The company’s stock price took a huge hit following the news, but the impacts of the scandal are more widespread than is apparent at first glance.

Kobe Steel Scandal

Additional information is coming to light as large car and aircraft manufacturers inspect their products for potential safety hazards. In the meantime, investors can leverage alternative datasets such as FactSet Supply Chain Relationships to explore contextual details around Kobe Steel’s direct and indirect customer relationships.

Boeing, while not a direct customer of Kobe Steel, sources aircraft components from a number of Kobe Steel customers. That is not to say all indirect relationships with Kobe Steel involve the aluminum and copper materials in question. By analyzing the metadata associated with each relationship, we can begin to separate the component suppliers based on the materials they are sourcing.

Safran SA, a Kobe Steel client, manufactures the landing gear systems for Boeing’s 767, 777, and 787 aircraft models. The material utilized in those landing gear systems, however, is titanium, which has not yet been linked to the falsified data.

The material utilized in those landing gear systems, however, is titanium, which has not yet been linked to the falsified data2.png

The European Aviation Safety Agency (EASA) has recommended that all EU aviation firms suspend the use of Kobe Steel products and use alternative suppliers where available. To determine who may be best positioned to benefit from this disruption, we can screen for alternative providers that generate significant revenues in the affected niche industries. The chart below filters that list to include suppliers with existing relationships with Kobe Steel’s customers. It remains to be seen whether other global regulatory agencies will follow EASA’s lead; if this happens, the scandal’s impact will continue to grow.

Company Name Ticker RBICS Sub-industry Segment Revenue percentage Segment revenue in millions (USD)
Alcoa Corp AA-US Fabricated Aluminum Structural Shape Manufacturing 67% $6,274.71
Arconic Inc ARNC-US Fabricated Aluminum Structural Shape Manufacturing 39% $4,863.61
Constellium NV CSTM Fabricated Aluminum Structural Shape Manufacturing 65% $3,405.63
Norsk Hydro ASA NHY-NO Fabricated Aluminum Structural Shape Manufacturing 27% $2,675.64
Aleris Corporation ARS-US Fabricated Aluminum Structural Shape Manufacturing 100% $2,663.90
Mitsubishi Materials Corp 5711-JP Fabricated Aluminum Structural Shape Manufacturing 11% 1,331.92
Kaiser Aluminum KALU-US Fabricated Aluminum Structural Shape Manufacturing 100% 1,330.60
Nippon Steel & Sumitomo Metal Corporation 5401-JP Integrated Steel Mills Mixed Production Makers 87% $37,093.07
JFE Holdings, Inc 5411-JP Integrated Steel Mills Mixed Production Makers 46% $13,973.93
ThyssenKrupp AG TKA-DE Integrated Steel Mills Mixed Production Makers 19% $8,467.37
JSW Steel 500228-IN Integrated Steel Mills Mixed Production Makers 100% $8,256.74
Nisshin Steel Holdings Co., LTD 5413-JP Integrated Steel Mills Mixed Production Makers 94% $4,564.14
EVRAZ PLC EVR-GB Integrated Steel Mills Mixed Production Makers 31% $2,415.00
POSCO 005490-KR Integrated Steel Mills Mixed Production Makers 4% $2,008.61
CAP S.A. CAP-CL Integrated Steel Mills Mixed Production Makers 22% $362.47

Although Kobe Steel is upstream in the supply chain, its downstream customers likely include Mitsubishi, Toyota, GM, Ford, Nissan, Honda, Boeing, and more. If these customers have to recall any of their end products that include Kobe's steel or aluminum, this will be a huge cost to them and cause larger problems for Kobe Steel. The scandal at this relatively minor global steel player flows through to some of the biggest industrial companies in the world.

Article by Samantha Cheong, FactSet