Kobe Steel Scandal Could Rattle US Nuclear Industry

Second major scandal involving a steel supplier of reactor components.

By Bill Tilles and Leonard Hyman, Oilprice.com:

Japan’s Kobe Steel has joined a rather unfortunate “club”. That club’s membership includes those Japanese companies recently racked by scandal and mismanagement.

Kobe’s management admitted that its employees faked quality inspection reports on its steel and other metal products used domestically in automobiles, bullet trains and nuclear power stations. So far, corporate announcements have been vague, offering little clarity about the duration of the quality control lapses or, more important, the type of components involved.

Tokyo Electric Power Co. (9501.T) just announced that it replaced a Kobe-made piece of equipment, offering no other details. Kobe, however, is a major producer of nuclear power plants components. Even if quality control lapses did not extend to those operations, the onus may be on Kobe to prove its innocence.

So what should we expect? If these QA/QC lapses began recently, it should have little or no effect on most of the nuclear assets in the United States. Most of them were built decades ago.

Plants under construction, however, or those recently completed are another matter. In the last period of nuclear new build in the U.S. (basically the 1970s), a relatively muscular Nuclear Regulatory Commission (NRC) took its safety responsibilities seriously, and woe to the builder that thought the rules excessive.

Unfortunately, a raging period of inflation only added to the nuclear builder’s troubles. Toward the end of the decade, the only appropriate choice for some would have been between cigarette or blindfold. Those safety requirements added to plant cost. And in an attitude that today would seem remarkable, that fact didn’t deter the NRC’s administrators.

If a nuclear power plant has to shut down due to concerns regarding the integrity of Kobe’s products, it’s needless to say it could get expensive. A typical 1,000 MW nuclear facility operating at full capacity can generate annual revenues of between $500 million and $1 billion.

Unlike a coal or natural gas fired power plant, shutting a nuclear plant down does little to reduce costs. Most nuclear costs are fixed, that is, they are spent before the thing is even turned on. Therefore, the plant’s owner will likely try to foist extraordinary expenses like these onto consumers (this is not possible in competitive markets). Or, power plant owners can stand on their rights and demand compensation from Kobe. While perhaps fruitful, it’s doubtful this process would be brief.

Thus, investors in nuclear power have reason for some near-term heightened sense of concern. Questions will be asked as to the provenance of equipment and components. Certain corporations especially under duress might adopt “truth on the installment plan” policies. All the negative news is eventually disclosed—but only after PR efforts downplay the likelihood of meaningful corporate impact.

What’s an investor to do? At this stage, with so little information available, we can’t judge whether Kobe’s latest news will make any financial difference to the nuclear industry.

But it underlines the need for trust and compliance throughout the manufacturing and operating process within the industry. And perhaps more standardization.

This is the second major QA/QC scandal involving a steel supplier of nuclear reactor components. Le Creusot Forge, now part of France’s Areva, was similarly accused of fabricating data for nuclear plant components.

We’re reminded here of the great bridge builder Roebling. When informed that his suppliers had short-changed him, he reportedly responded that he assumed they would—and designed accordingly.

Do today’s nuclear plant builders have the same dim view of human nature as Roebling? If not, the Kobe story should be regarded as serious until you hear otherwise. By Bill Tilles and Leonard Hyman, for Oilprice.com.

“I don’t think the ham-handedness of this action is fully appreciated.” Read… US DOE Wants to Subsidize Coal Plants though Back Door

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  27 comments for “Kobe Steel Scandal Could Rattle US Nuclear Industry

  1. How Now says:

    Great line: “Their only choice would have been between cigarette or blindfold.”

    Reminds me of one of my favorites about a stock market rout: “When the paddy wagon shows up, even the good girls go to the slammer.”

  2. kam says:

    Tell me I’m crazy. But if a Japanese business can cheat on steel standards, with their culture of pride/shame, then what does that say about Chinese steel/metals, with their culture of deceit?

    • BTilles says:

      Hi kam,
      I don’t think you’re crazy. But we could add the German diesel emissions cheating scandal to the list. And American finance’s ability to sell billions of essentialy worthless bonds–many rated AAA–is certainly qualifies to me as first class shenanigans. I think it’s a long list.

  3. Paid Minion says:

    Materials not meeting spec has been a problem for years. Thank our new friends in China for that. Low price drives quality out of the market. Without fail.

    Back in 2006-7, it took 18 months for us to get a nose landing gear overhauled on the company Dassault Falcon. Why? Because we needed a new steering rack, and it took Dassault a year to find billet steel that passed their quality control.

    Ditto for some materials for an interior modification we completed. All this stuff has to pass a “burn-spec”. The raw materials by themselves, and the fully assembled article. Seems that our mod wouldn’t pass after completion. Why?

    The wood laminate hadn’t been fire blocked. All someone would have had to have done was hold a match to it, and it would have been obvious. But nobody did it, because “we have a piece of paper from the supplier that says it’s good….”

    Many manufacturers have eliminated their QC personnel. They are a “cost”, not a “profit center”. While adopting the “I’ve got a piece of paper that says it’s good” system.

  4. safe as milk says:

    it all reminds me of the milo minderbinder character in joseph heller’s “catch 22” from 1961. movie version form 1970:


    • Paid Minion says:

      One thing I’ve learned about business in my 40 years maintaining corporate aircraft, both at a manufacturer and three corporate flight departments…………..nobody will spend any money on training/safety/environmental issues, unless they are forced to.

      Then bitching about “regulation”, and lobbying the PTB to lower that standards to save money. Or by paying to elect guys who will cut the budgets of the regulatory agencies, thereby reducing the number of inspectors.

      • Paulo says:

        Transport Canada has pretty much turned over aviation safety enforcement/standards to industry the past 20 years. Inspections and audits occur after the crash. I have worked for airlines that actually fabricated their own parts and have witnessed maint suppliers with a drawer full of ‘tags’ to provide history for scrounged parts. The tags were removed from wrecks. As a pilot, my biggest fear was knowing about the chance for counterfeit fasteners finding their way onto aircraft. All it takes is one bolt to snap on a wing strut.

        Falsifying aircraft inspections are also very common throughout the world. “When it slows down next week we’ll do the hundred hour”. Or, spread it out over a few days but certify it as complete so we can use the machine. A friend of mine took some journey log books down to the RCMP and lodged a formal complaint against a company. This was back in 1980 when there actually was Govt. oversight. The maint engineer who signed it complete, while humilated, simply received a short suspension of license. He took some holidays.

        Why would any other industry be any different?

        As I wrote this I remembered back 40 years when I was a very young foreman on a construction crew. The developer had his own civil engineer on staff who signed for the integrity of the concrete pilings we built our foundations on. When I pointed out some damaged pilings and snapped off rebar he told me not to worry about it….just get it built.

        Nothing new. I am sure there are many many deficiencies in Nuke plants and materials. Hopefully, the operators and maint’ staff will pick up the problems as they occur…..

        In this ‘race for the bottom’ of lowering costs and increase the profits environment, sub-standard work and products is the result in absolutely every industry. I am proud to say that in all of the houses I have built, not once have I used OSB or tyvek building wrap. It costs more, but…….

        Just think of all the people out there buying pre-processed food for their families. I saw a news special a few years ago about Chinese poultry producers. Every morning they collected the dead birds for processing into chicken fingers and nuggets for the North American market. yum. Maybe they were cooked on electricity produced by nuke.

    • alex in san jose AKA digital Detroit says:

      “You didn’t even take the seeds out!”

  5. Jack says:

    “Kobe’s management admitted that its employees faked quality inspection reports on its steel and other metal products used domestically in automobiles, bullet trains and nuclear power stations.” So what else is new?

    Nuke power plants use liquid hydrogen to cool the generators, transport super (and I mean super!)-heated steam in 30″ dia. pipes, and contain highly radioactive materials in the reactor vessels, what can go wrong?

    • BTilles says:

      Hi Jack,
      You’re right. A lot can go wrong in a nuclear power plant. But sticking with the facts as they slowly emerge, it seems two nuclear related systems may have used compromised materials: one in nuclear waste storage, the other in duct work for a heat exchanger at Fukushima. From a public safety perspective, it’s prob. Japan’s railways that have borne the brunt of this with over 300 defective parts identified thus far.

      • Thunderstruck says:

        “Hi Jack,
        You’re right.”

        Actually, he’s not. The generators used Hydrogen GAS for cooling.
        And, while “superheated steam” may sound scary, it really only exists after the Moisture Separator Reheaters, and is typically only about 300 degrees F. at around 65 psia (for PWR’s, slightly lower for BWR’s)

        I don’t want to dismiss the seriousness of substandard materials used for nuclear plant construction, but sometimes I tire of the misinformation spread about when it comes to how they operate or how some of their systems work.

        If you want to see some really scary stuff, delve into some of the conventionally-fired plants that operate in the “supercritical” range of the Mollier Diagrams. In that range water characteristics are more aptly described as a “plasma”. The heat capacity in btu/lbm in that range is amazing.

        If you ever get to a chemical plant, check out DowTherm used in their boilers.

        • Jack says:

          Thunderstruck, I stand corrected re: ” The generators used Hydrogen GAS for cooling.” My experience is with the CANDU reactors and as I recall they cool the generators with hydrogen in the 75 psi range which I believe brings it down to the near liquid state.

          But when “conventionally-fired plants that operate in the “supercritical” range of the Mollier Diagrams” fail, they won’t contaminate the earth, as have Chernobyl and Fukishima (and apparently is still doing so today).

          Read up on the Tooth Fairy Project (http://www.radiation.org/projects/tooth_fairy.html). How does Strontium-90 (Sr-90) escape into the environment from a nuke power plant?

        • Thunderstruck says:

          “My experience is with the CANDU reactors and as I recall they cool the generators with hydrogen in the 75 psi range which I believe brings it down to the near liquid state.”

          OK, just think about it – why is Hydrogen, an explosive/flammable gas used for cooling large power generators? Because it is the smallest diatomic GAS available, and has a reasonably effective heat transfer coefficient. If you have a 42 ton rotor spinning at 1800 RPM in a generator, the last thing you’d want is anything in a liquid state to push around for cooling. Most gas-cooled generators are at 60-65 psig (regardless of steam source). The required pressure of 200 psig to keep it liquid, and a temperature of -400 deg. F. will not be found in a generator that is online.

          And yes, while Strontium or any other decay daughter particle is undesirable in the environment, I was trying to point out that in general, any time we try to produce energy using a thermal process there are dangers involved. While you dismiss the supercritical boilers as merely a steam nuisance, I suggest you look up the relative energy amounts that can be released from a pipe rupture. The typical* nuclear plant is sited in a rural area away from dense population centers. The supercritical boilers I visited were built in mixed residential/commercial zones right outside of Philadelphia!

          * I realize that there are some reactor sites that would make you scratch your head – i.e. Seabrook)

        • Jack says:


          I’ve been out of the nuke power business for a few years so I go by what I remember about the cooling medium we’ve been talking about. I don’t dispute your knowledge or what you say of nuke power generation but I am not “dismissing the supercritical boilers as merely a steam nuisance” should they blow–I did not say anything like that.

          My concern with nuke power plants is that Cesium-134 from the Fukushima Daiichi nuclear reactor has been detected on the western shores of Vancouver Island (the docks of Ucluelet, B.C.) four years after the fact and will presumably be in the fish that people consume. With a non-nuke P/P, there’ll be a lot of casualties no doubt should a steam pipe rupture, and it’ll devastate the local community, etc., but not the whole earth.

          And one last point, nuclear power plants used to be in rural areas, but that’s been changing over the years. The Pickering station is well within the urban community of Pickering, Ontario now and that Turkey Point, FL dinosaur (almost as old as me) is in the Miami-Dade area. There’re many more nowadays.

  6. QQQBall says:

    Wait until the crunch hits and margins evaporate. Until people start doing perp walks and paying back what they stole, it will continue.

  7. J.M. Keynes says:

    (sarcasm on)

    – But are you so harsh on Kobe steel ?? They just were under (severe) pressure to cut costs. and that would allow Kobe to increase their profits right ? And what do a few lousy consumers radiated to death matter in the grand scheme of making nice fat and juicy profits, right ?

    (sarcasm off)

    • BTilles says:

      Hi JMKeynes,

      Given Kobe’s expertise in propulsion systems, like crankshafts, I’d be more concerned about railway safety than reactor safety, at least given what we know now. Fortunately, most of Kobe’s work in the electric power generation business involves coal and gas fired units.

      • J.M. Keynes says:

        – Good point. But a nuclear plant is (in the long term) more dangerous than another energy plant.

  8. polecat says:

    For All
    the World a kabuki stage
    Grifting !

  9. Gerard Croce says:

    In the 70’s I worked as an engineer at a small forge in Pennsylvania which specialized in nuclear reactor vessel nozzles. The quality assurance was extremely tight as you might expect. I’d like to think that none of my co-workers would ever have falsified test results. It was considered a learning experience if a part failed and resulted in a six month delay and cost tens of thousands of dollars.

    Vessel components are mostly not standardized and require a highly specialized labor force to cast, forge, machine and weld vessel and piping components. There are many potential points of failure in nuclear plant design, manufacturing and project management. I would not be an investor in any company which is involved in nuclear power.

  10. Lee says:

    From what I’m been to read about the situation there are really two aspects to the Kobe Steel problem:

    1. Tests that were not undertaken

    2. Products that didn’t meet specs and the company knew about it.

    With problem one the products may have met the specs, but either because either the tests were faked or not undertaken the situation is unknown.

    With problem 2, that is the concern. Again, the degree of the problem may or may not be bad, be bad or be a really big problem.

    If the company sold products that didn’t meet the customers specs, but met the required safety specs then the problem won’t be ‘so bad’. Others, well………….

    So far it seems that the information coming out from the company is still quite vague and who knows what will happen.

    There seems to be a recent culture in Japan among some companies that calls into question the previous ‘high quality – high standards’ that Japan was known for. Some are widely known outside of Japan. Others are not.

    Takata is an example.

    Tokyo Electric Power and Fukushima.

    Other Japanese automobile recalls are also known about worldwide.

    Some are not and are ‘internal’ problems. These are things such as faked and delayed inspections in railroads lines in Hokkaido; faked inspections and substandard bolts used in tunnel construction that led to failure and death; using substandard and low quality products in restaurants and passing them off as higher quality items and charging premium prices for them; sale of items past their use by date by a major confectionery company; problems at a major milk company resulting in around 14,000 cases of food poisoning, etc………………….

  11. TJ Martin says:

    Seems nuclear power plant parts aren’t Kobe’s only problem .

    According to AutoWeek etc the effects their lies span across radial tires , internal ICE engine parts , suspensions etc .

    So yup … this’n may end up making Takata look like saints in comparison

    • BTilles says:

      Hi TJ,
      We agree. Kobe has “issues” in a variety of businesses. This is a rather large corporation. Factories in at least four countries (Japan, China, Thailand and Malaysia) as well as about 37,000 employees. They have seven major operating divisions, the auto and rubber products unit is prob. part of their machinery unit. And just part it seems of an emerging problem.

  12. Gershon says:

    Yes, but “shareholder value” is the important thing here, not potentially putting millions at risk to to fraud and substandard components.

  13. Raymond C Rogers says:

    From text title of the article, I imagined nuclear power to be a larger part of it. I think most of us realize your not a big fan of nuclear power by now.

  14. raxadian says:

    They though they could get away with it because building a power plant literally takes about a decade and a half. So that was “future Kobe” problem.

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