The worst product quality scandal in Kobe Steel Ltd.’s 112-year history has reignited speculation it could be broken up for sale or merged with a rival.

The top Japanese makers of the key metal used in everything from cars to girders have all chosen to merge in the past 15 years, sacrificing independence to stay competitive with bigger producers, many of which are now Chinese.

Kobe Steel is the one holdout.

Now, analysts say the company’s resolve may weaken, especially if the cost of compensating customers balloons following the admission it routinely faked data to overstate the strength and durability of its products. So far, Kobe says they are all safe and don’t need to be recalled, but investors have dumped the stock. That may create an opening for longtime alliance partner Nippon Steel & Sumitomo Metal Corp. or JFE Holdings Inc., which has wooed Kobe before.

“Kobe Steel should be attractive to both Nippon Steel and JFE, as it has many highly skilled engineers,” said Yoku Ihara, president of Growth & Value Stock Research of Japan. “Their problem is quality control and management structure, not technology.”

A JFE spokesman said no deal is under discussion, but the company would be open to proposals. A spokesman for Kobe Steel said the company has no plans to sell businesses or combine with rivals. A spokeswoman for Nippon Steel declined to comment.

Japan’s steel-makers have been jockeying for position ever since 2002, when a marriage of rivals created the giant JFE group. Another mega-merger in 2012 created the behemoth Nippon Steel & Sumitomo Metal. After that, JFE tried to regain ground by wooing Kobe Steel, according to an industry executive familiar with the matter, who asked not to be named because the talks have never been made public.

Kobe Steel President Hiroya Kawasaki, has resisted proposals because any merger will probably require job cuts, along with the sale of units that spill outside the core business. The company includes a sprawling assortment of metal producers, a real estate arm and even a maker of construction equipment.

Still, staying small and independent came at a cost. Kobe Steel has lost money in five of the last 10 years, a reality that fed into the data fabrication scandal. Factory managers were under pressure to cut corners and avoid expensive do-overs when products failed to meet quality requirements, according to the results of Kobe Steel’s own investigation released last month.

Nippon Steel, which has benefited from bigger economies of scale since its merger with Sumitomo, reported only two annual losses in the last decade. JFE lost money only once.

Kobe Steel “should use this as an opportunity to change,” said Thanh Ha Pham, a Tokyo-based analyst at Jefferies Japan Ltd. “The company will at some point in the future have to divest or consolidate with somebody else.”

Record equity prices and a strong metals market mean “now is a good time” to put Kobe’s businesses up for sale, according to the analyst.

Nippon Steel may be Kobe’s most likely deal partner because the two have had an alliance sharing metal supplies since the early 2000s, when they agreed to swap shares. Nippon Steel owns about 3 percent of Kobe Steel, which holds about 0.7 percent of its partner’s stock. Nippon Steel President Kosei Shindo said in October he’d consider offering support if Kobe asks.

Still, a deal between Kobe and Japan’s top steel-maker could face regulatory scrutiny from the Japan Fair Trade Commission. Together, the two companies produce practically all of the wire rods used to make engine valve springs for cars. Nippon Steel last year also gobbled up Nisshin Steel Co., Japan’s No. 4 maker.

That has put extra pressure on JFE, which hasn’t done a major deal in more than a decade.

JFE is open to discussions anytime Kobe Steel wants, according to the industry executive who is familiar with the firm’s strategy. President Eiji Hayashida last year said he will consider all options in order to streamline operations and prepare for a construction slowdown expected once Tokyo’s 2020 Summer Olympics is over.

For Kobe Steel, there’s still a lot of uncertainty.

Last month the company retracted its annual financial forecast, saying it doesn’t know how much the scandal will end up costing.

Customers including Kawasaki Heavy Industries Ltd., Central Japan Railway Co. (JR Tokai) and Kansai Electric Power Co. say they may charge Kobe for the cost of replacement parts or added safety inspections. Kobe’s stock price has rebounded from recent lows, but more than $1 billion has still been erased from the company’s market value. The shares have fallen about 24 percent since the scandal broke in October.

In a best case scenario, the cleanup won’t cost Kobe more than a few hundred million dollars, leaving the company humbled but intact, according to analyst Takeshi Irisawa at Tachibana Securities Co. in Tokyo. In a worst case scenario, fines from the U.S. Department of Justice and claims from overseas customers could get a lot more expensive.

“The chances of that happening have declined,” the analyst said. “But you can’t rule out a scenario where there are asset sales to generate cash. The risk is still there.”

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