Owing to its inability to secure land, South Korean steelmaker Posco cancelled its proposed $5.3 bn steel plant project in Karnataka.

In an official communication, the firm said the delay in land acquisition has been prolonged and this prompted it to shelve the project.

In June 2010, Karnataka government signed a preliminary agreement with the firm for the project. According to the agreement, the firm was to set up a 6 mn t steel plant.

At the time of signing agreement, the Bharatiya Janata party ruled the state. But following recent state assembly elections, the political power shifted to another party, Posco said in the communication.

But analysts feel Posco’s own finances were probably another major factor in its decision, because the steelmaker is overstretched investing in two big projects at a time when the global steel industry is suffering a prolonged slump.

Meanwhile, the company said it would continue to pursue the Orissa steel project, for which it has already acquired land after years of delay.

The land acquisition was completed earlier this month, but Posco expects it will take six months to a year before construction begins.