THE foreign consortium pursuing Arrium has vowed to abandon its bid to acquire the iron ore and steel maker after a day of drama saw an improved takeover offer emphatically rejected.

The consortium, which features South Korean steel company Posco and commodities trader Noble, said it was ''deeply disappointed'' that Arrium would not begin negotiations or open its doors to allow due diligence on its finances.

The rejection came despite the consortium increasing its offer by close to 17 per cent on Wednesday to 88¢ a share, compared with the original bid of 75¢.

But that improvement was not enough to lure Arrium to the bargaining table, prompting the consortium to say it would ''cease seeking engagement with the Arrium board''.

When asked if it would consider bypassing the Arrium board and taking a hostile bid direct to shareholders, a spokesman for the consortium indicated that such a move was unlikely.

''We have always needed due diligence to understand the business,'' he said.

The consortium says it wants to better understand Arrium's debt situation, speak to its lenders and better understand the technological composition of its steel-making assets.

The consortium has claimed it can improve the viability of Arrium's struggling steel plant at Whyalla by introducing some of Posco's ''Finex'' technology.

But Arrium chief executive Geoff Plummer has questioned the merits of such a move, given it would require the removal of the blast

furnace that was installed at Whyalla barely a year ago. ''If the blast furnace was approaching the end of its useful life, then it might or might not make sense but at the moment it doesn't,'' he said.

''It's like having a brand new pizza oven and someone coming along and saying they want to make cakes out of it.''

Arrium believes giving the consortium access to its books and lenders poses a risk to shareholders. Chairman Peter Smedley said the improved 88¢ offer ''significantly undervalues'' Arrium and remained an ''opportunistic'' bid.

Shares in Arrium were fetching 87¢ barely a week ago, and Credit Suisse analyst Michael Slifirski said on Wednesday an offer ''well above'' $1.10 a share would be needed to have any hope of being endorsed by the Arrium board.

Mr Slifirski said the consortium's bid would struggle to win approval from Australian regulator because some of Arrium's iron ore assets are near important Defence Department testing grounds in the South Australian outback.

Investors appeared to take the consortium's threat to abandon the takeover seriously: after spending most of Wednesday morning in a trading halt, the stock resumed trading at about 85¢ a share but fell to 78.5¢ at the close.