The 29-year-old Uruguyuan striker, who spent the final four months of last season on loan at St Andrew's, has repeatedly expressed his desire for a move to Blues but his Spanish side are holding out for a fee that Blues are just not prepared to meet.
"The Pandiani thing is not dead just because we've got Mikael in," Blues boss Steve Bruce has said.
"But when you see the price Deportivo want for him and the price we got Mikael [Forssell] in for, that puts it into perspective.
"We've been in negotiations for some while but, at the moment, we're a million miles apart."