London — Mexico's 2.1-GW Petacalco coal-fired power plant has delayed one of its coal tenders amid increasing competition with cheap gas pricing, a move which will likely increase the oversupply in the seaborne market, sources told S&P Global Platts this week.

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The delayed tender, initially expected for 5 million-7 million mt of coal -- was unsurprisingly viewed as bearish, as while it may lead to more spot buying instead of contracted volumes, it would likely leave the already oversupplied Atlantic Basic awash with even more coal over the coming months.

Most of the coal burnt at Petacalco is of Colombian origin, and an open arbitrage to move Colombian tons into India or China could offer some relief and help alleviate this pressure.

Several Colombian Capesize cargoes were heard sold to India recently at around $49-$50/mt FOB, basis 6,000 kcal/kg NAR.

How long this arbitrage will remain open was more difficult to judge, as Chinese demand was still unclear in the wake of the coronavirus outbreak, and sources said the market could remain under firm downward pressure.

The tender was initially expected at the end of last year but has been repeatedly postponed and is not currently expected for at least one or two months as the plant holds enough coal in stock to last for this time, sources familiar with the matter said.

Sources also expect the tender, when it is finally released, will be for a reduced volume of coal, probably around 2-3 million mt.

The plant has been running at a reduced capacity due to more competitive natural gas prices, a dynamic seen in North America and Europe for most of the last year.

Furthermore, the recently implemented IMO marine fuel sulfur regulations have left state-owned oil producer Pemex with excess high sulfur fuel oil, which was also being burned ahead of coal in the country's energy mix, sources said.