Iran seen honoring nuclear deal but stockpile may grow

VIENNA (Reuters) - A monthly update by the United Nations atomic watchdog is expected to show later this week that Iran is complying with last year's landmark nuclear agreement with six world powers, diplomats said on Monday.

But the International Atomic Energy Agency (IAEA) is also likely to report that Iran's stockpile of lower-grade refined uranium has increased in recent months, one of them said.

Iran's holding of uranium - which Tehran says it needs to fuel a planned network of nuclear power plants - is closely watched in the West as it could provide weapons-suitable material if refined much further. Iran denies any such aim.

U.N. nuclear inspectors have a key task in monitoring that Iran is living up to its side of the November 24 interim accord to curb its most sensitive nuclear activity in exchange for some easing of sanctions that are battering its economy.

Iran and the six powers aim to build on the six-month deal when they start talks in Vienna on Tuesday on a permanent settlement of the decade-old dispute over nuclear work the West fears has military aims but Tehran says is entirely peaceful.

The interim agreement took effect on January 20 and the IAEA is expected to give an update about its implementation on Thursday, together with a regular quarterly report on Iran's atomic activities.

"It should be pretty straightforward," a diplomat in Vienna, where the U.N. nuclear agency is based, said about the expected IAEA findings.

Other diplomats also said the implementation of the agreement appeared to go smoothly, without giving details.

One envoy said, however, that Iran's stockpile of low-enriched uranium (LEU) probably had increased because of an apparent delay in the building of a nuclear conversion facility.

BIGGER URANIUM OUTPUT?

Among other steps, Iran agreed under the deal to limit its LEU reserve. The new plant is meant to achieve that by turning the material into oxide powder that is not suited for further processing into high-enriched - or bomb-grade - uranium.

Diplomats and experts said the matter was of no immediate concern since Iran's commitment concerned the size of the stockpile towards the end of the deal, in late July, giving it time both to complete the facility and convert enough material.

While Iran a month ago stopped its most proliferation-sensitive work, enrichment to a fissile concentration of 20 percent, it is allowed under the half-year agreement to continue producing uranium refined to up to 5 percent.

Its LEU output may even go up. One diplomat said Iran was believed to have started producing LEU with centrifuges - machines spinning at supersonic speed to increase the fissile concentration - previously used for 20 percent enrichment work.

Weapons-grade uranium is enriched to about 90 percent.

The powers - the United States, Germany, Russia, China, France and Britain - negotiated the ground-breaking deal with Iran to buy time for talks on a final settlement to remove the risk of a new Middle East war over Iran's nuclear aspirations.

Experts say Iran potentially has enough LEU for a few nuclear weapons if refined much further. Limiting its overall enrichment capacity should be one of the thorniest issues in the negotiations that begin this week.

It had a stockpile of 7,154 kg in November - enough to yield about 5 bombs - and is estimated to produce roughly 250 kg per month, meaning the stockpile will grow by that amount if there is no conversion to off-set it.