FRANKFURT, March 28 (Reuters) - German steel plant maker SMS Group has signed a $400 million contract to expand production at Iran's Mobarakeh Steel Company but faces challenges in raising financing so there is no clear timeline for the work, an SMS executive said on Tuesday.

Iran, which produces about 16 million tonnes of steel a year, is seeking to boost production with help from foreign partners following a 2015 deal to curb Iran's nuclear programme in return for an easing of international sanctions.

Tehran's ambitions have alarmed European steelmakers as exports from Iran to Europe have reached 1 million tonnes a year, putting it third behind China and India. European producers have struggled against the competition.

Mobarakeh produced 5.8 million tonnes of steel products in the financial year 2014/15, the latest report available on its website said. The firm's exports reached 1.5 million tonnes.

SMS Group, a private firm that builds steel, aluminium and copper plants, signed the $400 million contract in February to build facilities that would add additional capacity of 3.5 million tonnes a year, with potential to rise to 5 million tonnes, SMS managing board member Dieter Rosenthal told Reuters.

But he said it was not clear when the project would be implemented because of the difficulty of finding financing that does not conflict with U.S. sanctions. Many U.S. restrictions remain in place despite the nuclear deal.

The European Union is investigating alleged dumping of hot-rolled steel by several producers, including Iran.

Rosenthal said he expected Mobarakeh's higher production to target the domestic market rather than exports, but analysts say Iranian demand has been held back by slower-than-expected economic gains since the 2015 nuclear deal.

Iranian Mines & Mining Industries Development and Renovation (IMIDRO) did not respond to emailed requests for comment.

Germany is a major trading partner with Iran, reporting bilateral trade of 2.9 billion euros in 2016, up from 2.4 billion euros in 2015.

(Reporting by Georgina Prodhan and Barbara Lewis; Editing by Edmund Blair) ((; +44 207 542 2932; Reuters Messaging: