.. Where can I find steel?

Steel is often used in forms of weaponry.

Especially in projectile weaponry.

Like metal arrows, bullets, slingshot pellets, or...

Cannonballs.

Where would you expect to find a cannonball?

In a cannon, perhaps?

There's a cannon somewhere on Monkey Island.

Forts usually have cannons.

Where can I find a fort?

There's a cannon inside the fort.

And a cannonball's inside the cannon.

But you can't just reach into the cannon.

Push the cannon to spill out a cannonball.

Pick up the cannonball. (If Herman Toothrot's inside, you may have to leave the Fort and re-enter.)