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It's possible to get hammers for other materials, too.
Using them, you can end up with stuff made out of a material that's not naturally occuring.
Some material hammers have niche uses, such as a Paper Material Hammer turning a normally heavy Generator into a lightweight paper one, or a Gold Material Hammer turning a used up god statue into one you can use again.
But, I don't think Steel has any extraordinary use.
I guess you could use it on something like the Panty throwing weapon, which is normally made of Silk, to turn it into steel and boost its damage.
You'll have to decide on your own whether you want something to be made out of steel, or just cold hard cash.
Strangely, I put it in the sell bin and it sold for 0. Was I supposed to bring it to a merchant?
And it is better to keep, it is a pretty rare thing that u cant really just go out and easy find one when you need it.
same goes for early armor, since steel has decent devensive values and is both fire and acid resistant so yea, might not be great later on but early on it's a huge boost.