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OI... you're asking how, in a magic world, where elementalists can make showers of fire, and call down meteors from the heavans, HOW they can make a fire hot enough to use steel and coke?
You ever see a fun little movie called Dragonslayer?
One other thing to remember, dwarves tend to be the best crafters of metal weaponry.
They have access to the raw steel and coke, and furnace of molten lava and the like. You have water mages able to cool down the objects after forging, and in fact, if they can freeze them to a point far below normal freezing, it would likely force the steel to become even harder, ala the near zero kelven freezing technique that some guys developed some years back to help metal retain it's sharpness and hardness.
Though they used a controlled freezing method that gradually brought the temp down over a period of several hours, allowing the molecules to find the pattern that makes them more rigid instead of just forcing them quickly.
I need to go on wiki again and look at stuff up.

Actually, i thought super-cooling hot metal caused it to shatter? Anyway, cooling it quickly would work. And of course, Sorrows Furnace would be the best place to make iron. But oxidation reactions of iron are very slow, so really, iron may not have oxidisied in some places, although this is probably wrong.

Cooling it is a complicated process, I doubt in GW it'd be possible. Mostly they'd use conventional means, or conventional and magical means.
No offence, but this whole line here seems overall pointless.
You could seriously be delving into the 'science' of GW, and there is a science to things. Even magic uses a scientific method to achieve goals.
What is the science behind the gods and their gifts.

Something that's bugged me though, you have the science of Lore, and then you have the game mechanics that operate the world. The Game Mechanics smack up against lore at times. It's a bit like being able to change real life physics on a whim. Or at least, with some consultation of greater powers.
It's like finding out that God, Budda, Allah, and all those guys are working in the cosmic equivalant of a 9-5 job in a cube farm. And Mr Lumberg wants God to show up on Saturday, and it'd be great if he could show up on sunday too. Yeaaahhhh...

I think sword crafting came way before contemporary knowledge of material properties and molecular manipulations that yields hardened alloys. Even without these knowledge and that of chemistry, early crafters knew enough about heating up certain materials, pounding them, dipping them in water, etc., to make them pliable enough to shape into sharp blades that then cool to harden enough to make weapons out of them. It is unfortunate that, when it comes to destruction, men are very resourceful. We may not have known yet how to build strong bridges and housing, but we knew enough how to make deadly weapons to hurt each other.