Umbran said:
Dried peat will burn, but not nearly hot enough to melt iron. You can do some basic metallurgy with wood or charcoal. But, if I recall correctly, coal or other fossil fuels are required to work steel.
Not even coal will burn hot enough to do basic metallurgy w/o a jet of air to fuel the temperature up.
Good strong, modern day steel requires a blast furnace, or the equivalent.
That's the scientific side... Now a littly mythical history (based on facts, but strung together with speculations, suitable mythos/logic for DnD)
Prehistoric bronze age/iron age transition period sites have been proven to have large communal style fires away from the normal eating areas. Excavations show increased metallic content in the nearby soil with a relatively disturbing lack of evidence of food preprations. From the site, you can re-construct this fire as being about 3-4 feet across, chuck full of charcoal when burning, and about 1-2 feet deep. From the lower quarter of this depth, 6-8 channels were dug as trenches in the ground, shallowest at the point were they connect to the bottom of the fire pit, and deepening as they run out and way. By placing long, loose pieces of stiff material over these channels, one can create significant draft into the charcoal fire pit by simply picking up the far end and dropping it. It would work as a crude sort of bellows, significantly increasing the temperature of the burning coal by supplying a lot of oxygen. Manpower intensive, but certainly hot enough to generate anything up to and including the so-called 'damascene' or 'wootz' steel - the folded steel of early India.
Combine this with low-level magics/high level magics, and you can craft true steel or even adamantite with a little work
If you need precise temps, etc., for the mundane world, I've got all the known facts in my bookmarks somewhere having recently done quite a bit of research on the subject.
Bottom line: without a proper blast furnace or the equivalent (something to force pressurized oxygen onto coal, and trap the heat therein) you cannot make anything better than the folded steel - which was made by 'folding' bars of iron with other metal alloys, a little bit of carbon, and some other stuff.
Fascinating topic - want links?