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Damascus steel isn't buyable in Seafront, or dropped in Junk Heap.
Its from the Copied World, and is only used for the 3 weapons that you get from there -_-
I could swear i’ve gotten one from the junk heap
I litereally just got damascus steel from Junk Heap and went to wiki to check what I can use it for. So yeah, it can drop from crates where you'll usually see ambers.
It is a rare drop in the Junk Heap. Don't know where you're supposed to get it in Seafront though