We're far less dependent on ore quality today than we used to be. It still matters, to a certain extent, but only for economics; generally they'll look for the purest iron (oxide) they can get, clean it up, then mix in the alloying substances in just the right way to get exactly what they wanted. To put it bluntly, nowadays we pretty much only care about getting the correct elements; the compounding can hang itself, except for economic purposes.
If you go back even two hundred years, we would not have been able to alter ore to anywhere near that extent. Eight hundred years.. forget it, the only way to get high-grade steel back then was to basically find a deposit that was close to those ratios already. (Wootz steel is a likely example)
(Luckily, finding pure copper was far easier. Iron ore tends to be dirty, though it's easier to extract overall and there's far more of it because of the iron potential valley.)
The point of that is this:
If DF was set today, it would make sense to model ore quality as a simple multiplier on the amount of metal you get out of it. But it isn't. If DF wants to do realistic ore modelling (which, at some point it very well might), the only halfway correct way to do that would be to limit the maximum quality of the resulting weapon, and its tendency to break, based on the quality of the ore. A lot of the iron ore wouldn't even be possible to make steel out of; steel is a very particular iron alloy.
Which means that, yes, you'd probably dump most of the poorer iron ore into furniture and such - things where the quality doesn't matter as much. That's what happened historically.
Ironically, some of the best iron mines today would have counted as very bad back then - they produce nearly elemental iron (oxide), and pure iron is uselessly soft. Mixing carbon in to make steel is well and good, but you actually want some elements other than iron and carbon to get the best steel - which historically tended to find their way in through the ore.
Which is not to say that they couldn't have used it. They just wouldn't have called it a good mine.