This steel rapier also drops in bloodskull valley, a zone that is usually instanced for quest purposes.
There is a quest I can't remember the name of at lvl 18/20ish, and with a group you can farm some nice drops like these there (I think I remember it was the quest of the wounded scout that requires you to kill named orcs first. Anyway, I noticed some more quests go there, like the lightstone one. Check em out :))