Much of it came from iron ore mined out of the ground. But when iron ore wasn't available to mine, scrap metal donated by peasant households was used to make the steel/pig iron. Well, that is, if you define "scrap metal" to include things like woks, buckets, door handles, and pots.
The Chinese Communist Party had a plan to best lead China into socialist paradise, known as the Three Banners. This involved three things: the General Line (the plan for socialist construction), the Great Leap Forward (the action), and the people's communes (the unit designated to enact the plan into action). In order to establish socialist construction, households were grouped together into large people's communes (in many cases forcibly; people tried to revolt or leave the communes between 1956 to 1957, which led to crackdown and struggle sessions from party officials as well as "socialist education"). Ownership of the means of production (read: land, livestock, farming implements like plows, etc.) was left to the commune at large. People were required to eat in the communal kitchens and were not allowed to cook food at home, as a method of control (and access to the kitchens can be revoked as a punishment); this was seen as a way to eliminate the family as a basic living unit in the belief that "by eliminating families it would be possible to eliminate private property"^(1). This lead to the dismantling of homes and the requisition of cooking implements, firewood, livestock, poultry, and even wild herbs. People were not expected to cook at home anymore, so they didn't need cooking implements. Anything that wasn't needed by the commune was scrapped and later reused in building and industrial projects.
In addition, scrap metal drives were held throughout China in order to collect additional metal to be melted down and be remade into steel to meet the very high quotas set by the Communist Party. In Gansu, people donated under the slogan "handing in a hoe eliminates one imperialist; concealing one nails conceals a counterrevolutionary" (so you get an idea on what was being donated). People donated whatever metal they could find, which was then melted down in the blast furnaces to meet the quota.
Most of this comes from Tombstone by Yang Jisheng.
^1 ^- ^this ^quote ^comes ^from ^a ^speech ^made ^by ^Liu ^Shaoqui ^to ^the ^All-China ^Women's ^Federation ^on ^14 ^June ^1958. ^Quoted ^on ^Tombstone ^on ^page ^175.