From what I understand, if you roll 2 surges, tempered steel can only convert 1 surge to a hit before the card is exhausted. Is this correct?

That's right.

You spend enough surges to resolve a surge ability, in this case one. The ability resolves, Steel is tapped. You have another surge left over but Steel is exhausted you have to spend it some other way.

25 minutes ago, Click5 said:

That's right.

You spend enough surges to resolve a surge ability, in this case one. The ability resolves, Steel is tapped. You have another surge left over but Steel is exhausted you have to spend it some other way.

This case is also a great example of the difference between surge and surge+. If it were surge+, you would be able to spend multiple and tap it (would likely have different wording) similar to Kari. This will be an important distinction between Kari + Maegan, and Kethra as well in the future.