Yes, he's definitely worth finding for his custom items as well as the fact that he's the only place in the game to reliably find certain items like lightning bolts and rejuvenation cloaks, etc.When you enter through the castle's main doors from the courtyard and take a right instead of a left to head towards the throneroom, Ferro's armory is directly ahead of you, though his door is slightly off-center from the hallway. He's got two rooms - one has his forge in it and you can grab a bellows there to make the Water Cannon gadget. He's found in the front room behind a counter.
If he wasn't there for you then probably what happened was that he was killed in a fight before you got to be on friendly terms with the Rapax. Unfortunately, he tends to try to defend his customers even if they are not necessarily really close to him.
If he IS dead, I'd suggest reloading back to an old save because he's definitely worth knowing.