Can fluent English speakers understand this sentence the first time they hear it?
What? They still steal steel?
Can they hear a difference between the pronunciation of the words still, steal, and steel?
Still (/stɪl/) and steel (/sti:l/) are distinguishable. The vowel sounds in these two words are different.
Steal and Steel (/sti:l/) are homophones and are pronounced exactly the same.
However, the words are, in this case, easily identified by grammar. In this sentence, "steal" is a verb and "steel" is a noun. "Steel" as a verb cannot take "steal" (as a noun) as its object. So there is no ambiguity in the sentence.
Context is the key to understanding. If your reader or conversation partner understands you are talking about someone or something with a habit of misappropriating steel, then it is perfectly reasonable to say they still steal steel or steal steel still. If they do not have that context, they you may need to explain it.
Most native speakers of English will pronounce steal and steel identically, but differently from still. Some people in Yorkshire might pronounce all three differently, and some people in Tennessee might pronounce all three the same.
In all the "standard" accents with which I am familiar, steel and steal are homophones, both pronounced /stiːl/. The spelling of steal and words like team and cream among others reflects a distinction in pronunciation which was mostly lost by the 18th century in what is known as the meet-meat merger. The distinction is preserved only in some corners of Ireland and Northern England, and I would say a learner should not bother with it.
The standard pronunciation of still has a shorter vowel, thus /stɪl/. That said, many speakers of Southern, Appalachian, and African-American Englishes, and what is called Estuary English, speak with what is called the fill-feel merger. Pairs like ill and eel, hill and heal, or will and we'll are pronounced the same in those accents. Again, I would say a learner is safest sticking to the standard pronunciation in speaking.
I, for one, hear a significant difference between "still" and "steal" or "steel". I would call the vowel sound that I make, and typically hear, in "still" a "short-I", while I would call the vowel sound in "steal" or "steel" a "long-e". There are, I am sure, more technically correct terms for these sounds. To help clarify, to me "Still" rhymes with "hill" and "kill", while "steal" rhymes with "keel", "feel", and "conceal".
As is implied by the forgoing, to me "steal" and "steel" are homophones, with no detectable difference in sound.
Can fluent English speakers understand the sentence?
What? They still steal steel?
Well, certainly yes. We use our knowledge of everyday English to make a rational interpretation of the likely meaning of the sentence. In this sense, pronunciation is not key.
Can fluent English speakers distinguish these words when spoken in isolation, with no context? I could certainly attempt to pronounce each word with such emphasis to make each one sound unique and probably identifiable to many people. Would I do that in normal speech? Probably not.
In English, the difference in writing between steel/steal and still is called a minimal pair.
ae/ee are pronounced the same way. It is their graphemes (how they are written) that differ.
still is pronounced differently. That said, there is only one sound difference between steel/steal and still.
In English, minimal pairs (how you pronounce vowel sounds and not how they are written) are very important because
still contains the sound /ɪ/ for the i. steal/steel contain the sound [i:] for ea and ee.
The difference between steal and steel in spoken language will come from the co-text.
The sounds in steel/steal and still are never misheard by native speakers in this sense. And still is an adverb. So, a totally different category.
It is important to do exercises with minimal pairs in order to become used to them. English has many quirks but knowing usual minimal pairs helps learners as how English sounds is not how it is written.
steal/steel [we saw this one], others include: feet and feat
bait/late....notice: ai and a are both the same sound.
The most difficult one is probably the /ɪ/. The sounds of the i and u in the word minute (for time) are both /ɪ/. Also, the /ɪ/ does not exist in some languages like French and Spanish. So those speakers have a hard time with: sheet/ship.
Etc. There are tons of places online and in books to learn these sounds. Please note: there are regional variations sometimes.
At this level of learning, I think regional differences should be left out of explanations because it is already hard enough to grasp the idea of minimal pairs and graphemes in English.
"What? They still steal steel?"
Yes, "still" has a different sound to "steel" and "steal". We use our knowledge of general sentence order to logically work this out.
Also, the emphasis placed on each of these words in a question would allow us to understand that "steal" is the verb, and that "steel" is the noun. More emphasis may be placed on "steal" because the sentence is interrogative.
However, I understand that this is something hard for non-native English speakers. I have heard these three words pronounced as the same word many a time by non-native speakers. It is like "fill" and "feel". The only way you can get better at this is by listening to a native English pronunciation and practising.