Bifunctional fiber and alloy recirculator is a quest item in Chapter V which is required only if Geralt follows the Scoia'tael path and has Raven's Armor of the Elves made for him by Malcolm Stein, the dwarven blacksmith. The fabrication of this armor is not strictly necessary to the plot, however.
The recirculator is found in a dwarven trunk, in the ancient crypt beneath the old mine in the swamp cemetery along with some dwarven spirit.