Steele has helped The Tykes into the semi-finals of the FA Cup and would miss out on a Wembley appearance against Cardiff next month.
Barnsley are understood to want to sign Steele on a new loan deal with a view to a permanent deal being completed in the summer.
"I'm pretty sure things have moved on," said Baggies manager TonyMowbray.
"I spoke to Simon Davey on Wednesday afternoon and they are still very keen to do something.
"From our perspective we would like the boy's future sorted out. I know the two chairmen have spoken and I would like to think for Luke's sake it can be sorted.
"But I think there's a few different factors that need to come together to make that happen.
"I guess he would like his immediate future sorted out so that he can be available to play for Barnsley in the semi-final at Wembley, but I think he understands the situation and he hasn't been an ounce of a problem.
"The situation of him going on loan until the end of the season and then coming back to us I don't think is an option as far as my understanding goes.
"I think things are moving on, as in any negotiation they don't get done at the drop of a hat. I would be hopeful, but let's wait and see."