There needs to be some iron in a new mix. I use one steel wool biscuit per US gallon to get it started. You should never need to add more steel wool after that because you are constantly adding iron when you dip your parts.
After a while there usually gets to be too much iron in the mix and the coating doesn’t turn black when you add oil to the dried off parts. Adding more free iron to the mix will make the coating look black, but now the coating will be mostly iron oxide.
A little white sludge is normal. If you are getting a lot of sludge, there’s probably too much acid in the mix. Also, there’s probably very little manganese left in solution.
You don’t need much phosphoric acid in the mixture, only 6 or 7%.