Don't leave immediately after obtaining the materials. First, talk to the Jade Demon on the right; we can spar with them again. Before sparring, remember to equip the weapon and Shadow Armament you just upgraded, and unequip any other weapons.
There's not much to say about this battle; it's the same as the first one. After defeating them, you'll receive the weapon soul-forging materials "Heel and Reinforced Parts." This also completes the quest "Give Them a Taste of Their Own Medicine."
