Do the merchants in town restock their goods and if so how long does it take. The reason I ask is i bought some iron billets from the blacksmith to make some swords and then sell them back since I'm the armorers apprentice but he only had two billets on him and i slept a couple of days and they didn't restock.

If the merchants dont restock where can I get more iron billets?

Some of the merchants will restock (or get new goods) when a new chapter starts. They don't restock based on time passed in-game.

You can find other billets from the other merchants on the market place and at Onar`s Mercenarie and of course when exploring the world ;)

Steel billets don't restock as far as I know. In fact, I think the only thing that does is food, potions, potion ingredients, arrows and bolts.