I have no idea ok
It's in Level 7! If you're in level 7, use your ice pencil to freeze the river and explore til you find the sword pencil stuck in a stone, which you can break with your pickaxe!
How does one get through level 3 without sword
You only need the sword to get one of the puzzle pieces in level 3, the rest of it can be completed using the wire, pickaxe and leaf pencils. Just use the wire pencil to solve the puzzles to move the minecarts.
Use those trees
But how do you get past level five without a sword??
You don't need a sword for level 5! By level 5 you have the leaf, pickaxe, wire and rain pencils and in level 5 you'll get the egg pencil. Those are all you'll need to complete the level and move on to 6.
You can get it near frozen lake go to there and you will find a wood