It is important to recognize the precise meaning of "line." The use of "pencil" in the sentence might make you think of a line drawn on a piece of paper. But the lines are looped onto sticks, so the meaning is actually:
Etymology 1, definition 2. A rope, cord, string, or thread, of any thickness. (wiktionary)
So "as thick around" is a way of describing the circumference of a line (rope, cord, etc). In the sciences things like this are usually described in terms of their diameter instead, but describing them in terms of circumference is not incorrect. Hemingway is saying that the circumference of each rope is the same as the circumference of a pencil.