The ongoing AI boom is set to increase global demand for electricity. Accelerated digitisation efforts will also drive stronger demand for industrial metals, such as copper. This could add to the higher price pressures in the long term and impact the manufacturing sector, especially if supply of commodities fails to meet faster demand growth.
ICT services to increase global demand for green electricity
The ongoing AI boom and digitisation are benefiting data centres and other ICT services.
The global revenue of the ICT services industry grew by 15% in real terms over 2018-2023 and is forecast to sustain an average growth rate of 3% per annum by 2030
Source: Euromonitor International
The growth in the ICT services sector is expected to increase global demand for electricity. As of 2023, ICT services accounted for just 1.5% of global electricity consumption; however, because of the AI boom, demand for electricity is forecast to grow by 160% by 2030.
Even though the ICT sector is a small consumer of electricity globally, it can still impact electricity prices. Silicon Valley companies remain committed to net zero targets and are likely to use renewable energy to satisfy rising power demand. This poses a risk to the utilities, metal products and chemicals sectors that are also large users of electricity and would need to compete for green electricity supply.
Higher electricity prices for the manufacturing sector would create a trickle-down effect and impact industries across the value chain, leading to higher cost pressures. Higher prices of electricity would also directly impact private consumers as they accounted for 24% of global electricity demand in 2023.
Copper plays an increasingly important role in the global economy. Because of digital transformation and the AI boom, global demand for electronics is increasing; thus, copper is becoming more important to the global economy. In addition, copper plays a critical role in the data centres sector which supports the AI boom.
Data centres use a variety of metals within processing and power delivery units, such as lithium, nickel, cobalt and copper. Copper is a particularly important metal for the data processing industry as it is used in wiring, connectors, switches and supporting power control units.
Global demand for copper from the data centres industry is forecast to increase by 20% by 2030
Source: Euromonitor International
Rapidly growing demand for copper can lead to higher prices in the long term, especially if copper supply grows at a slower rate. The AI boom has also sparked more speculative demand for copper in the global market, which can lead to higher price volatility in the long term. These price pressures and greater volatility would also have trickle-down effects on the hi-tech goods, construction and power distribution sectors.
Stronger global demand for electricity, copper and other metal commodities can lead to higher price pressures in the long term, especially if the supply of electricity and copper fails to meet faster demand growth.
Although this would have a low impact on global inflation in comparison to other factors, accelerated digitisation efforts could still add 0.05-0.1 percentage points to the baseline annual inflation
Source: Euromonitor International
The price increases would largely come through higher electricity and utilities prices. The AI revolution will require large quantities of electricity and could also increase operating costs for other electricity-intensive economic sectors. Besides electricity, accelerated digitisation efforts will drive stronger demand for industrial metals. If the supply of metals fails to keep up with faster demand growth, this would result in higher commodity prices and impact the global manufacturing sector.
More insights on the AI boom and commodities are available at Structural Drivers of Inflation: Implications for the Global Economy and Industries and Commodity Market Outlook Q3 2024: Muted Demand and Improved Supply Outlook Ease Price Pressures.